By Musa Ibrahim
The federal government has drawn a clear line under a long-standing revenue practice, ending the Nigerian Customs Service (NCS)’s seven percent cost-of-collection deduction from the Federation Account. The decision, now reflected in official FAAC records, signals a structural shift in how one of Nigeria’s largest revenue agencies funds its operations and how public revenues are shared.
Data from the Federation Account Allocation Committee (FAAC) report for February 2026, covering January revenues, shows a decisive break. The NCS recorded zero allocation under cost of collection, compared to N24.01 billion in December 2025. The disappearance of that line item marks the operational end of a system that had allowed customs to deduct a fixed share before remitting revenues.
In contrast, other agencies retained their statutory deductions. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) received N21.44 billion, while the Nigerian Revenue Service (NRS) recorded N44.16 billion, both under a four percent cost-of-collection structure. The divergence highlights the uniqueness of customs’ new financing model.
At the centre of the shift is the NCS Act, 2023. The law replaces FAAC-linked deductions with a funding framework tied directly to trade activity. Instead of drawing from pooled national revenues, customs now operates on at least four percent of the Free-on-Board (FoB) value of imports.
The implication is immediate. Customs is no longer part of the monthly revenue-sharing cycle among the federal, state, and local governments. That pool is now reserved strictly for the three tiers of government.
Deputy Controller Abdullahi Maiwada, the agency’s National Public Relations Officer, confirmed the transition and clarified its mechanics. “What we operate now is four percent of the Free-on-Board value of imports under the financing arrangement for the service,” he said.
“So you shouldn’t expect any allocation from FAAC to the NCS because we no longer collect the seven percent surcharge.”
He was explicit about the break from the old system. “The FAAC distribution is exclusively for the three tiers of government… The NCS is not part of that sharing arrangement anymore.”
This change redefines customs as a self-financing institution, with its revenue tied more closely to the volume and value of imports rather than to centrally distributed funds. It also aligns Nigeria’s customs framework with international practice, where agencies are funded through trade-linked charges rather than direct deductions from national revenue pools.
Yet, the reform raises as many questions as it answers. Under the previous arrangement, deductions were visible within FAAC reports, allowing for some degree of public scrutiny. The new model shifts revenue flows into a more internalised system, anchored on import valuations.
Section 18 of the Customs Act outlines additional funding sources, including user fees, budgetary allocations where applicable, and grants from development partners. It also allows for an upward review of the four per cent charge, subject to presidential recommendation and National Assembly approval. This introduces flexibility, but also places greater responsibility on oversight institutions.
For subnational governments, the development carries potential upside. With customs no longer deducting seven per cent upfront, more revenue could flow into the Federation Account before distribution. In theory, this increases the share available to states and local governments.
That expectation, however, is being approached cautiously. Commissioners of finance across several states have already called for a broader review of cost-of-collection practices. Their concern is not limited to customs. It extends to all revenue agencies whose deductions, they argue, continue to erode distributable income.
During a recent FAAC retreat in Enugu, the issue featured prominently. Participants described high collection costs as “a major drain on the Federation Account” and called for periodic reviews tied to efficiency and performance benchmarks.
The position reflects a deeper tension within Nigeria’s fiscal system. Revenue generation remains critical, but so does the cost of collecting that revenue. Where deductions are high or opaque, they can undermine the very objective of maximising public funds.
Customs sits at the centre of this balance. The agency generated N282.83 billion in 2025, making it a major contributor to non-oil revenue. Its role in collecting import duties, excise duties, and trade-related taxes places it at a critical junction in Nigeria’s economic framework, particularly as the government seeks to reduce reliance on oil receipts.
Analysts note that the success of the new model will depend on trade dynamics. Since funding is now linked to import values, fluctuations in trade volumes will directly affect Customs’ operational capacity. A slowdown in imports could constrain funding, while increased trade activity could strengthen it.
There is also the question of transparency. While the FAAC system provided a central reporting structure, the new arrangement may require enhanced disclosure mechanisms to maintain public confidence. Without that, concerns about visibility and accountability could persist.
Still, the policy direction is clear. The federal government is moving toward a system where revenue agencies are expected to operate with greater financial independence, while the Federation Account is preserved for direct distribution to the three tiers of government.
In practical terms, this marks a fiscal reset. It separates revenue collection from revenue sharing, redefining the financial architecture of one of Nigeria’s most important institutions. Whether the change delivers improved efficiency or introduces new complexities will depend on implementation, oversight, and the evolving patterns of trade.
