REFORM TALKS with Muhammad Nami
Economic growth refers to the increase in the production and consumption of goods and services in an economy over a specific period, typically measured by the percentage change in Gross Domestic Product (GDP). It signifies an improvement in the standard of living, increased employment opportunities, and enhanced economic well-being.
In other words, economic growth is a critical factor in improving the well-being of a nation’s citizens and fostering development. However, it must be managed carefully to ensure inclusivity and sustainability.
Nigerians aspire for good governance, accountability and economic prosperity through the taxes they pay. However, the Nigeria’s tax authorities (ie both Federal (FCT) and 36 State Revenue Generating Agencies) face significant leadership challenges in driving the expected economic growth. These challenges are primarily due to:
- Inefficient Tax System: The tax system is plagued by inefficiencies, low compliance rates, and inadequate coverage. President Bola Ahmed Tinubu’s administration has initiated tax reforms to address these issues and enhance economic growth.
- Lack of Transparency: Poor coordination between federal and state tax authorities and the absence of a modernized tax framework hinder progress.
- Low Tax-to-GDP Ratio: Nigeria’s tax-to-GDP ratio stands at 13%, slightly above the International Monetary Fund’s recommended 12% and below World Bank’s minimum 15%. The current administration targets 18% on or before the end of its first tenure.
To further compound the economic growth and development challenges, is the unavoidable challenge of paying high cost of collection (COC) in some cases to the revenue generating agencies (RGAs) that help in generating revenue in Nigeria. Cost of Collection refers to certain percentage of the gross revenue paid to the Revenue Generating Agencies (RGAs) to enable them fund their operational needs, including payment of salaries, investment in key infrastructural needs of the RGAs; for example, salaries and wages, ICT infrastructure, operational vehicles as well as security of the assets acquired by RGAs.
The implication of this is that, these deductions leave Government at all levels (that is, at both Federal, State and Local Government levels) with limited resources to fund their budgetary needs. Over the past decade, there have been numerous calls by the Government at all levels particularly, the sub-national government (including State and Local Governments) for a fiscal policy review regarding payment of COC to RGAs by the Federation Account Allocation Committee (FAAC).
In response to these calls, the Federal Government recently directed a swift review of COC payment policy to estimate the total losses incurred by government annually due to COC payments and assess the impact of these losses on economic growth and development.Estimating total amount of loss due to cost of collection
Estimating the exact amount of losses due to deductions by revenue-generating agencies, such as NNPC and NIMASA for example, requires specific data and analysis. However, the evidence is clear that these deductions adversely affect the nation’s revenue, partly due to the underperformance of several RGAs.
Furthermore, some RGAs unlike the FIRS and Nigeria Customs Service (NCS), remit only Operating Surplus to the Government. In other words, while FIRS, Customs and Nigeria Upstream Petroleum Regulatory Commission (NUPRC) are allocated between 4-7% of the Gross Revenue generated by them, the rest of the RGAs remit ‘Operating Surplus’. The implication of this is that these RGAs generate, spend and determine what to remit to the Government for public goods and services.
As such, the review should not focus primarily on FIRS (NRS effective January 1st, 2026), NUPRC or Customs that remit 100% of their revenue to the Federation’s dedicated Account, but the proposed review should be focusing more on other RGAs of the Government that only remit their Operating Surplus.
The presidential directive therefore aims to review and optimize these deductions, potentially increasing revenue available for national development.
Effectiveness of Nigeria Revenue Service (NRS)
The NRS, established by the Nigeria Revenue Service (Establishment) Act, 2025 (which repeals the Federal Inland Revenue Service establishment act 2007), is charged with assessing, collecting, and accounting for revenues accruing to the Government of the Federation. As the sole revenue collecting agency, NRS will serve federal, state, and local governments.
Despite the potential challenges faced by the NRS, the Service has the potential to streamline tax collection and improve revenue generation in Nigeria. With effective implementation and mitigation of potential challenges, the agency can play a crucial role in supporting the nation’s economic growth and, or development.
The following are likely to be the challenges to be faced by NRS:
- Infrastructure and Capacity gaps: NRS may face challenges in effectively carrying out its functions due to inadequate infrastructure, insufficient trained personnel, or lack of robust digital systems.
- Coordination with State and Local Governments: Collaboration between NRS and state and local governments will be crucial for successful tax administration.
- Digitalization and Tax Compliance: NRS will need to leverage technology to track digital transactions and ensure tax compliance.
- Mitigation Steps
To address the above potential issues, the following steps can be taken:
- Investment in Digital Infrastructure: Implementing a robust digital system will enhance tax collection, reduce leakages, and improve efficiency.
- Capacity Building: Providing training and capacity-building programs for NRS personnel will ensure they are equipped to handle their responsibilities.
- Stakeholder Engagement: Engaging with state and local governments, taxpayers, and other stakeholders will facilitate smooth implementation and address concerns.
- Clear Guidelines and Regulations: Establishing clear guidelines and regulations will provide clarity on tax administration and compliance requirements.
In conclusion, it’s my personal opinion that the review of the Cost of Collection Policy by the Federal Government should be focusing on Revenue Generating Agencies that are currently remitting operating surplus. Revenue Generating Agencies like FIRS, NCS and NUPRC are already remitting 100% of their revenue to the Federation Account. They are in turn allocated between 4 – 7% by FAAC for the purpose of funding their operational needs. The net revenue amount of between 96% to 93% (as the case may be with COC approved for each of the RGAs) are shared monthly by FAAC to the Government at all levels.
If this transparent and accountable way of revenue generation, remittance and management is sustained and all other Revenue Generating Agencies remit their revenues in full, receiving minimal funding of 4-7% for operational needs, it would create additional resources to bolster our economic growth and development. Additionally, this practice would motivate RGAs currently remitting operating surplus to enhance their performance for the benefit of the country and themselves. This is because 4 – 7% to be allocated to them from their own 100% by the Government may not be enough to cater for their operational needs. They would therefore need to work harder to earn this 4 – 7% of their total revenue that would be enough for them to be able to pay salaries, build staff capacity, invest in capital projects, etc.
Mr. Muhammad Nami is Founder/Chairman of Manam Professional Services.
He was the immediate past Executive Chairman, Federal Inland Revenue Service (FIRS), Joint Tax Board (JTB) and was the immediate President of the Commonwealth Association of Tax Administrators (CATA).
