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As key revenue generating agencies in the country declare a 131 per cent surge in tax collection costs during the first quarter of 2024, stakeholders are advocating for substantial reductions in these expenses.
The stark increase has sparked concerns among policymakers and taxpayers alike, prompting calls for more efficient and cost-effective collection methods.
The growing demand for cost reduction is rooted in the belief that bloated tax collection expenses can strain government budgets and deter compliance.
In the first quarter of 2024, Nigeria’s major revenue agencies including the Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), and Nigerian Upstream Petroleum Regulatory Commission (NUPRC), recorded a remarkable 131 per cent rise in their costs of revenue collection, amounting to N214.29 billion.
This surge has sparked significant concern among state finance commissioners regarding its impact on revenue distribution.
The FIRS reported a substantial 115.53 per cent rise in its collection costs, escalating from N46.60 billion in Q1 2023 to N100.40 billion in Q1 2024. This increase is indicative of enhanced tax collection efforts, potentially driven by improved compliance measures and heightened economic activities.
Meanwhile, the NCS witnessed a more than twofold increase in its cost of collection, soaring from N29.92 billion in Q1 2023 to N59.85 billion in Q1 2024, marking a 100.18 per cent rise.
This surge likely stems from intensified border control measures and increased import and export activities.
NUPRC on its part, saw the most dramatic rise, with its cost of collection skyrocketing by 230.68 per cent, from N16.34 billion in Q1 2023 to N54.05 billion in Q1 2024.
This surge reflects heightened regulatory activities in the upstream petroleum sector, potentially driven by new discoveries and increased crude oil production.
The ballooning costs have prompted state finance commissioners to call for a review during a recent meeting of the Federation Account Allocation Committee (FAAC).
Akinola Ojo, Commissioner of Finance for Oyo State, highlighted the disproportionate impact of these deductions on revenue distribution to states. He stressed the urgent need for a downward revision of these payments to ensure equitable distribution among all tiers of government.
Isaac Kamalu, Commissioner of Finance for Rivers State, also noted the need to clarify and potentially amend the legislative framework governing these deductions to better reflect current realities.
Similarly, Dr. Leonard Uguru, Ebonyi State’s Commissioner of Finance, supported the call for a review, stating that states contribute over 40 per cent to tax and fee collections but do not receive proportional benefits.
On his part, Dr. Chris A. Akomas, the Federal Commissioner and Chairman of the Indices and Disbursements Committee at the Revenue Mobilization Allocation and Fiscal Commission (RMAFC), mentioned that the Post-Mortem Sub-committee (PMSC) was already tasked by FAAC to address the issue of collection costs and provide recommendations.
He assured members that the Sub-committee was actively addressing the matter and requested patience until the assignment was completed.
Meanwhile, the Presidential Fiscal and Tax Reforms Committee, led by Taiwo Oyedele, has recommended reducing the cost of revenue collection to 1 per cent.
Oyedele argued that this adjustment would align Nigeria’s practices with global standards, citing countries like South Africa where similar costs are kept below 1 per cent.
The committee also proposed renaming the FIRS to the Nigeria Revenue Service (NRS) to better reflect its role in national revenue collection.
“We want to improve the efficiency of collection so that the cost of collecting revenues will be 1 percent or less.
“Nigeria’s cost of collection ranges from 4 percent to 35 percent at present.
“Agencies should not collect taxes; they do not have the competence. For example, the FIRS collected N700 billion last year for the tertiary education trust fund (TetFund),” Oyedele said during an engagement with Journalists recently in Abuja.
