New funding model removes Customs from federation revenue sharing, raises transparency questions and boosts funds for states……
In a significant shift in Nigeria’s fiscal structure, the Federal Government has discontinued the long-standing seven per cent cost-of-collection deduction previously retained by the Nigerian Customs Service from Federation Account revenues.
The move effectively removes the agency from direct participation in the monthly revenue-sharing arrangement handled by the Federation Account Allocation Committee (FAAC), marking a turning point in how one of the country’s top revenue-generating bodies is funded.
Fresh analysis of FAAC’s February 2026 report covering revenues generated in January shows that the Nigerian Customs Service recorded zero allocation under cost-of-collection for the period. This represents a sharp break from the N24.01bn it received in December 2025 under the same category.
While Customs’ deduction has been scrapped, other agencies continue to receive their statutory shares. The Nigerian Upstream Petroleum Regulatory Commission recorded N21.44bn as a four per cent collection cost, while the Nigerian Revenue Service received N44.16bn for the same period.
The development follows the implementation of the Nigerian Customs Service Act, 2023, which introduced a new financing structure for the agency. Under the revised framework, Customs is no longer funded through deductions from the Federation Account. Instead, it now operates on a statutory charge of at least four per cent of the Free-on-Board value of imports.
This change fundamentally alters how Customs finances its operations and is expected to reshape revenue distribution across the federal, state, and local governments.
Confirming the shift, the National Public Relations Officer of the service, Deputy Controller Abdullahi Maiwada, explained that the agency has fully transitioned to the new model.
According to him, Customs now relies on a funding mechanism tied directly to import values rather than allocations from FAAC.
“What we operate now is four per cent of the Free-on-Board value of imports,” he said. “You should not expect any allocation from FAAC because we no longer collect the seven per cent surcharge as cost of collection.”
He further clarified that FAAC distributions are strictly reserved for the three tiers of government, meaning Customs has been formally excluded from the revenue-sharing pool.
The legal backing for this transition is contained in Section 18 of the Nigerian Customs Service Act, 2023, which outlines multiple funding sources for the agency. These include the four per cent import charge, cost-based service fees, budgetary support where applicable, and grants from development partners.
The law also gives the President the authority to propose adjustments to the four per cent charge, subject to approval by the National Assembly, if justified by operational needs.
The new arrangement aligns Nigeria with global best practices, where customs administrations are funded through trade-based charges rather than direct deductions from national revenue pools.
Data from FAAC indicates that the Nigerian Customs Service generated N282.83bn in 2025, underscoring its critical role in boosting non-oil revenue. As Nigeria continues efforts to reduce dependence on crude oil earnings, customs duties and trade-related taxes have become increasingly important.
However, the shift has sparked fresh debate over transparency and accountability. Analysts note that while the removal of the seven per cent deduction could increase the net revenue available for distribution among governments, the new model may make it harder to track the agency’s actual earnings.
Previously, deductions were clearly reflected in FAAC reports. Under the new system, Customs’ revenues are tied to import volumes and values, which may not be as visibly captured in monthly allocations.
Meanwhile, state finance commissioners have called for a broader review of cost-of-collection frameworks across all revenue agencies. During a recent FAAC retreat in Enugu, they raised concerns that high deductions by some agencies continue to erode the funds available for sharing.
In a communique issued after the meeting, participants described excessive collection costs as a “major drain” on the Federation Account and urged that such arrangements be periodically reviewed, benchmarked against global standards, and linked to measurable performance.
The removal of Customs’ seven per cent deduction is therefore seen as a step toward addressing these concerns, potentially freeing up more funds for federal, state, and local governments.
Under the previous system, agencies deducted their collection costs before remitting revenues into the Federation Account. Now, with Customs operating independently of that structure, the balance of funds flowing into the shared pool could improve, depending on overall trade activity.
Ultimately, experts say the full impact of the reform will hinge on import volumes, efficiency in revenue collection, and the government’s broader push for fiscal transparency.
As Nigeria intensifies efforts to strengthen its revenue base, the Customs funding overhaul signals a broader rethink of how public institutions are financed and how much of the nation’s income truly reaches the tiers of government responsible for development.
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