Nigeria’s fiscal framework has undergone a significant shift following a new policy direction that alters how one of its key revenue-generating agencies is funded. The Federal Government’s decision to discontinue the long-standing cost-of-collection deduction for the customs authority signals a broader push toward reforming revenue administration, enhancing transparency, and increasing distributable income for the three tiers of government.
The move, implemented through the Federation Account Allocation Committee, marks a departure from a decades-old practice where a percentage of collected revenue was retained by agencies before remittance to the Federation Account.
FG ends Customs’ 7% FAAC deduction policy
In a major policy adjustment, the Federal Government has confirmed that FG ends Customs’ 7% FAAC deduction policy, effectively removing the Nigeria Customs Service from direct allocations under the Federation Account.
Under the previous arrangement, the customs agency deducted seven per cent of total revenue as the cost of collection before remitting the balance for distribution. However, recent data from the Federation Account Allocation Committee indicates that the agency recorded zero allocation under this category for January 2026, compared to N24.01bn in December 2025.
This development reflects the implementation of provisions contained in the Nigerian Customs Service Act 2023, which introduced a new funding structure for the agency.
Transition to a new funding model
With the confirmation that FG ends Customs’ 7% FAAC deduction policy, the customs service will now operate under a financing framework tied to trade activity rather than federal revenue sharing.
Specifically, the agency is funded through a statutory charge of not less than four per cent of the Free-on-Board value of imports. This means its operational revenue will be directly linked to the volume and value of goods entering the country.
According to the National Public Relations Officer of the service, Abdullahi Maiwada, the shift eliminates the need for FAAC allocations entirely.
He explained that the new structure ensures the agency’s funding is self-sustaining and aligned with international best practices, where customs administrations rely on trade-based revenue streams.
Implications for federal revenue distribution
The decision that FG ends Customs’ 7% FAAC deduction policy is expected to increase the net revenue available for distribution among the Federal Government, states, and local governments.
Previously, deductions by revenue-generating agencies reduced the total pool of funds shared monthly. By removing the customs service from this structure, a larger portion of collected revenue will now flow directly into the Federation Account.
This is particularly significant given the scale of customs revenue. In 2025, the agency generated approximately N282.83bn, making it one of the largest contributors to non-oil revenue in Nigeria.
Analysts note that redirecting previously deducted funds into the Federation Account could provide fiscal relief to subnational governments, many of which rely heavily on FAAC allocations to meet recurrent and capital expenditure obligations.
Concerns over transparency and accountability
While the policy shift has been welcomed in some quarters, it has also raised concerns about transparency.
With the new system in place, the customs service’s funding is no longer directly reflected in FAAC reports, potentially limiting visibility into the agency’s financial operations.
Experts argue that as FG ends Customs’ 7% FAAC deduction policy, there is a need for stronger oversight mechanisms to ensure accountability in how the four per cent Free-on-Board charges are managed.
They emphasise that transparency will be critical to maintaining public trust and ensuring that the benefits of the reform are fully realised.
Broader push for cost-of-collection reforms
The development comes amid increasing scrutiny of cost-of-collection practices across Nigeria’s revenue-generating agencies.
At recent FAAC deliberations, state finance commissioners expressed concerns that high collection costs by some agencies significantly reduce the funds available for distribution.
Participants at the meeting called for periodic reviews of such deductions, recommending that they be benchmarked against global standards and tied to measurable performance outcomes.
The move that FG ends Customs’ 7% FAAC deduction policy is therefore seen as part of a broader reform agenda aimed at improving efficiency and reducing leakages within the system.
Aligning with global best practices
Globally, customs administrations are typically funded through mechanisms linked to trade volumes rather than direct deductions from national revenue pools.
By adopting this model, Nigeria aims to modernise its revenue framework and align with international standards.
Proponents argue that the new system will incentivise efficiency within the customs service, as its revenue will depend on trade activity and operational performance.
However, the effectiveness of this approach will depend on factors such as import volumes, exchange rate stability, and overall economic conditions.
Economic outlook and policy impact
As FG ends Customs’ 7% FAAC deduction policy, the long-term impact of the reform will be shaped by how effectively it is implemented and monitored.
On one hand, the policy has the potential to increase distributable revenue, enhance fiscal discipline, and streamline revenue collection processes.
On the other hand, it introduces new dynamics in the funding of the customs service, which may affect budgeting, planning, and operational efficiency.
Stakeholders have stressed the importance of complementary reforms, including digitalisation, improved compliance systems, and stronger inter-agency coordination, to maximise the benefits of the new framework.
A turning point in Nigeria’s fiscal reforms
Ultimately, the decision that FG ends Customs’ 7% FAAC deduction policy represents a critical step in Nigeria’s ongoing efforts to reform its public finance architecture.
By shifting away from traditional cost-of-collection deductions, the government is seeking to create a more transparent, efficient, and equitable revenue system.
If successfully implemented, the reform could strengthen the Federation Account, support subnational governments, and enhance Nigeria’s overall fiscal sustainability.
