Rising Cost of Revenue Collection Cuts into FAAC Allocations in Sept

Behind the impressive federation disbursement for September 2025, the latest report of the Federation Account Allocation Committee (FAAC) reveals a more troubling pattern, the rising cost of collecting and transferring revenue is steadily reducing what actually reaches the three tiers of government.

According to the communiqué issued after FAAC’s October meeting in Abuja, nearly a third of total inflows was withheld for collection costs, transfers, interventions, and refunds before any allocation was made.

Specifically, N116.149 billion went to revenue collection agencies such as the Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service, while another N835.005 billion was earmarked for transfers and special interventions. This marks one of the highest deduction levels in recent months, even as statutory revenue continues to decline.

The trend, analysts warn, could undermine fiscal planning at both federal and subnational levels. While non-oil income sources, particularly Value Added Tax (VAT) and the Electronic Money Transfer Levy (EMTL), have been on the rise, the growing administrative cost of revenue distribution risks eroding the impact of these gains.

The FAAC report showed that gross statutory revenue dropped significantly from August levels, yet deductions remained high, suggesting that much of the inflow is being absorbed by bureaucratic and intervention-related expenses rather than reaching state treasuries.

From the net amount shared, the Federal Government, States, and Local Government Councils received their statutory portions, while oil-producing states got the usual 13 percent derivation. However, fiscal observers argue that the growing “first-line charges” on the federation account now pose a quiet threat to fiscal sustainability.

A financial analyst told Economic Confidential that “while allocations look healthy on paper, the net sums available for service delivery keep shrinking because administrative and intervention costs are climbing faster than actual revenue.”

The communiqué, signed by Mohammed Manga, Director of Information and Public Relations at the Federal Ministry of Finance, confirmed the deductions but offered no details on the specific utilisation of funds under transfers and refunds.

Experts have called for greater disclosure and legislative oversight on these recurrent deductions, stressing that transparency at the top of the revenue chain is essential to restoring trust and ensuring fiscal discipline across the federation.