World Bank: Nigeria’s FIRS Revenue Allocation at 4% Exceeds Peers, Strains Public Finances

Nigeria’s current revenue-sharing system, which allocates 4% of both oil and non-oil revenues (excluding royalties) to the Federal Inland Revenue Service (FIRS), is higher than that of regional peers such as Kenya, Ghana, South Africa, and Uganda, the World Bank has revealed. According to the October 2025 edition of the Nigeria Development Update (NDU), titled “From Policy to People: Bringing the Reform Gains Home”, this approach has played a key role in driving up statutory deductions, reducing funds available for distribution to federal, state, and local governments through the Federation Account Allocation Committee (FAAC).

The World Bank report highlights that while Nigeria’s 4% allocation is fixed, other countries adopt more controlled or performance-based models. Kenya, for example, caps its collection costs at 1–2% of budgeted revenues and provides bonuses only when targets are exceeded. Uganda, Ghana, and South Africa primarily fund tax agencies via parliamentary appropriations, ensuring more transparent oversight of public finances. Experts warn that Nigeria’s elevated cost-of-collection system is creating fiscal inefficiencies and putting pressure on equitable resource sharing among government tiers.

Data from the report shows that statutory deductions nearly doubled from N870 billion in 2023 to N1.785 trillion in 2024. Among the major beneficiaries were FIRS, Nigeria Customs Service (NCS), Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), and the North-East Development Commission (NEDC). Some of these agencies received more from FAAC than individual states earned in total revenues, while combined allocations exceeded the budgetary resources of key pro-poor federal ministries like Education, Health, and Poverty Alleviation.

Despite these fiscal strains, the World Bank acknowledged that Nigeria’s economy shows signs of resilience. The NDU projects public debt will fall below 40% of GDP for the first time in over a decade, with economic growth recorded at 3.9% year-on-year in the first half of 2025, up from 3.5% during the same period in 2024. This recovery is largely attributed to strong performances in services, non-oil industries, improved oil production, and a rebound in agriculture.

The NDU remains one of the World Bank’s key instruments for tracking Nigeria’s economic and policy developments. The report underscores the importance of balancing fiscal efficiency with equitable revenue distribution, suggesting that reforming the current allocation framework could ensure both robust public service funding and fairer support for states and local governments. As Nigeria navigates its post-pandemic recovery, experts say optimizing revenue allocation and monitoring statutory deductions will be critical for sustainable growth.

Source: Nairametrics