Nigeria’s total federation revenue has surged to about N84tn within the past three years, but a significant portion—around 41%—was deducted before reaching the federation account for sharing among federal, state, and local governments.
Recent findings show that although gross revenue rose sharply from N17.08tn in 2023 to an estimated N37.44tn by 2025, pre-distribution deductions also increased dramatically. These “first-line” deductions climbed from N6.22tn in 2023 to nearly N15tn in 2025, removing a cumulative N34.53tn before funds could be distributed across the three tiers of government.
This trend has created a situation where higher earnings do not translate into improved public spending. Despite revenue gains driven by reforms such as petrol subsidy removal and foreign exchange adjustments, much of the additional income is automatically redirected to government agencies. By 2025, some agencies reportedly received allocations exceeding the total revenues of several states, while key sectors like infrastructure and social services remained underfunded.
A major driver of these deductions is the cost-of-collection system and statutory allocations to agencies including the Nigeria Customs Service, the Nigerian National Petroleum Company Limited, and the Federal Inland Revenue Service. Because these bodies receive fixed percentages of gross revenue, their funding increases in tandem with national earnings, regardless of actual expenditure needs. Critics argue that this structure encourages excessive spending outside standard budget oversight.
The consequences are evident in declining capital expenditure, which fell from N5.5tn in 2024 to N4.5tn in 2025, with only a fraction of approved budgets implemented. Meanwhile, Nigeria’s fiscal deficit has widened to N16.9tn, driven by debt servicing and recurrent expenses. Analysts warn that allowing agencies to access funds directly at the source weakens transparency and accountability within the fiscal system.
To address the issue, experts are calling for reforms to the revenue framework. Suggested measures include ending fixed-percentage deductions and moving agency funding into the formal budget process, where allocations would require legislative approval. This approach is expected to improve transparency, increase funds available for development, and reduce the risk of further fiscal strain. Without such changes, concerns remain that institutional spending will continue to overshadow national development priorities.
