The Costs of Supersizing Customs’ Funding

Postscript by Waziri Adio

The Nigeria Customs Service (NCS) is one of Nigeria’s heavily-resourced federal institutions. I call the few organisations in this pantheon the super agencies. Though they always claim not to have enough, these special agencies are usually awash with money because they are funded differently from the majority of government agencies. Some of the super agencies are assigned a dedicated revenue or tax; some are allowed to keep most of the revenues they ‘generate internally’; and some are allocated a percentage of the revenues they collect on behalf of the Federation. Customs belonged in the last category, the cost-of-collection league, the juiciest of the special categories. But Customs is about to be bounced from this category, though not for ill: its already large funding is about to be supersized. However, there is a cost, a steep one.

On 25^th June 2025, the House of Representatives and the Senate separately appropriated N1.13 trillion as the 2025 budget for Customs. This amount is 60% higher than the N706 billion passed for the agency in 2024 and almost triple the size of its N432 billion approved budget for 2023. At above the N1 trillion mark, the 2025 budget puts Customs at the top of the pack of super agencies, at least for now. (It is conceivable that this will change when the Nigeria Revenue Service takes off and begins to charge 4% of all revenues that it collects, minus petroleum royalties; and if the annual budgets of the national oil company and the central bank are not obscured from public view). It is noteworthy that the 2025 budget of NCS is 131% of N866.48 billion, which is the combined budget of the National Assembly and the Judiciary, two distinct arms of government. It is also worth noting that only three of the 36 states have budgets that are bigger than that of the Customs in 2025: Lagos State, N3.37 trillion; Niger State, N1.56 trillion, clearly a joke; and Rivers State, N1.19 trillion.

What has led to the supersizing of the funding of Customs is the eventual implementation of a part of the Nigeria Customs Service Act, 2023, signed into law by late President Muhammadu Buhari on 20^th April 2023 and gazetted on 9^th June 2023. Section 18 (1) (a) of the law permits Customs to, among others, charge and keep in its operations accounts: “not less than 4% of the free-on-board value of imports according to international best practices.” It is important to underscore four things upfront: one, the charge can be more than 4% of the value of imports, if the president requests an upward review based on recommendation and justification of the board of Customs and if the request is approved by the National Assembly—see Sections 18 (2) and 18 (3); two, it is written into the law that charging 4% of the value of free-on-board (FOB) of imports is an international best practice, a claim worth fact-checking; and three, it can be inferred that this charge covers imports of all goods; and four, the FOB value of imports is not just the value of the imported items, it can include the cost of transportation, loading, brokerage, insurance etc. (See Section 69 Subsection 10 of NSC Act, 2023.)

The current administration had asked Customs to pause implementation of the 4% FOB charge and to consult more with stakeholders. This is sensible, given the historic cost-of-living crisis unleashed by the administration’s economic reforms. Customs has been consulting and has suspended the take-off of its preferred funding arrangement once or twice. But it has also been making a strong case for the charge so that it could serve importers better and digitise its operations. Specifically, Customs’ grandees have been trumpeting the need to ensure adequate funding for the roll-out of B’Odogwu, its online and ‘homegrown’ unified platform for custom clearance and related matters.

In the 2025 budget that the National Assembly passed for Customs in late June, a princely sum of N1.07 trillion was included as revenue from the 4%FOB cost of service (with the balance of N1.13 trillion revenue target drawn from N33 billion from 2% of import VAT and N29 billion from accrued revenue on ongoing capital projects). While passing the law, the legislators instructed Customs to stop charging 1% for the Comprehensive Import Supervision Scheme (CISS), otherwise known as destination inspection, and to stop receiving 7% as cost of collection from the Federation from the end of July 2025. One of the chambers of the National Assembly even offered to speak to the Ministry of Finance to ensure commencement of the 4% levy on imports. The legislators merely but predictably instructed the agency to operate within the law passed and signed for it since 2023. On 4^th August 2025, Customs obeyed the ‘instructions’ by the lawmakers. It started charging 4% of the FOB value of imports.

Allowing Customs to be funded as stated in its 2023 law takes the burden of the agency’s operations off the Federation. The bulk of Customs funding used to be from the Federation Account, deducted as costs of collection from Statutory Revenue and VAT. Customs used to receive 7% of duties and tariffs and was splitting 4% of import VAT with the Federal inland Revenue Service, FIRS. Occasionally, it receives some refunds too. Costs of collection, refunds and other deductions are usually taken off the gross revenues before the three tiers of government share the remaining distributable revenues at the monthly meetings of the Federation Accounts Allocation Committee, FAAC. Deductions are like first line charges and constitute steady income streams for institutions that benefit from them. But the deductions have been growing, thus reducing the proportion of gross revenues available to the three tiers of government.

According to FAAC documents, Customs received N266.87 billion as costs of collection from the Federation in 2024 (N234.84 billion from Statutory Revenue, N31.81 billion from VAT and a refund of N220 million in August 2024). In the first half of this year, Customs has received a total of N201.13 billion from FAAC (N141.13 billion from Statutory Revenue and N60 billion from VAT). When the 4% FOB cost of service to importers kicks in, Customs will be kicked off most of its entitlement from FAAC. That should be a relief to the Federal Government, the 36 states and the 774 local councils because they will have more money to share.

But basically, they will only be shifting the burden of funding Customs: from deductions from Federation’s revenues to a new tax on consumers and businesses. This is good for Customs, as it is going to get multiple of its previous funding. This should be pretty obvious but it is possible that those who approved this extra tax did not bother to crunch the numbers or do not care that much on the possible impact of this type of provisioning. Customs was receiving from the Federation 7% of the duties and tariffs alongside 2% of import VAT (which from the 2025 budget it appears will continue to receive); now Customs will directly be charging 4% of the value and associated costs of imports and likely still get 2% of import VAT. There is no special prize for guessing which funding option is bigger and is preferred by Customs.

But let’s do a rough estimate. The total value of Nigeria’s imported goods in 2024, according to the National Bureau of Statistics (NBS), was N60.59 trillion. If Customs had charged and kept 4% FOB value of imports last year, it would have raked in at least N2.42 trillion. That is almost ten times more than the N266 billion that it received as cost of collection from FAAC in the same year. (My sense is that the N1.07 trillion that Customs budgeted as revenue from the 4% FOB charge this year is not for the entire year). Ordinarily, this new arrangement should pass as a win-win, as FAAC would be spared the bulk of the deductions for NCS; and NCS would get all the revenues that it needs, and much more. But FAAC and Customs are not the only parties in this equation, and their gain is the pain of others.

The brunt of the new way of funding Customs will be borne by the consumers of imported items, which would be practically most Nigerians. It should be noted that the 4% charge is in addition to, and not a replacement of, the duties and tariffs paid on imports. This is thus a form of additional tax or tariff on imports. This tax is not part of a deliberate policy to reduce our dependence on imports or to stop other countries from “cheating us”. It is solely to provide dedicated and predictable funding to the Nigeria Customs Service. The levy will show up in higher prices of the affected goods. At the receiving end will be consumers who have been consistently pummelled by high inflation and whose purchasing power continues to shrink. Businesses will be negatively affected too, as they can’t conceivably pass all the extra costs to consumers. They are likely to be faced with reduced sales and profits. And since our imports include intermediate goods, this is likely to also negatively impact the competitiveness of the manufactured goods that we export. Also, there is the additional risk that other countries could look at this levy as a tariff and might be inclined to retaliate. This may affect our non-commodity exports, which should make the levy of interest to those in the trade ministry too. For the larger economy, this new Customs levy will probably show up somewhere as a drag on economic activities and growth.

In trying to solve a problem, we might have (as usual) created other problems.

There is hardly any public policy that is cost-free. The onus is always on policy makers to devote considerable time to examining the different cost dimensions—apparent, hidden, opportunity forgone etc—to be sure that the costs of the course of action being considered are bearable, not disproportional and are outweighed by overall benefits. It is about taking a holistic and big-picture view of things. It is doubtful that the 4% funding for Customs was examined from any other prism other than how it will take some burden off the Federation and give the agency more money. As I have said repeatedly, I think agencies that perform important functions should be adequately provided for but only according to their verifiable needs and as part of the federal budget that is visible to the whole country. If the budgets of the presidency and even security agencies can be part of the general budget and in the open, there is no compelling justification for treating the budgets of these organisations differently.

Putting some agencies in a special category by granting them earmarked and mostly excess revenues, even when subjected to appropriation, is a suboptimal way to allocate scarce public resources, creates distractions, and is open to all sorts of abuse. In 2024, the budgets of 62 GOEs were made public for the first (and last?) time. The 282-page document more than confirmed the waste, misallocations and opacity rife in these agencies. It is not surprising that Customs plans to spend the entire N1.13 trillion it hopes to generate in 2025. Or that the sum of N169 billion in that budget, as some senators pointed out, was vaguely listed as simply “miscellaneous.” Expenditures will always rise up to meet available revenues, so states a version of the Parkinson Law. A more prosaic version is that: available money will be spent. Ordinarily, the institutionalised checks should impose order and checkmate abuses. But authorisers and oversight bodies see and treasure the patronage value of these super agencies, and despite some public posturing, they are more inclined to squeezing some of the juice for themselves.