Nigeria recorded a total of N84 trillion in federation revenue over the past three years, but about 41 per cent of the earnings was deducted at source before distribution, significantly reducing what was shared among the three tiers of government.
According to data from the World Bank, total revenue rose from N17.08 trillion in 2023 to N29.45 trillion in 2024 and N37.44 trillion in 2025, bringing cumulative earnings to N83.97 trillion within the period.
However, deductions from the Federation Account increased sharply, rising from N6.22 trillion in 2023 to N13.38 trillion in 2024 and N14.93 trillion in 2025. In total, N34.53 trillion was deducted over the three-year period, representing about 41.1 per cent of total revenue.
The report showed that these first-line deductions significantly reduced funds available to federal, state and local governments despite improved overall revenue performance driven by economic reforms.
Deductions accounted for 36.4 per cent of revenue in 2023, rose to 45.4 per cent in 2024, and eased slightly to 39.9 per cent in 2025.
While revenues grew strongly over the period, deductions rose even faster, increasing by 115.1 per cent between 2023 and 2024, and 11.6 per cent between 2024 and 2025.
The rise in deductions was driven largely by statutory transfers to Ministries, Departments and Agencies funded through fixed percentages of gross revenue, including agencies such as the Nigeria Customs Service and the Nigerian National Petroleum Company Limited.
By 2025, some agencies were receiving more funds than several Nigerian states.
Despite stronger revenue performance following subsidy removal and foreign exchange reforms, a large share of gains is automatically diverted before distribution.
The report warned that growing pre-commitments to revenue are shrinking fiscal space for development spending.
Refunds and statutory transfers also increased significantly over the period, alongside rising cost-of-collection charges.
Nigeria’s fiscal deficit remained elevated at about 3.8 per cent of GDP in 2025, equivalent to N16.9 trillion, as higher recurrent spending offset revenue gains.
Capital expenditure declined from N5.5 trillion in 2024 to N4.5 trillion in 2025, with only 24 per cent of the approved capital budget implemented.
Structural weaknesses in Nigeria’s budgeting system, including delays and weak transparency, continue to affect fiscal efficiency.
Economist Aliyu Ilias said the practice of allowing MDAs to deduct funds at source weakens fiscal discipline and enables unaccounted spending.
He described the 41 per cent deduction level as excessive and harmful to development financing across all tiers of government.
The World Bank recommended a major overhaul of the revenue framework, including shifting all MDA funding to transparent budgetary appropriations subject to legislative approval.
It also advised reducing cost-of-collection rates and eliminating outdated statutory deductions to improve fiscal efficiency and increase funds available for infrastructure, health and education.
