NBS: Nigerian States PAYE Tax Revenue Reaches N5.15tn

• Nigerian states and the FCT generated N5.15tn in internally generated revenue in 2025, a 40.93% increase from N3.65tn in 2024.
• Pay As You Earn (PAYE) tax accounted for N2.64tn, representing 69.51% of all tax revenue and 51.3% of the total IGR.
• Lagos State recorded the highest IGR at N1.77tn, contributing approximately 34% of the national total, while Yobe State had the lowest at N16.01bn.
• Employers are responsible for deducting and remitting PAYE, which is defined as personal income tax from formal sector employees' wages and salaries.
• The heavy reliance on PAYE highlights the critical need for businesses to ensure strict compliance with personal income tax deductions to avoid increased scrutiny from state tax authorities.

The pronounced reliance on PAYE as a primary revenue source for Nigerian states necessitates robust Nigeria state tax compliance PAYE frameworks.

The National Bureau of Statistics (NBS) recently published its "Internally Generated Revenue at State Level report," indicating that the 36 states and the Federal Capital Territory collectively generated N5.15tn in internally generated revenue (IGR) during 2025. This figure represents a substantial increase of 40.93 percent compared to the N3.65tn recorded in 2024, signifying an additional N1.50tn in revenue for subnational governments within a single year.

Tax revenue constituted the dominant portion of this IGR, accounting for N3.79tn, or 73.64 percent of the total. The remaining N1.36tn, representing 26.36 percent, was derived from administrative revenues collected by various ministries, departments, and agencies. A key finding from the report underscores the significant contribution of the Nigerian states PAYE tax revenue, which emerged as the largest single source of tax income for these entities.

Pay As You Earn (PAYE) tax deductions from workers' salaries were identified as the primary driver of tax revenue, contributing N2.64tn. This amount alone represented 69.51 percent of all tax revenue collected and approximately 51.3 percent of the entire N5.15tn generated by states and the FCT. Essentially, more than half of the internally generated funds by subnational governments originated from PAYE, highlighting a profound reliance on the formal sector workforce.

The NBS defines PAYE as personal income tax directly withheld from the wages and salaries of employees in the formal sector, with employers bearing the responsibility for these deductions from their employees' earnings. While PAYE was the most significant tax revenue stream, the report also noted Capital Gains Tax as the least, generating N12.40bn. Other tax categories contributing to the overall revenue included direct assessment, road taxes, stamp duties, withholding taxes, and local government revenue, alongside other miscellaneous taxes.

The NBS Internally Generated Revenue report also exposed a considerable disparity in revenue generation capacity among the states. Lagos state IGR N1.77tn, making it the highest performer and accounting for approximately 34 percent of the national total, meaning roughly one in every three naira of IGR collected across the federation originated from Lagos. Rivers State followed with N428.42bn, while Enugu State ranked third, generating N406.77bn.

However, the composition of revenue varied significantly among these top states. Lagos collected N1.48tn from taxes and N292.64bn from MDAs, whereas Rivers generated N414.38bn from taxes and N14.03bn from MDAs. In contrast, Enugu's pattern was notably different, with only N51.52bn derived from taxes, while MDAs contributed a substantial N355.25bn. Other notable contributors to Nigeria subnational government revenue statistics included the FCT with N356.34bn, Ogun with N252.36bn, and Delta with N202.49bn. At the lower end of the spectrum, Yobe recorded the smallest IGR at N16.01bn, followed by Ebonyi with N17.18bn and Sokoto with N20.48bn. The stark contrast is evident in Lagos generating over 110 times Yobe’s IGR during the year, underscoring significant differences in economic activity and administrative revenue collection capabilities across the states. The IGR figures, compiled by the Joint Revenue Board from official records and submissions by State Boards of Internal Revenue, are subject to reconciliation and updates by the respective subnational revenue authorities.

The pronounced reliance on PAYE as a primary revenue source for Nigerian states necessitates robust Nigeria state tax compliance PAYE frameworks. For businesses operating across the federation, this data underscores the critical importance of strict adherence to the updated regulations governing personal income tax deductions in Nigeria, particularly those introduced by the Nigeria Tax Act 2025. Employers are directly responsible for withholding and remitting these taxes, and the significant proportion of state revenue derived from PAYE suggests that state tax authorities will likely intensify their scrutiny and enforcement efforts.

Legal professionals and compliance officers should proactively advise employer-clients on the imperative of meticulous record-keeping and timely remittances to mitigate potential liabilities. Given the wide disparities in IGR among states, the capacity and zeal for enforcement may vary, but the overall trend points towards increased focus on PAYE. Ensuring comprehensive Nigeria state tax compliance with the updated PAYE provisions is not merely a regulatory obligation but a strategic imperative to avoid penalties and maintain good standing with state governments, especially as they seek to bolster their internally generated revenues.

This report highlights state governments' heavy reliance on PAYE, making robust compliance critical for businesses operating in Nigeria. Lawyers and compliance officers should proactively advise employer-clients on strict adherence to PAYE deductions and remittances to mitigate increased scrutiny and potential enforcement actions from state tax authorities, especially considering the significant revenue disparities and varying enforcement capacities across states.

Source: Original reporting via Punch Newspapers