Nigeria’s 36 states and the Federal Capital Territory generated ₦5.15 trillion in internally generated revenue in 2025. That represents a 40.93 per cent increase from ₦3.65 trillion in 2024, according to the National Bureau of Statistics. Subnational governments collected about ₦1.50 trillion more within one year.
But the composition of that revenue tells a more troubling story. Tax revenue accounted for ₦3.79 trillion, or 73.64 per cent of total IGR. Pay As You Earn tax alone generated ₦2.64 trillion. That is 69.51 per cent of all tax revenue and 51.3 per cent of the entire ₦5.15 trillion collected.
In effect, more than ₦1 of every ₦2 generated internally by states came from the salaries of formal-sector workers.
This mirrors the fiscal structure Nigeria has maintained since the oil boom of the 1970s. States have long relied on predictable, extractable revenue from a narrow formal sector rather than building broader tax bases that capture the informal economy. The difference now is that the formal sector itself is shrinking under inflation and corporate exits.
The NBS defines PAYE as personal income tax deducted directly from wages and salaries of employees in the formal sector. Employers deduct the taxes from workers’ earnings. The system is efficient for government. It is also regressive in its burden, placing the cost of state governance disproportionately on a shrinking pool of salaried workers.
The report exposed a wide gap in revenue capacity across states. Lagos generated ₦1.77 trillion, the highest in the country and about 34 per cent of the national total. Rivers ranked second with ₦428.42 billion, while Enugu emerged third with ₦406.77 billion.
The composition of their revenues differed significantly. Lagos collected ₦1.48 trillion in taxes and ₦292.64 billion from ministries, departments and agencies. Rivers generated ₦414.38 billion from taxes and ₦14.03 billion from MDAs. In Enugu, the pattern reversed. Only ₦51.52 billion came from taxes while MDAs accounted for ₦355.25 billion.
At the lower end, Yobe recorded the smallest IGR at ₦16.01 billion, followed by Ebonyi with ₦17.18 billion and Sokoto with ₦20.48 billion. Lagos generated more than 110 times Yobe’s total.
Winners and Losers
Winners: Lagos State, which collects roughly ₦1 in every ₦3 of IGR across the federation. Formal-sector workers, who at least have documented incomes that can be taxed.
Losers: States like Enugu, which depend on volatile MDA revenue rather than a sustainable tax base. Informal-sector workers, who remain largely outside the tax net. Yobe, Ebonyi and Sokoto, whose fiscal capacity is dwarfed by their needs.
Bottom Line: A state that funds itself primarily through salary deductions is a state that has not built a tax system. It has built a payroll levy.