States, FCT Collect N2.64 Trillion in PAYE as Tax Take Jumps 40.3%

Nigeria's 36 states and the Federal Capital Territory collected N2.64 trillion in Pay-As-You-Earn (PAYE) taxes in 2025, a 40.3 per cent jump from N1.88 trillion in 2024, as higher wages and improved collection pushed personal income tax to the centre of sub-national revenue.

The figures, compiled by the National Bureau of Statistics (NBS), show PAYE now accounts for 69.5 per cent of total tax revenue collected by state governments and the FCT, cementing its position as the single largest source of sub-national tax income.

A tax base built on salaries

Total state and FCT tax collections reached N3.79 trillion in 2025, up 41.2 per cent from N2.69 trillion the previous year. Behind PAYE, withholding tax contributed about N503 billion, or 13.28 per cent, while other taxes added N300.21 billion, up 48.9 per cent. Direct assessment revenue rose 29.4 per cent to N112.65 billion.

The smaller components — stamp duties, local government revenue, road taxes and capital gains — together made up the remainder, reflecting the narrowness of the states' tax base.

Minimum wage and revenue reform

The surge in PAYE is closely linked to the N70,000 national minimum wage signed into law in July 2024, which lifted take-home pay across the public sector and, by extension, the taxable base. Several states went further: Rivers adopted N85,000, Oyo N80,000, Kano N71,000 and Katsina N70,000. The federal government's own personnel expenditure rose to N4.2 trillion in the first half of 2025 from N3.7 trillion a year earlier.

Improved tax administration and the expansion of digital collection systems have also played a role, as states brought more formal-sector workers and businesses into the net.

Business Insight

The data reveal both progress and vulnerability. States are collecting more revenue and relying less on federal handouts, which is a positive step toward fiscal independence. But the heavy dependence on PAYE exposes a structural weakness: personal income tax is a narrow base that shrinks whenever employment contracts or formal-sector wages stall.

For businesses, the rise in PAYE and withholding tax also means greater compliance scrutiny. As states look to close revenue gaps, companies should expect more audits and stricter enforcement of remittance deadlines. The upside for firms is that better-funded states can invest more in infrastructure and services, which lowers the cost of doing business over time.

The bigger issue is that most revenue is consumed by recurrent expenditure rather than capital projects. States that use their improved collections to hire more civil servants, rather than to build roads and power infrastructure, will find the revenue windfall evaporates quickly.

Background

Nigeria's sub-national governments have historically depended on monthly FAAC allocations from the federation account, leaving them vulnerable to oil price swings. Reform efforts, including the push for a broader value-added tax base and the move to strengthen internal revenue services, have sought to change that. The PAYE data suggests those efforts are bearing fruit, at least on the personal income tax side.

Conclusion

Nigeria's states are raising more money from workers than ever before, and the improvement in collections is real. But a tax system that leans overwhelmingly on salaries is fragile, and the real test will be whether states broaden their revenue base and channel the extra income into investment — rather than letting payroll growth consume it.