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Nigeria’s 36 states and the Federal Capital Territory collected N2.64tn in Pay-As-You-Earn tax in 2025, up from N1.88tn in 2024.
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Total state and FCT tax revenue increased by 41.2 percent to N3.79tn, with PAYE accounting for about 69.5 percent of collections.
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Higher minimum wages and salary adjustments provide context for the increase, although improved collections may also reflect changes in tax administration and compliance.
October 12, (THEWILL) – Nigeria’s 36 states and the Federal Capital Territory collected N2.64tn in Pay-As-You-Earn (PAYE) tax in 2025, representing an increase of approximately 40.4 per cent from N1.88tn recorded in 2024.
Data from the National Bureau of Statistics (NBS) showed that PAYE remained the largest source of tax revenue for state governments, accounting for about 69.5 percent of the N3.79tn collected from taxes during the year.
Total tax revenue rose by 41.2 percent from N2.69tn in 2024, highlighting the growing contribution of personal income taxation and other tax categories to state finances.
The increase came amid higher wage payments across the public and private sectors following adjustments to minimum wages and salaries in response to inflation and changing economic conditions.
However, the figures do not establish that higher wages alone drove the increase in PAYE collections. Changes in tax compliance, enforcement and the number of taxpayers captured by state authorities may also have contributed.
PAYE Dominates State Tax Collections
PAYE remained the dominant component of tax revenue collected by states and the FCT in 2025, reflecting the importance of employment-related income taxation to their revenue base.
Under Nigeria’s personal income tax framework, state governments and the FCT administer PAYE for eligible employees, generally based on their residence and the applicable tax rules.
Withholding tax generated approximately N503bn, accounting for 13.28 per cent of total tax revenue, while revenue from other taxes increased by 48.9 per cent to N300.21bn from N201.62bn in 2024.
Direct Assessment, which covers eligible taxpayers whose income tax is not collected through conventional payroll deductions, rose to N112.65bn from N87.05bn. The increase represented growth of approximately 29.4 per cent.
Direct Assessment is particularly relevant to self-employed individuals, entrepreneurs and other eligible taxpayers whose income may not be captured through employer-administered PAYE deductions.
The category offers states an opportunity to widen their tax bases beyond salaried workers, although effective collection depends on identifying taxable income, improving compliance and ensuring accurate assessment.
Other tax categories contributed smaller shares of state collections. Stamp duties accounted for 2.94 per cent, local government revenue for 1.74 per cent, road taxes for 1.32 per cent and capital gains tax for 0.33 per cent.
The distribution shows that state tax revenue remains heavily concentrated in PAYE, leaving considerable scope to strengthen other tax categories and broaden the sources of internally generated revenue.
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Higher Wages Provide Context for PAYE Growth
The increase in PAYE collections coincided with the implementation of higher minimum wages and salary adjustments across Nigeria.
President Bola Tinubu signed the N70,000 national minimum wage into law in July 2024, replacing the previous N30,000 minimum wage. States adopted the new benchmark at different times, with some also approving higher wage levels for their workers.
Kano approved a N71,000 minimum wage for civil servants in October 2024, while Katsina announced N70,000 in November of the same year.
Rivers State began paying a minimum wage of N85,000 with November 2024 salaries, while Oyo State adopted N80,000 effective January 2025.
These adjustments provide context for the increase in taxable employment income during 2025. Where salaries rise, the amount of PAYE collected can also increase, depending on applicable tax rates, reliefs and individual circumstances.
Private-sector employers also adjusted compensation amid elevated inflation and changes in the cost of living, potentially contributing to a broader increase in payroll-related tax collections.
Corporate disclosures provided further examples of rising personnel costs in 2025. Wages and salaries reportedly increased by 33.02 per cent at First HoldCo, 31.51 per cent at Zenith Bank and 23.80 per cent at MTN Nigeria.
The figures illustrate the wider pressure on employers’ payrolls, although higher wage expenditure at individual companies does not by itself establish the extent of its contribution to aggregate state PAYE revenue.
States Seek to Expand Internally Generated Revenue
Beyond tax collections, revenue generated by state ministries, departments and agencies also increased during the year.
The supplied figures put MDA revenue at N1.36tn in 2025, compared with N968.16bn in 2024, representing an increase of approximately 40.2 percent.
The increase points to the importance of non-tax receipts alongside taxes in efforts by state governments to strengthen internally generated revenue and reduce dependence on federal allocations.
Nevertheless, the concentration of tax revenue in PAYE presents a challenge for states seeking to build more diversified and sustainable revenue bases.
While employment-related taxes provide a relatively structured collection channel, excessive reliance on salaried workers can limit revenue growth where formal employment remains narrow, and household incomes are under pressure.
Expanding the tax base to include eligible self-employed individuals, improving compliance and strengthening the administration of other taxes could help states increase collections without relying disproportionately on existing payroll taxpayers.
The NBS figures show that state tax revenue recorded strong nominal growth in 2025. Assessing the underlying improvement in fiscal capacity, however, also requires consideration of inflation, the expansion of the taxpayer base and the efficiency with which collected revenue is converted into public services and infrastructure.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
