States’ PAYE tax revenue surges 40% to N2.64trn as wage bills rise

Nigeria’s 36 states and the Federal Capital Territory (FCT) generated N2.64 trillion from Pay-As-You-Earn (PAYE) tax in 2025, representing a 40.4 per cent increase from N1.88 trillion recorded in 2024, as higher salaries and expanding payroll deductions boosted tax collections.

Data from the National Bureau of Statistics (NBS) showed that PAYE accounted for 69.5 per cent of the N3.79 trillion total tax revenue collected by states and the FCT during the year.

Overall tax revenue rose by 41.2 per cent from N2.69 trillion in 2024, reflecting stronger collections across several tax categories amid wage adjustments and efforts by state governments to improve internally generated revenue.

Withholding tax contributed approximately N503 billion, representing 13.28 per cent of total tax revenue, while other taxes generated N300.21 billion, up 48.9 per cent from N201.62 billion a year earlier.

Direct assessment revenue increased to N112.65 billion, while stamp duties, local government revenue, road taxes and capital gains tax accounted for smaller shares of total collections.

Revenue generated by ministries, departments and agencies (MDAs) also increased by 40.2 per cent to N1.36 trillion from N968.16 billion in 2024.

The increase in PAYE collections came after the implementation of higher minimum wages across several states following President Bola Tinubu’s signing of the N70,000 national minimum wage into law in July 2024.

Several states introduced higher wage levels during late 2024 and 2025. Rivers State implemented an N85,000 minimum wage, while Oyo State adopted N80,000, with Kano and Katsina also implementing wage adjustments.

Private-sector employers similarly faced pressure to review salaries amid elevated living costs and inflation.

Data previously reported for listed companies showed that staff costs increased by 33.02 per cent at FirstHoldCo, 31.51 per cent at Zenith Bank and 23.80 per cent at MTN Nigeria in 2025.

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Economists and public finance analysts say the growth in PAYE collections highlights the importance of formal employment and effective tax administration in strengthening state finances.

However, they note that higher tax revenue does not automatically translate into improved living standards, particularly when inflation erodes the purchasing power of workers’ salaries.

They argue that governments need to distinguish between revenue growth driven by higher nominal wages and growth resulting from an expanding workforce, improved productivity and better compliance.

Higher salaries can increase taxable income, but inflation-driven wage adjustments may leave workers with limited real gains after accounting for rising food, transport, housing and healthcare costs.

Public finance experts also stress that states need to broaden their revenue base beyond salaried employees by improving the identification and taxation of eligible self-employed professionals, entrepreneurs and high-income individuals.

Direct assessment offers one avenue for capturing income from individuals whose earnings are not processed through formal payroll systems.

Analysts further argue that improved transparency and accountability in the use of internally generated revenue would help strengthen public confidence in tax compliance.

The latest figures therefore present both an opportunity and a challenge for state governments: stronger collections provide additional resources for infrastructure and public services, but the long-term benefits will depend on how efficiently the funds are managed.

With PAYE accounting for nearly seven out of every 10 naira collected in state-level tax revenue, broadening the tax base, supporting productive employment and protecting workers’ purchasing power remain important considerations for sustainable revenue growth.