PAYE accounted for 69.5% of states’ total tax receipts, with higher wages, minimum wage adjustments and increased tax collections providing context for the growth…
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% increase from the N1.88 trillion recorded in the previous year.
Data from the National Bureau of Statistics (NBS) show that PAYE remained the largest source of tax revenue for state governments, accounting for 69.5% of the N3.79 trillion collected in total taxes during the year.
Overall tax revenue rose by 41.2%, from N2.69 trillion in 2024, reflecting increased collections across several tax categories amid wage adjustments and changing economic conditions.
The growth in PAYE receipts coincided with the implementation of the new national minimum wage and salary reviews across public and private sector organisations, which contributed to higher payroll costs during the period.
PAYE continued to dominate tax collections across the states and the FCT, significantly outpacing other revenue sources tracked by the NBS.
Withholding tax generated approximately N503 billion, representing 13.28% of total tax revenue, while other taxes contributed N300.21 billion, or 7.92%.
Direct Assessment, which applies to individuals whose earnings are not necessarily captured through conventional payroll systems, generated N112.65 billion in 2025, up 29.4% from N87.05 billion in 2024.
The increase added N25.6 billion to revenue from the category, which provides state governments with an avenue to collect taxes from self-employed individuals, entrepreneurs and other eligible taxpayers outside formal salary structures.
Unlike PAYE, which is deducted from employees’ earnings, Direct Assessment generally requires eligible individuals to declare their income and settle their tax obligations based on their assessed liabilities.
Other taxes recorded an increase of 48.9%, rising from N201.62 billion in 2024 to N300.21 billion in 2025.
Meanwhile, stamp duties accounted for 2.94% of total tax revenue, followed by local government area (LGA) revenue at 1.74%, road taxes at 1.32% and capital gains tax at 0.33%.
The figures highlight the importance of PAYE to state finances, as governments continue to rely on income-related collections alongside other internally generated revenue sources.
The increase in PAYE collections came amid widespread wage adjustments following President Bola Tinubu’s signing of the N70,000 national minimum wage into law in July 2024, replacing the previous N30,000 minimum wage.
Several states began implementing the new wage structure in late 2024, while others introduced adjustments in 2025, contributing to changes in public-sector payrolls during the period.
Kano State, for instance, approved a minimum wage of N71,000 for civil servants, effective November 2024, while Katsina State approved N70,000, effective December of the same year.
Rivers State began paying a minimum wage of N85,000 with November 2024 salaries, while Oyo State implemented N80,000 from January 2025.
The staggered implementation of these wage increases provides context for the rise in taxable employment income during the period, although the NBS figures do not establish how much of the increase in PAYE collections was directly attributable to higher salaries.
Wage adjustments also extended beyond the public sector, as some private companies reviewed employee compensation in response to inflation and exchange-rate pressures.
According to the World Bank, the Federal Government’s personnel expenditure increased to N4.2 trillion in the first half of 2025, from N3.7 trillion in the corresponding period of 2024, following wage adjustments.
The higher personnel expenditure reflects the growing cost of government payrolls, while increased salaries can also raise PAYE liabilities for workers whose taxable earnings rise.
However, the increase in tax receipts does not necessarily indicate a corresponding improvement in workers’ purchasing power, particularly as inflation and higher living costs continue to affect household budgets.
Beyond tax collections, states and the FCT recorded growth in revenue generated through their various internally generated revenue (IGR) channels.
Revenue from Ministries, Departments and Agencies (MDAs) rose by 40.2%, increasing from N968.16 billion to N1.36 trillion.
Taxes accounted for the largest share of states’ revenue collections, with PAYE alone contributing more than two-thirds of total tax receipts in 2025.
The figures underscore the importance of strengthening tax administration and expanding revenue sources as state governments seek to finance infrastructure, public services and other spending commitments.
Meanwhile, higher wage bills and rising operating costs continue to shape the fiscal environment for governments and businesses.
Several companies listed on the Nigerian Exchange (NGX) also reported higher salary expenses in 2025. First HoldCo recorded a 33.02% increase in wages and salaries, while Zenith Bank’s staff costs rose by 31.51% and MTN Nigeria’s by 23.80%.
The increases provide further context for the broader rise in payroll-related costs across parts of the economy.
While stronger PAYE collections offer states an important source of revenue, the extent to which the additional income can improve public services and support household welfare will depend on how effectively governments manage and deploy the funds.
