How tax reforms are fattening states’ purses

Internally generated income has risen up throughout the states within the nation sInce tax rrfor tlol effeft January this 12 months. This, consultants say, is the start of much less dependency on federation allocation; BENJAMIN UMUTEME writes.

Revenue returns from 23 states present the internally generated income (IGR) rising from about N1.75 trillion within the first half of 2025 to N2.2 trillion in the identical interval of 2026, a soar the returns put at 27 per cent. It comes inside months of the sweeping tax reforms that took impact on January 1, 2026.

The determine invitations a easy conclusion that the reform is working. The proof helps a warning that states are amassing extra, however the knowledge can not but say whether or not they’re widening their tax bases or solely getting higher at amassing what was at all times owed.

Where states stood in 2025

In the primary half of 2025, states have been overwhelmingly depending on Abuja. An Agora Policy evaluate of 30 states discovered that Federation Account Allocation Committee (FAAC) transfers provided 73.8 per cent of their mixed income, towards N1.59 trillion in IGR, or 26.2 per cent.

Lagos alone generated greater than N890 billion in IGR in that half, greater than the mixed IGR of 25 states.

For the total 12 months, the National Bureau of Statistics (NBS) reported that the 36 states and the FCT generated N5.15 trillion in IGR in 2025, a 40.93 per cent rise from N3.65 trillion in 2024. Tax receipts made up almost three-quarters of the full. Lagos reported greater than N1.7 trillion for 2025, a 39 per cent enhance on the earlier 12 months, in line with the Joint Revenue Board (JRB).

NBS knowledge present it grew 49.7 per cent in 2024 and about 41 per cent in 2025.

Muda Yusuf, Director-General of the Centre for the Promotion of Private Enterprise (CPPE), argued throughout final 12 months’s mid-year critiques that low IGR owed a lot to “the nature and structure of our tax system” fairly than to state effort alone. That framing is the one the reforms got down to change.”

2026 outlook

Other 2026 knowledge level in the identical route however with completely different samples. The Agora evaluate of first-quarter returns lined 32 states and located IGR of N1.02 trillion, 28.8 per cent of their precise income, with FAAC supplying the opposite 71.2 per cent. Dependence on federal transfers has barely moved. Twenty-nine of the 32 states fell in need of their projected income.

A separate tally of 35 states put first-half 2026 IGR at N2.43 trillion, 34 per cent above the comparable interval a 12 months earlier, whereas FAAC allocations to states rose 26 per cent to N4.54 trillion.

Individual states provide sharper illustrations. Kaduna governor, Uba Sani, informed the JRB’s a hundred and sixtieth assembly in September that the state’s month-to-month IGR had risen from about N4 billion to roughly N10 billion. Lagos reported an estimated N536 billion within the first quarter alone.

The JRB’s account

The JRB, which changed the Joint Tax Board beneath the reform legal guidelines, has been the principle institutional voice on the topic. At a media parley final week in Abuja, JRB’s Executive Secretary, Olusegun Adesokan, mentioned the income efficiency of 23 states has risen by 27 per cent because the new tax legal guidelines took impact.

“From the returns we got from 23 states, when compared to their performance last year, the same 23 states, we’ve seen a 27% increase. This is between January and June this year,” he mentioned.

He attributed the expansion to a deliberate concentrate on high-net-worth people, fairly than low earners, because the reforms intend.

“The vision is to tax prosperity, not poverty,” he mentioned, recalling the philosophy behind the reforms. He added that, primarily based on knowledge from the 23 states, about 92 per cent of revenue earners who pay tax now pay decrease charges or none in any respect.

Adesokan mentioned 21 State Houses of Assembly had domesticated the mannequin harmonised taxes and levies regulation.  The regulation cuts the greater than 50 assortment gadgets beforehand administered by states and native governments to 9 sub-heads and abolishes money assortment and income roadblocks. This, he known as a major success for harmonisation.

He additionally addressed what he known as the misunderstanding that the reform had raised taxes, saying it had lowered the burden on low-income earners, eradicated a number of nuisance taxes and supplied reduction to micro-scale companies.

“No new tax has been introduced. Instead, multiple levies have been consolidated into nine taxes, and the model harmonisation law has been adopted by 21 states,” he mentioned.

For Zacch Adedeji, Executive Chairman of the Nigeria Revenue Service (NRS), progress had been recorded in institutional reform, digitalisation, knowledge integration and harmonization. But the final word check, the NRS boss famous is improved income mobilisation, better compliance, a greater taxpayer expertise and a stronger contribution to nationwide improvement.

The minister’s view

Mr. Taiwo Oyedele, who chaired the Presidential Fiscal Policy and Tax Reforms Committee earlier than succeeding Wale Edun because the Minister of Finance and Coordinating Minister of the Economy, framed the reforms as structural fairly than extractive.

Speaking on the Chartered Institute of Taxation of Nigeria’s annual convention in Abuja in May, Oyedele who mentioned the purpose was a “stronger fiscal foundation for long-term national development,” not further factors of taxation.

He mentioned the previous system suffered from non-harmonised taxes, fragmented administration, weak compliance and excessive informality, noting that minimal wage earners had been exempted from private revenue tax.

Efficiency or growth?

For monetary analyst, Dr. Aliyu Ilias, the principle driver is “much more efficiency.” Nigeria, Ilias argued, has not but expanded its tax base, and people exterior the web are largely nonetheless exterior it.

In a chat with Blueprint Weekend, the economist pointed to his personal expertise as a taxpayer: the fee window and interface, he mentioned, are getting higher, which helps folks pay as and when due.

He additionally famous that penalties now comply with non-payment, a characteristic he mentioned is itself a supply of concern. If the bottom had genuinely widened, he mentioned, the acquire would have been felt effectively past 27 per cent. His verdict: effectivity, “not really expansion”.

In his submission, an economist Adefolarin Olamilekan, who spoke with our correspondent, mentioned the image was combined, reflecting each higher administration and in some circumstances, widening of the tax web.

He welcomed the determine as an indicator of an evolving income panorama and mentioned the reform framework could also be creating room for stronger coordination and higher compliance.

But he cautioned {that a} rise in collections doesn’t by itself show better effectivity.

The actual check, he mentioned, is whether or not governments are bringing beforehand untaxed people and companies into the system and plugging leakages, or just leaning more durable on current taxpayers.

The economist confused the reform must also be judged towards its acknowledged aims: easier taxes, much less a number of taxation, extra transparency and a extra predictable atmosphere for enterprise.

What different analysts say

Tax practitioner, Idi Andrew Ivo, mentioned the legal guidelines had been enacted including that the problem is now implementation. Sustainable tax techniques, he mentioned, are “built on trust, not fear” warning that states with weak income bases, Taraba amongst them, nonetheless lean closely on FAAC.

Economist Dumebi Oluwole pointed to an element that complicates any studying of the states’ funds: the revised VAT distribution.

States now obtain 55 per cent of VAT income, up from 50 per cent, a change she mentioned offers them more cash for salaries and capital spending. According to the economist, states with stronger business exercise and consumption stand to realize most over time, whereas these with slim bases danger being left behind.

The VAT shift raises FAAC receipts fairly than IGR, however a state that’s immediately higher funded could really feel much less stress to construct its personal income base.

Abdulfatai Adedeji, a improvement economist and analysis fellow on the Centre for the Study of the Economies of Africa, questioned whether or not native governments are able to abandon casual money assortment by roadside touts, citing inadequate readability on their funds and readiness.

Olamilekan needs the JRB to publish quarterly indicators displaying how a lot development comes from improved compliance, new taxpayer registrations, lowered leakages and administrative effectivity, and for all 36 states to be captured so the nationwide image is consultant.

The prices

The reforms carry prices. Local governments that relied on small levies could lose revenue earlier than they acquire something from digital techniques. Businesses will watch for brand spanking new fees dressed up as previous ones, which might undercut the promise of decrease compliance prices.

The harmonisation regulation bans money assortment and roadblocks, however its check might be enforced on market days and highways, not in state meeting chambers.

Olamilekan drew the identical line from the enterprise facet. Formalising the casual sector, he mentioned, have to be distinguished from overburdening small companies, arguing that the federal government’s consideration has tilted towards massive companies.

Experts word the federal government should present a direct hyperlink between taxes collected and the standard of companies delivered. The Q1 knowledge, with 29 of 32 states lacking their income projections, suggests budgets are nonetheless forward of collections.