Nigeria’s 36 states and the Federal Capital Territory (FCT) recorded a significant surge in fiscal performance in 2025, generating a combined N5.15 trillion in Internally Generated Revenue (IGR). This figure represents a 40.93% increase from the N3.65 trillion recorded in the 2024 fiscal year, signaling a shift toward greater financial independence at the subnational level.
The latest data, which reflects the consolidated revenue efforts of state governments, highlights a narrowing gap between federal allocations and local revenue generation in several key states. Lagos, Rivers, and Enugu emerged as the top performers, contributing a substantial portion of the national total through aggressive tax reforms, expanded tax nets, and the digitisation of collection processes.
According to the reporting from the National Bureau of Statistics, the growth in revenue is largely attributed to improved efficiency in Pay-As-You-Earn (PAYE) collections and direct assessments. The 40.93% year-on-year growth suggests that state governments are increasingly moving away from their historical over-reliance on the Federation Account Allocation Committee (FAAC) disbursements, which are heavily tied to volatile oil prices.
Lagos State maintained its position as the country’s economic powerhouse, generating revenue that far exceeds the combined totals of several other states. The state’s success is built on a mature tax administration system and a high concentration of corporate headquarters and manufacturing hubs. Rivers State followed closely, leveraging its status as a primary oil and gas hub to bolster its infrastructure and industrial tax receipts.
However, the inclusion of Enugu State among the top performers marks a significant shift in the subnational economic landscape. The state has recently implemented comprehensive fiscal reforms aimed at automating land administration and integrating informal sector players into the formal tax bracket. These moves have allowed Enugu to outpace several other traditionally high-earning states in the South East and North.
Fiscal Reforms and Digitalisation Drive Revenue Growth
The sharp rise in IGR across the federation is not merely a result of higher tax rates, but a consequence of structural changes in how states manage their finances. Many states have adopted integrated financial management systems to reduce leakages and ensure that revenue collected at the point of service delivery reaches the state treasury without intermediate diversions.
The Federal Inland Revenue Service has also collaborated with state-level revenue agencies to harmonise tax collection and reduce the incidence of double taxation, which has historically hindered small and medium enterprises (SMEs). This collaborative approach has encouraged higher compliance rates among businesses that were previously wary of the complex and often overlapping tax demands from different tiers of government.
Beyond the top three performers, several other states recorded double-digit growth. This trend is partially driven by the necessity of meeting rising recurrent expenditures, including the implementation of the new national minimum wage. As personnel costs have increased, state governors have faced immense pressure to improve their independent revenue streams to remain solvent and fund critical infrastructure projects.
Economists note that while the nominal growth is impressive, the impact of inflation on the real value of these revenues must be considered. Despite this, the move toward N5.15 trillion represents a milestone in Nigeria’s quest for fiscal federalism. The ability of states to fund their own budgets from local sources is a key indicator of economic resilience and a prerequisite for attracting long-term private sector investment.
Despite the overall growth, a wide disparity remains between the top-tier states and those at the bottom of the revenue table. Several states in the North East and North West continue to struggle with low industrial activity and security challenges that disrupt agricultural value chains, limiting their ability to generate significant tax revenue from either individuals or corporations.
The next phase of subnational revenue growth is expected to focus on the formalisation of the informal economy. With millions of traders and artisans still operating outside the tax system, states are looking at micro-taxation models and digital payment platforms to capture this segment without imposing a prohibitive burden on low-income earners.
State governments are now expected to focus on the 2026 fiscal targets, with many aiming to sustain the 40% growth trajectory. The National Economic Council is scheduled to meet later this quarter to review these figures and discuss strategies for states to further diversify their economies into mining, technology, and export-oriented agriculture.
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