States Predict N3tn Tax After Reform Bills Passage
Findings show that state governments have set a tax revenue target of approximately N3.12tn for the 2025 fiscal year, marking an increase from the N2.01tn targeted in 2024 and the N1.95tn actually collected.
This push for increased Internally Generated Revenue comes as the Federal Government advances comprehensive tax reforms aimed at reducing the number of taxes from over 60 to fewer than 10.
These reforms are intended to simplify compliance, enhance revenue collection, and foster economic growth, and may affect the state government’s tax earnings.
The 2025 target represents a 55.4 per cent increase from the 2024 projection, underlining the states’ aggressive drive to bolster internally generated revenue.
However, the actual collections from 2024 paint a complex picture. States collectively managed to achieve about 96.8 per cent of the 2024 target, leaving a shortfall of approximately N62.6bn.
Some states significantly surpassed their revenue targets, while others struggled to meet even half of their projections.
Lagos, Nigeria’s commercial nerve centre, recorded the highest tax revenue in 2024, generating N946.59bn against its target of N691.79bn. The state’s strong economic base, diverse industries, and efficient tax administration were key contributors to this achievement.
Lagos has now set an even more ambitious target of N1.4tn for 2025, reflecting a 48 per cent increase from its 2024 actual revenue. While Lagos did not classify the revenue projection for 2025 as tax revenue like other states in its 2025 budget, the projection is for the Lagos State Internal Revenue Service, which is responsible for tax collection in the state.
Kaduna and Rivers also emerged among the top revenue earners in 2024, with collections of N178.97bn and N149.59bn, respectively. Kaduna has now raised its 2025 target to N342.67bn, nearly double its 2024 revenue, while Rivers has set its sights on N187.64bn.
Other states, however, fell far below expectations. Imo, which had projected N53.25bn for 2024, managed to generate only N10.16bn, achieving a meagre 19 per cent of its target.
Jigawa faced similar challenges, with a collection of N15.21bn against its target of N42.29bn. The underperformance of these states underlines structural inefficiencies, weak tax compliance, and economic challenges that hinder revenue generation.
At the lower end of the spectrum, Yobe, Zamfara, and Gombe recorded the smallest actual tax revenues in 2024. Yobe collected N5.35bn, Zamfara N12.43bn, and Gombe N6.23bn. These states, which are largely agrarian with limited industrial activities, continue to struggle with revenue generation.
Yobe’s 2025 target of N5.23bn suggests little expectation of growth, while Zamfara and Gombe have set more optimistic projections of N22.5bn and N13.54bn, respectively.
It was however, observed that a significant factor affecting revenue collection is the period covered in the 2024 actual collections.
Benue, Katsina, Nasarawa, and Zamfara reported figures from January to October 2024, which means their collections are yet to reflect a full-year performance.
Similarly, Abia, Adamawa, Akwa Ibom, Anambra, Bauchi, Bayelsa, Borno, Cross River, Delta, Ekiti, Ebonyi, Edo, Enugu, Gombe, Imo, Jigawa, Kano, Kebbi, Kwara, Niger, Ogun, Ondo, Osun, Oyo, Yobe, Taraba, Sokoto, and Kaduna reported actual revenues up until September 2024.
Meanwhile, Rivers’ figures represent collections from January to June 2024, indicating that the state still has a considerable gap to cover by the end of the year.
These discrepancies in reporting periods partially explain why some states have yet to meet their targets, as the full year’s revenue is not yet accounted for in their reported figures.
While the states plan for more revenue, the Federal Government’s proposed tax reforms could significantly impact state revenues. By reducing the number of taxes and consolidating them into a streamlined system, the government aims to eliminate inefficiencies and enhance compliance.
However, this could also lead to a reallocation of taxing powers between federal and state governments. Some states that rely on specific taxes that may be absorbed into a unified federal tax system could face revenue shortfalls.
The proposed reforms have generated debates, particularly around the allocation of Value Added Tax revenue.
Currently, VAT is distributed with 50 per cent shared equally among states, 30 per cent based on population, and 20 per cent based on derivation. The new proposal seeks to adjust this distribution to 60 per cent based on derivation, 20 per cent on population, and 20 per cent shared equally.
This may favour states with stronger economies, such as Lagos and Rivers, which generate higher VAT. However, it could disadvantage less economically developed and more populous states in the north.
Governors from northern states have raised concerns that these changes could lead to fiscal imbalances, disproportionately benefiting industrialised states while leaving resource-dependent and less industrialised states struggling for revenue.
There are also concerns that a shift towards derivation-based VAT distribution could intensify regional economic disparities, making it harder for less developed states to fund public services.
Earlier, it was reported that the Nigeria Governors’ Forum has finally thrown its weight behind the tax reform bills submitted by President Bola Tinubu to the National Assembly.
The governors said the revised VAT sharing formula must ensure equitable distribution of resources of 50 per cent based on equality, 30 per cent based on derivation, and 20 per cent based on population.
The governors stated that there should be no terminal clause for the Tertiary Education Trust Fund, National Agency for Science and Engineering Infrastructure and National Information Technology Development Agency in the sharing of development levies in the bills.
They also supported the continuation of the legislative process at the National Assembly that will culminate in the eventual passage of the tax reform bills.
After months of uncertainty, the House of Representatives on Wednesday debated the four tax bills transmitted to the National Assembly for consideration and passage by President Bola Tinubu.
The bills scaled second reading after the lawmakers reached a consensus on the contentious Value Added Tax provisions during plenary.
SOURCE: The PUNCH
