Articles,  Economy

2019 States IGR Report: States are not Taxing the Informal Sector Enough

Internally Generated Revenues (IGR) are revenues generated by states within the country, independent of their share of revenue from the federation account. Based on the data obtained from the NBS, the 36 states of Nigeria and Federal Capital Territory generated N1.33trillion as IGR in 2019 compared to N1.17trillion recorded in 2018, an indication of a positive growth OF 20.92% year on year. Similarly, the Q4 2019 states and FCT IGR figure was N346.20billion compared to N294.11billion recorded in Q3 2019. This indicates a positive 17.71% quarter on quarter growth.

Yobe, Zamfara state led the chart on year on year growth with 92.70% and 87.85% respectively. 32 states including the FCT recorded a positive growth rate in 2019 fiscal year. Four states (Ogun, Kano, Gombe and Abia) experienced a negative growth with (-16.12%, -7.97%, -7.36% and -0.44%) respectively. Abia state appear to be the only state to record consecutive decline in IGR- -0.55% in 2018 and -0.44% in 2019.

Interestingly, Ogun state despite its economic and geographical ties with Lagos State experienced the highest decline in IGR. In 2018, Ogun ranked 3rd in IGR ranking only behind Lagos and Rivers State with a 12.99% growth from 2017. However, a negative 16.12% decline in IGR was accounted for in 2019. This decline can be attributed to significant falls in proceeds from Pay As You Earn (PAYE) and other Taxes. N37.87bn (44.79% of total IGR) was generated from PAYE in 2018 and this same source declined to N24.33bn (34.3% of total IGR) in 2019. Total taxes collected by the state internal revenue declined by over N10bn from N52.93bn in 2018 to N41.56bn in 2019. PAYE is a form of personal income tax deducted directly from the wages and salaries of employees operating in the formal sector.

Kano state, the economic hub of Northern Nigeria is another state to look out for. Kano also experienced decline in IGR by 7.97% (Y-o-Y). Despite slight decrease in total taxes collected by the state (from N32.27bn to N31.98bn), a huge blow was felt from revenue generated by MDAs. The MDAs in Kano State generated N11.83bn (26.89% of total revenue) in 2018 which however dropped to N8.61bn in 2019 (13.11%). Although Kano states stills has the highest share of FAAC in the north, Kaduna state is doing a pretty good job keeping up.

Kaduna state recorded 52.67% Y-o-Y growth in IGR and 14% in overall revenue. The growth in Kaduna state’s revenue can be attributed mainly to proceeds from other Taxes from N1.94bn in 2018 to N13.5bn 2019 (595.88% increase). Other Taxes include various taxes such as levies on market traders, land registration and other land related fees, development levies on individuals, pool betting/lottery/gaming fees, stamp duties on individuals etc. Kaduna currently sits at 7th position in states IGR ranking above Kano state (8th).

Lagos state the commercial hub of West Africa continued on the path of prosperity with the highest internally generated revenue with N398.73billion recorded, and accounts for 29.88% of total IGR generated by states in 2019. This is followed closely by Rivers state with N140.40billion, 10.52% share of total IGR. Lagos recorded 4.33% and 2.95% growth Y-o-Y and Q-o-Q respectively. Insights into the state’s IGR posits that the state is doing a good job collecting its taxes, especially those from the formal sector. Over 90% of Lagos IGR is generated from Tax with PAYE and other Taxes topping the chart of accounts with 68% and 16% respectively of total IGR. With the informal sector being greater than the formal sector, we believe Lagos state can still perform better in the areas of Other Taxes. This can be done through blocking all holes during the collection of taxes from the informal sector as well as ensure there is transparency in the collection process.

Figures show Yobe state with the highest growth (Y-o-Y) of 92.70% from N4.4billion in 2018 to N8.44billion in 2019. Further insight into the state’s IGR shows that the IGR grew by 348.68% from Q3 to Q4 2019. Although just 14% of Yobe state’s 2019 revenue comes from IGR, the state has pretty much doubled its efforts in generating revenue internally. Total IGR of the state doubled in 2019 as against 2018 and this increment can be attributed to PAYE. N2.18bn was generated in 2018, however thrice that amount was generated in 2019 (N6.62bn). Zamfara, the state with the 2nd highest growth (Y-o-Y) also experienced significant increase in proceeds from Tax, especially PAYE a figure that increase by 129% year-on-year.

Ekiti state witnessed the highest drop in the last quarter of 2019 (-39.61%) caused mainly by 83% fall in Other Taxes proceeds in Q4 against Q3. Following Ekiti closely is Kogi state with -35.48% decline Q3-on-Q4 2019. This is largely attributed to 48.4% fall in PAYE proceed generated by the state. 30% fall in Q3 on Q4 IGR puts Niger state at 3rd position. The state recorded 71.7% drop in Other Taxes proceeds in the last quarter of the year. 91% fall in Ogun state’s Other Taxes proceeds led to 22.48% decline in the last quarter’s IGR.
Kwara’s last quarter IGR dropped by 15.99% Q3-on-Q4 caused mainly by fall in MDAs proceeds by 20% (Q3-on-Q4). Akwa Ibom and Bauchi also experienced decline in last quarter’s IGR by 7.72% and 3.9% respectively. Akwa Ibom last quarter decline is attributed mainly to fall in direct assessment proceeds (65.8%). Direct Assessment may relate to a form of personal income tax used for self-employed individuals or related to those imposed on businesses especially (informal) by the state IG authority based on the size of their activities. All sources of IGR in Bauchi fell QoQ except Road Taxes proceeds.

Moving forward, we expect a mild decline in the Q1 of 2020 IGR of the 36 states and FCT. This is because majority of the states went on some forms of lockdown during the last month of the first quarter (March), with Lagos, and Abuja embarking on full lockdown based on the Presidential directive. As such, economic activities in these states were at low ebb as some firms also shut down temporarily during the period since they were not allowed to operate. With 60.65% of the IGR coming from PAYE, we expect a sharp decline in IGR coming from this source as most firms have either resorted to pay cuts or lay off of employees in order to mitigate the effect of the global health crisis on their businesses.


We note that 65% of the total revenue of the 36 states and the FCT in 2019 came from FAAC while the remaining 35% came from IGR of the states. From the IGR, over 60% came from the formal sector (PAYE) while 20% came from the informal sector (Other Taxes and Direct Assessment). On the average, the states that recorded YoY growth in IGR was as a result of positive growth in PAYE, which led us to conclude that states are stepping up to direct efforts at ensuring efforts are geared towards ensuring tax compliance of the formal sector. However, over 60% of the Nigerian economy is dominated by the informal sector. With this, it explains that even if the revenue from the formal sector is greater than that obtained from the informal sector, the gap should not be much. As such, we believe the states should ensure efforts are targeted towards increasing the informal sector tax net as well as blocking the leakages in revenue collection.

With additional comments (Conclusion) from Abdulazeez Kuranga

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