October 21, 2022/FBNQuest

The National Bureau of Statistics (NBS) has published its report on internally generated revenue (IGR) at state level for 2021. According to the report, the total IGR for the 36 states of the federation and the FCT increased by 22% y/y to NGN1.9trn. About 65% of the total sum came from tax revenue. The report does not provide a breakdown of the tax categories. However, the largest source of taxes is typically the personal income tax collected by state governments from residents in their states. The balance is made up of other revenue generated by state ministries, departments, and agencies. 

The data show that about 33 states and the FCT recorded y/y growth in IGR during the period. However, the fortunes varied significantly by state, leading to a significant concentration of revenue in just a handful of the more economically viable states.

To put things in perspective, Lagos, once again, emerged as the leader in IGR. It accounted for c.39.7% (NGN753bn) of total revenue collections – including 32.9% of aggregate tax revenue, and 52.3% of other revenue collections.

Lagos state’s huge share of IGR reflects its advantageous position as the nation’s economic and commercial centre. It also has arguably the largest resident population of the 36 states and a disproportionately high number of businesses domiciled there.

The FCT was the second highest with an IGR of NGN132bn or c.7% of the total. The next three states – Rivers, Ogun, and Delta accounted for 6.5%, 5.3%, and 4.2% respectively.

Further highlighting the high level of revenue concentration is that the 33 remaining states of the federation collectively accounted for the balance of NGN706bn or 37.2% of total revenue.

The average sum of NGN21bn per state implied for the remaining 33 states illustrates the inadequacy of revenue for most state governments.

For most of these states, a sizable proportion of the working-age population are employed in the informal economy and as a result, are often not included in the tax net.

Consequently, many states are forced to rely on the monthly payout by the Federation Account Allocation Committee (FAAC), which, even combined with IGR, is still insufficient to cover their operating expenses.

Economic reforms aimed at liberalizing some sectors of the economy where the federal government still has exclusive rights may greatly boost the economies of several states.