Lagos generates 45% of N4.15tn subnational IGR, exposing states’ revenue weakness.

Nigeria’s subnational fiscal structure has continued to reveal a weak revenue generation capacity, as few states generate a major part of the aggregate revenues annually, highlighting a major weakness in how most states fund themselves.

BusinessDay’s analysis of thestates’s budget implementation report, published by BudgIT, showed that the aggregate IGR generated by state governments increased from N1.565 trillion in 2022 to N4.147 trillion in 2025.

However, while the total revenue figure reflects a broad uptick in tax collection and digital compliance across the country, experts have stated that the revenue concentration in a single economic hub exposes a severe inability among most state governments to expand local tax bases and end their reliance on federal allocations.

According to the report, only Lagos State accounted for N1.845 trillion, which is 44.5 per cent of the total IGR recorded by reporting states (excluding Akwa Ibom and Rivers).

Ogun, Delta, and Enugu posted notable collections, at N238 billion, N206.44 billion and N406.77 billion,n respectively. Also, Oyo and Kano states followed with an IGR of N102 billion each.

Yobe State govt recorded the least IGR in the period at N15.42 billion, Taraba recorded N17.89 billion, Kebbi recorded N18.41 billion, and Sokoto State followed with N20.58 billion in the entire 2025.

Speaking to BusinessDay on the clear divide in the states’ performance, Thaddeus Jolayemi, acting head, Open Government and Institutional Partnership at BudgIT Foundation, stated that while the revenue data indicates notable progress in states’ IGR, the concentration of tax capacity highlights a sharp divide between commercially dynamic states and a vast interior heavily reliant on monthly federal handouts.

He emphasised that the central challenge for underperforming states is not simply setting higher revenue targets or raising tax rates, but understanding why their local economic bases remain so narrow.

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For him, states with low IGR can boost their revenue base by identifying the economic activities taking place within their jurisdictions and determining which ones are currently outside the tax net. This, he said, could include businesses, professionals, property owners and other taxable economic activities.

“They also need to improve their revenue administration and reduce leakages between assessment, collection and remittance.

“States with lower IGR should first understand why their revenue base is small rather than simply setting higher revenue targets,” Jolayemi noted, urging governors to map out informal commercial activities, broaden the tax net, and build public trust by tying tax compliance directly to visible service delivery.

Speaking further, Jolayemi said that states with high IGR growth must focus on strengthening their budgets, not just to increase spending, but to improve the predictability and quality of expenditure.

He stressed that the real measure of successful IGR mobilisation is not simply how much a state collects, but whether that revenue strengthens fiscal sustainability and translates into better budget implementation and public services.

“The growth in states’ IGR is encouraging because stronger internally generated revenue gives states greater fiscal capacity and reduces their dependence on federal transfers. However, the priority should now be to make this growth sustainable by expanding the tax base, improving revenue administration, and reducing leakages.

“For states with lower IGR, the answer is not necessarily

higher taxes; it is to better understand the economic activities within their jurisdictions, bring more of them into the tax net and demonstrate a clearer link between revenue collected and services delivered,” he said.

Also speaking with BusinessDay, Moyowa Amoo, founder & CEO of QLP Capital, said that underperforming states must abandon theoretical approaches and directly replicate successful governance frameworks from states with higher revenues.

He said, “There is no point in reinventing the wheel,” Amoo noted. “If an institution or state has done something successfully, go there, understand what has been done, and copy it. You may need to modify something to customize it to your local environment because Kaduna is not Lagos, Zamfara is not Lagos, neither is Cross River Lagos. But the model exists.”

For Kabir Isah, an Abuja-based economist, state governments must carry out sweeping fiscal and governance reforms to enhance their domestic resource mobilisation capacity, plug revenue leakages, increase their capacity to attract investments, and improve the efficiency and effectiveness of public spending.

According to him, states need to not only fully digitise tax collection to eliminate revenue leakages lost to non-state actors, but also expand their tax net to capture a lot more informal sector players and high net worth individuals.

He said, “States need to improve the ease of doing business by improving infrastructure and security, eliminating multiple taxation, strengthening investment promotion, enhancing the enforcement of contracts, and easing land and property acquisition and development.

States need to improve expenditure efficiency by drastically reducing the cost of governance and creating fiscal space for investments in critical social sectors like health, education, and water, sanitation and hygiene (WASH), as these sectors are often major drivers of prosperity, economic growth and development.

According to Isah, the gap between revenue and expenditure has huge implications for the public debt profiles of the states, as these deficits are often shored up by borrowings.

He stressed that states,tes as a matter of urgency, need to wean themselves off the dependence on federally distributed revenues by significantly improving their capacity to mobilise revenues internally.

Speaking on the macroeconomic drivers behind the increase in revenues, Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), explained that ongoing policy reforms have boosted corporate performance, but the fiscal benefits are accruing unevenly.

According to Yusuf, state-level IGR growth is inextricably tied to the density of corporate entities and the policy environment fostered by state leadership.

“The point is that the reform has improved corporate performance, which is reported in the IGR of states. But IGR comes from corporate organizations, and it depends on what kind of industries or corporates are in each state,” Yusuf said.

“Most of the IGR we are talking about comes from states that are highly commercial, like Lagos, Abuja, Port Harcourt, and Kaduna. Some states are hostile to investment, while others are very welcoming. The more investors you are able to attract, the more IGR you will get.”

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