States generate N112bn taxes from self-employed Nigerians

Nigeria’s 36 states and the Federal Capital Territory collected N112.65bn in direct assessment taxes from self-employed individuals and largely informal businesses in 2025, with Lagos alone accounting for nearly two-thirds of the total, an analysis of the latest National Bureau of Statistics data has shown.

The amount represented a 29.4 per cent increase from the N87.05bn collected through direct assessment in 2024, translating to an additional N25.59bn within one year.

Direct assessment is a form of personal income tax mainly applicable to people whose income is not captured through the conventional Pay-As-You-Earn system.

The NBS explained that direct assessment relates to personal income tax imposed on self-employed individuals, including operators of informal businesses, based on their economic activities.

“This relates to a form of personal income tax used to assess tax for self-employed individuals. With the self-assessed tax, a new taxpayer can assess him/herself and pay the calculated amount,” the bureau explained in its report.

It added that direct assessment also covers taxes “imposed on businesses, especially (informal) ones, by the state authorities based on the size of their activities.”

This distinguishes the tax from PAYE, which is deducted from the salaries and wages of employees in the formal sector. The data showed a wide disparity in the ability of subnational governments to extract revenue from self-employed residents and informal economic activities.

Lagos generated N72.41bn from direct assessment in 2025, representing 64.3 per cent of the nationwide total. This means almost N2 out of every N3 collected under the tax category came from Lagos.

The state’s collection also increased by 38.8 per cent from N52.19bn in 2024, adding about N20.23bn in one year. Consequently, Lagos alone accounted for roughly 79 per cent of the N25.59bn nationwide increase recorded between 2024 and 2025.

Rivers followed at a distant N6.26bn, while Ogun collected N4.89bn. The FCT recorded N3.21bn, with Benue completing the top five at N2.63bn.

Combined, the five jurisdictions generated N89.41bn, or 79.4 per cent of the entire direct assessment revenue. Excluding Lagos, all the other 35 states and the FCT generated only N40.23bn combined, substantially below Lagos’ N72.41bn.

At the other end, Sokoto recorded the lowest direct assessment collection at just N21.73m. Taraba followed with N57.49m, Ebonyi N64.54m, Borno N70.10m and Gombe N132.34m. The figures indicate a gap of more than N72bn between Lagos and Sokoto and show the uneven depth of the tax base across states.

Despite the increase in collections, direct assessment remained a relatively small component of subnational taxation. States and the FCT generated N3.79tn in total tax revenue in 2025, meaning direct assessment accounted for only about three per cent.

It also represented just 2.2 per cent of the N5.15tn total internally generated revenue recorded nationwide during the year. The NBS said total IGR jumped 40.93 per cent from N3.65tn in 2024 to N5.15tn in 2025. Tax revenue accounted for 73.64 per cent of total IGR.

The relatively low contribution from direct assessment contrasts sharply with PAYE, which generated N2.64tn and accounted for 69.51 per cent of total tax revenue.

The difference suggests that despite Nigeria’s large informal and self-employed population, state tax systems continue to derive substantially more personal income tax revenue from workers whose earnings can be tracked and deducted at source through formal employment.

In its 2025 African Economic Outlook report, the African Development Bank said that Nigeria is losing about $8.8bn every year due to its large informal economy.

The report noted that while informal businesses contribute significantly to economic activity and employment, much of the wealth they generate remains outside the tax system, resulting in substantial revenue losses that could be used to finance development.

According to the AfDB, informal enterprises, including street vendors, smallholder farmers and micro and small businesses, make up a significant share of economic activity across Africa but remain largely untaxed. (Punch)