PAYE Tax, Stakeholder Concerns, and Country Development

Lagos State is often described as more than a state; it behaves like a country. Its gross domestic product surpasses that of Liberia, Sierra Leone, and Togo, and rivals the economies of Ghana and Côte d’Ivoire. Abuja, the Federal Capital Territory, is rapidly developing along a similar path, though it has not yet been granted state status. In contrast, the other thirty‑five states in Nigeria generate far less revenue, have weaker infrastructure, and maintain treasuries that are frequently described as chaotic. A comparison of value‑added tax (VAT) and indirect tax revenue (IGR) across the federation shows a stark disparity: Lagos and Abuja collect far more than the remaining states, a gap that raises concerns about fiscal equity and national development.

Nigeria’s federal system is unique, yet many of its foundational arrangements remain unchanged. The constitution distinguishes between a person’s state of origin and state of residence, and it gives special importance to local government. Most Nigerians are stakeholders in all three jurisdictions—state of residence, state of origin, and local government. However, allegiance is strongest to one’s state of origin. The current PAYE (pay‑as‑you‑earn) tax system, which assigns tax liability to the state of residence, ignores this allegiance and leaves workers who have migrated away from their home state effectively untaxed there.

Under the existing arrangement, a worker from Delta State who lives and works in Abuja pays PAYE to the Federal Capital Territory but not to Delta State or its local government area. This creates a fiscal imbalance that benefits Lagos and Abuja at the expense of the other states. The resulting development gap has socio‑economic consequences, especially for internal migrants who find themselves tax‑responsible in a state where they are considered outsiders while being tax‑irrelevant in their home state where they also have civic obligations.

To address these inequities, policymakers and planners should convene to design a more balanced PAYE‑tax sharing framework that reflects Nigeria’s unique federal structure and the interests of ordinary workers. A fairer distribution of tax revenue would support national development and reduce the fiscal gap between the more prosperous and less prosperous states.

• Tony Monye, Publisher, The TMBC Business