Can PAYE Tax Drive Growth? Tony Monye Explores Stakeholder Concerns And National Progress

Its economic strength compares favourably with several African nations, particularly those along West Africa’s coast. When measured by GDP and other economic indicators, Lagos surpasses countries such as Liberia, Sierra Leone and Togo, while also competing strongly with economies like Ghana and Côte d’Ivoire.

Similarly, Federal Capital Territory appears to be following a development path similar to that of Lagos, rapidly transforming into another major economic powerhouse, even if many people have not fully noticed the pace of this evolution.

What this transformation will ultimately produce remains to be seen. However, compared to Lagos and Abuja, many of Nigeria’s remaining 35 states struggle significantly in areas such as internally generated revenue, infrastructure, and economic productivity. Their weak financial and economic structures continue to limit sustainable growth and development.

In many cases, state treasuries are frequently described as distressed, a situation that should serve as a serious warning to political leaders and economic stakeholders. A closer look at VAT and Internally Generated Revenue (IGR) figures across the federation reveals a striking imbalance.

The enormous gap between the revenues generated by Lagos and Abuja and those of the other states is difficult to ignore and raises important questions about Nigeria’s fiscal structure. Certain constitutional and economic arrangements appear to have contributed to this imbalance, making it necessary for political office holders and economic planners to begin addressing the issue more openly.

Sustaining silence over the matter benefits no one in the long term, including the states currently enjoying the advantages. More importantly, the imbalance undermines balanced national development and weakens the kind of economic structure Nigeria urgently requires. One major factor behind this disparity is Nigeria’s tax system, particularly the PAYE framework and the way tax revenues are distributed.

Nigeria operates a unique federal structure, but many of its core systems have remained rigid and outdated, slowing real development. The constitution draws a clear distinction between a citizen’s state of origin and state of residence, while local governments also remain an important but often overlooked part of the country’s administrative system.

Every economically active Nigerian, especially formal sector workers, is connected to three levels of governance: their state of residence, state of origin, and local government of origin. Yet emotional and cultural loyalty is often strongest toward one’s state of origin.

Despite this, the current PAYE tax structure channels taxes mainly to the worker’s state of residence, leaving little consideration for the worker’s responsibilities and ties to their home state. Essentially, many Nigerians pay taxes to states where they may still be regarded as outsiders while their states of origin, where they also hold constitutional and social stakes, receive little or no direct benefit from their earnings.

Taxation remains essential for development at federal, state, and local government levels. However, the present PAYE arrangement fails to reflect Nigeria’s unique social and political realities. The consequences are evident in the widening developmental gap between Lagos, Abuja, and many other states.

This imbalance also contributes to migration pressures and broader socio-economic challenges. Some analysts even argue that the rapid development of Lagos and Abuja has come partly at the expense of the other states.

For example, a worker from Delta State living and working in Abuja pays taxes to the FCT while contributing little directly to Delta State, despite maintaining strong social and political ties there. This arrangement has persisted for decades despite its visible shortcomings.

The existing PAYE structure overlooks many of Nigeria’s deeply rooted national peculiarities and stakeholder realities. Therefore, there is an urgent need for political leaders and economic planners to come together and design a fairer and more balanced PAYE revenue-sharing system.

Such a framework should reflect Nigeria’s unique federal character while aligning taxation more closely with the interests and responsibilities of Nigerian workers. In the long run, this could encourage more balanced development across the country and reduce the widening economic disparities among states.