IGR in Need of Diversification


Friday, January 07, 2020   /09:38 AM / By FBNQuest Research/ Header Image Credit: Pharma Dost


The NBS has published its internally generated revenue (IGR) at state level report for Q3 2019. According to the report, by end-September 2019 aggregate IGR for the 36 states and FCT was N986bn. In Q3 alone it stood at N294bn, compared with N392bn in the previous quarter.


The data show that only six states and the FCT recorded growth in IGR during the period under review. Lagos emerged again as the leading state, accounting for 31% of total IGR in Q3. Our default source of this data is the CBN. However, the CBN series is dated.


The breakdown of the IGR shows that aggregate Pay As You Earn (PAYE) income tax accounted for 58% of total IGR. The weakest links with regards to revenue generated from the PAYE system were Taraba and Oyo states. Both achieved less than 1% of total aggregate PAYE revenue.


Those states with a very low contribution from PAYE income tax are generally those with a significantly higher proportion of jobs within the informal economy. Tax collection by agencies becomes a struggle.


Road tax accounted for just 3% of total IGR in Q3. The highest contributors were Lagos and Rivers, accounting for 36% and 13% respectively. Evidently, states that are predominantly urban and congested are more likely to rake in substantial revenue from this source.



Internally generated revenue of states, Q3 2019 (% shares) Total: N294bn

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Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research



Direct assessment tax, which is income tax imposed on individuals who run small businesses, stood at N12.7bn (4% of total IGR) during the period under review. We note that compliance is an issue given that tax collection agencies struggle with data capturing of SMEs.


To boost IGR across states, regional clusters can be built based on comparative advantages identified by each state. This would enhance productivity, attract investment and generate more jobs. The latter would have an indirect (positive) effect on tax generation.


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