Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has announced that under the new tax laws, state governments will, from 2026, retain 100 percent of collections from the Electronic Money Transfer Levy (EMTL) as part of efforts to strengthen subnational revenues.

Oyedele disclosed this on Tuesday in Abuja during his keynote address at the launch of the 2025 State of States report.

He explained that the new law also provides tax exemptions for state government bonds, a measure he said would help lower borrowing costs and stimulate fiscal sustainability.

According to him, 21 states currently depend on federal allocations for at least 70 percent of their revenues, underscoring that FAAC dependency has deepened in the past year.

“States such as Lagos, Ogun, Kwara, Anambra, and Edo continue to show relative fiscal resilience,” Oyedele said. “However, the real test of progress lies in whether states can convert the current revenue windfalls into sustainable fiscal space and deploy resources judiciously to deliver shared prosperity.”

He added that the new tax reforms would significantly increase states’ allocations from the Value Added Tax (VAT) pool beginning next year, as one-third of what previously accrued to the federal government would now go to the states.

“From 2026, states will no longer share the Electronic Money Transfer Levy with the federal and local governments, it will belong entirely to them. In addition, state government bonds will be exempted from tax, helping to lower borrowing costs. There are also other measures to help states build capacity and close existing tax gaps.

“So, we have more reasons to be optimistic about subnational governments, but perhaps even more reasons to demand better performance,” he said.

Oyedele also stressed the need for state governments to shift focus from recurrent spending to productive investments, lamenting that many states continue to prioritise overhead costs over critical investments in education, health, and infrastructure.

“States implemented only two-thirds of their education budgets, spending less than N7,000 per citizen. In health, it’s even worse, with implementation at just 62 percent, amounting to N3,500 per citizen,” he said.

“This is the uncomfortable truth. Too many states are still prioritising recurrent expenditure and uncontrolled overheads over classrooms, clinics, and rural access roads. No society can prosper when its people are unskilled and unhealthy.”

He noted that states prioritising infrastructure, productivity, and human development tend to rise in the fiscal performance ranking, while those focused on wasteful spending continue to fall behind.

Despite fiscal expansion, he warned that poverty remains a major challenge, saying growth must become more inclusive.

“To address this paradox in Nigeria’s development story, fiscal expansion must prioritise human development. More revenue must translate into greater prosperity for the people. We need deeper revenue reforms and a rethink of fiscal federalism,” Oyedele said.

He explained that although 85 percent of the nation’s resources are assigned to subnationals under the constitution, the challenge lies in optimising existing allocations and ensuring that spending translates into real value for citizens.

“States must harmonise taxes and streamline revenue collection processes. They should digitise collections and invest in the informal economy, not overtax vulnerable citizens. States should enact tax harmonisation laws to eliminate multiple levies like bicycle tax, TV and radio licences, and wheelbarrow taxes,” he added.

In his remarks, Oluseun Onigbinde, global director at BudgIT, said the State of States report was founded on the belief that every kobo allocated to citizens should be traceable, justified, and used to improve livelihoods.

He noted that Nigeria has moved from an era where most states had budget surpluses and strong macroeconomic fundamentals to a situation where 28 out of 36 states now struggle to meet salary and operating expenses.

Onigbinde said the nation stands at a crossroads, with inflation rising faster than household earnings, debt obligations expanding faster than revenue growth, and many states still relying excessively on federal allocations instead of building resilient local economies.

“The gap between potential and performance remains wide. Today’s conversation is not about winners and losers but about collective responsibility, making governance more sustainable and people-centred, ensuring that children can learn in safe classrooms, small businesses can thrive without excessive taxation, and healthcare is accessible to all,” he said.

He added that the State of States report is a public resource and a roadmap for reform, reminding policymakers that Nigeria’s prosperity must be driven by all states, not just Abuja.

“We have witnessed remarkable improvements since this journey began, from when only five states published budgets to now, where transparency has become a competitive advantage. Governors now await, sometimes anxiously, to see where they stand. Citizens have stronger voices, and data has become a lever for accountability.

“We celebrate that progress sincerely. We did not start by seeking to build transparency in subnational governments; we want to be clear that they had a strong fiscal base. As the title of this report reflects, we have gone through phases of growth, decline, and middling performance,” Onigbinde said. (BusinessDay)