EFFECT OF TAX REVENUE AND STATUTORY ALLOCATION ON FISCAL SUSTAINABILITY OF STATES IN NIGERIA - PAYE TAX REVENUE PERSPECTIVE

The government of any country or state had the integral component of fiscal sustainability to enable it finance its numerous activities and be able to attend to the servicing of its debt. This would enable the government not to recourse to increase in its debt levels to a point where they become unmanageable. One of the sources of revenue of any state government was derived from taxes, a mandatory contribution, levied on individuals and corporations. This study examined the effect of tax revenue and statutory allocation on fiscal sustainability of states in Nigeria with Pay-As-You-Earn (PAYE) tax revenue in perspective. The methodology included secondary sources of data from the Public Finance Database of the Nigeria Governors Forum (NGF), annual fiscal reports published by the Central Bank of Nigeria (CBN), Joint Tax revenue generation through taxation and allocations received from the federation account. The statistical tool of analysis was the panel regression technique. Finding revealed that PAYE has a positive significance effect on the financial sustainability of states. In conclusion, personal income tax was a reliable and consistent source of revenue for state governments. The federal transfers that were derived from the national revenue pool often constitute a substantial portion of state budgets, especially in states with limited internally generated revenue. The study recommended that Pay-As-You-Earn (PAYE) management and collection strategy be encouraged and modified to enhance the government’s sources of revenue.