Projected Distributional Effects of Nigeria’s 2025 Tax Act on State Personal Income Tax Composition: Counterfactual Panel Analysis and Machine-Learning Simulation

This study assesses the projected distributional effects of Nigeria’s 2025 Tax Act on the composition of state personal income tax revenue, with a focus on the PAYE–Direct Assessment mix. Structural parameters are estimated using a balanced panel of 37 jurisdictions based on observed administrative data from 2016 to 2024, constructed from publicly available NBS State IGR reports, population data, CBN payment statistics, SMEDAN–NBS MSME surveys, Labour Force Survey indicators, and CAC registrations. Using these pre-reform relationships, counterfactual projections for 2026–2027 are generated under a simulated post-Act policy shock. The empirical framework combines two-way fixed effects with interactions, event-study diagnostics, dynamic panel estimation (System GMM), a causal machine-learning T-learner for heterogeneous treatment projections, and isolation forest anomaly detection. Counterfactual simulations project an increase in the PAYE share of approximately 3.9 percentage points under the reform scenario, with stronger projected gains in states characterised by higher formal employment and business registration intensity. The T-learner estimates an average projected treatment effect of about 0.14, revealing meaningful heterogeneity across state formalisation profiles. The findings suggest that digital payment intensity and business formalisation amplify expected reform gains, while AI-assisted monitoring can enhance compliance targeting. By strengthening digital tax administration, formal labour-market reporting, and institutional revenue capacity, the study contributes to broader sustainable development objectives, particularly SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation and Infrastructure), and SDG 16 (Peace, Justice and Strong Institutions) through improved fiscal governance and transparent revenue mobilisation. The study therefore provides an ex-ante fiscal modelling framework for policy evaluation in emerging economies seeking to enhance sustainable public finance systems.