States Pocket ₦2.37tn VAT Under New Tax Regime
State governments received a total of ₦2.37 trillion in Value Added Tax (VAT) allocations during the first half of 2026, representing a 23.48 per cent increase over the ₦1.92 trillion shared during the corresponding period of 2025, following the implementation of Nigeria’s new tax sharing regime.
An analysis of Federation Account Allocation Committee (FAAC) reports, alongside data from the National Bureau of Statistics (NBS) and the Office of the Accountant-General of the Federation, showed that ₦4.31 trillion in distributable VAT revenue was shared among the Federal Government, the 36 states and the 774 local government councils between January and June 2026. This was ₦471.07 billion, or 12.26 per cent, higher than the amount distributed in the first half of 2025.
The increase in states’ allocations was largely driven by the new VAT sharing formula, which took effect on January 1, 2026. Under the revised tax laws, the Federal Government’s share of distributable VAT was reduced from 15 per cent to 10 per cent, while the states’ share increased from 50 per cent to 55 per cent. The allocation to local government councils remained unchanged at 35 per cent.
The adjustment effectively transferred about ₦215.72 billion from the Federal Government’s share to the states. Had the previous sharing formula remained in place, the Federal Government would have received about ₦647.15 billion from the VAT pool during the period. Instead, it received approximately ₦431.43 billion, while the states benefited from the additional allocation.
January recorded the highest monthly VAT allocation to states, with ₦551.77 billion shared from January revenue. Although monthly allocations fluctuated throughout the six-month period, states recorded higher year-on-year VAT receipts in five of the six months, with March being the only exception.
Beyond VAT, overall FAAC allocations also rose significantly. The Federal Government received ₦4.57 trillion, while state governments received ₦4.47 trillion, excluding derivation revenue. Local government councils shared ₦3.13 trillion, while oil-producing states received ₦864.89 billion as 13 per cent derivation revenue.
Experts have welcomed the increase in allocations but urged state governments to ensure prudent management of the additional funds. They called for greater transparency and accountability, stressing that the resources should be invested in critical sectors such as infrastructure, healthcare, education and agriculture to improve the living standards of citizens.
The Nigeria Economic Summit Group (NESG) and the International Monetary Fund (IMF) have, however, cautioned that while the revised sharing formula benefits states, maintaining the current VAT rate could reduce Federal Government revenue unless alternative revenue sources are developed. The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, projected that states could earn more than ₦4 trillion annually under the new VAT regime, urging them to channel the increased revenue into sustainable development projects.