States Pocket N2.37tn VAT Under New Tax Regime
State governments received N2.37tn from Value Added Tax revenue generated in the first half of 2026, representing an increase of N451.25bn compared with the corresponding period of 2025.
The figure indicates that states’ VAT allocation rose by 23.48 per cent from N1.92tn in the first six months of 2025, according to Federation Account Allocation Committee reports and data from the National Bureau of Statistics and the Office of the Accountant General of the Federation collated on Sunday.
The analysis covered VAT generated from January to June 2026, although the proceeds were distributed at FAAC meetings held between February and July. Under the FAAC arrangement, revenue earned in a particular month is shared among the three tiers of government in the following month. This means that January revenue was distributed in February, while June revenue was shared in July.
A total of N4.31tn in distributable VAT revenue was shared among the Federal Government, states and local government councils during the first half of 2026. This was N471.07bn, or 12.26 per cent, higher than the N3.84tn distributed in the corresponding period of 2025.
The H1 2026 distributable VAT pool accounted for 33.09 per cent of the N13.04tn total distributable federation revenue shared during the six-month period.
In comparison, VAT represented about 37.99 per cent of the N10.12tn shared in the first half of 2025. This means that although VAT revenue increased in absolute terms in 2026, its share of total FAAC distributions declined because statutory and other federation revenues grew at a faster pace.
The N13.04tn shared from revenue generated between January and June 2026 was N2.92tn, or 28.86 per cent, above the N10.12tn distributed from revenue generated in the corresponding period of 2025.
The rise in states’ VAT receipts was driven by higher distributable VAT collections in four of the six months and the implementation of a new vertical sharing formula that increased the collective share allocated to states.
Before the commencement of the new tax regime on January 1, 2026, distributable VAT was shared 15 per cent to the Federal Government, 50 per cent to states, and 35 per cent to local government councils.
Under the new tax laws, the Federal Government’s share was reduced to 10 per cent, while the states’ portion increased to 55 per cent. The local governments’ allocation remained unchanged at 35 per cent.
The tax reforms took effect as scheduled from January 1, 2026, following the signing of the new tax laws in June 2025. The adjustment transferred five percentage points of the distributable VAT pool from the Federal Government to the states.
Based on the N4.31tn VAT distributed in H1 2026, the Federal Government gave up about N215.72bn to the states because of the change in the formula.
Had the previous 15 per cent formula remained in place, the Federal Government would have received about N647.15bn from the H1 VAT pool. Under the current 10 per cent allocation, its expected share was about N431.43bn.
States would have collectively received N2.16tn under the old 50 per cent formula. However, the current 55 per cent allocation raised their share to about N2.37tn, giving them an additional N215.72bn.
The local governments’ 35 per cent share was unaffected by the adjustment. They received about N1.51tn from the distributable VAT pool during the six months.
In January 2026, whose revenue was distributed in February, states received N551.77bn from VAT. This was the highest monthly VAT allocation to states in the first half of the year. The amount was N192.38bn, or 53.53 per cent, higher than the N359.39bn allocated to states from January 2025 VAT revenue.
The distributable VAT pool for January 2026 stood at about N1tn, against N718.78bn in January 2025, representing an increase of N284.44bn, or 39.57 per cent.
The January VAT surge was followed by a decline in February. States received N340.52bn from February 2026 VAT revenue, which was shared in March. This represented a month-on-month fall of N211.26bn, or 38.29 per cent, from the January allocation.
Despite the monthly reduction, the February figure was N35.80bn, or 11.75 per cent, higher than the N304.72bn received by states from VAT generated in February 2025.
FAAC distributed N619.12bn in VAT revenue for February 2026, compared with N609.43bn in the corresponding month of 2025. The distributable pool therefore increased by N9.69bn, or 1.59 per cent, year on year.
States’ VAT allocation declined further to N283.47bn from March 2026 revenue, which was shared at the April FAAC meeting.
The March amount was N57.05bn, or 16.75 per cent, below the February allocation. It was also N13.41bn, or 4.52 per cent, lower than the N296.88bn received from March 2025 VAT revenue.
The total distributable VAT revenue for March 2026 fell to N515.39bn, down by N78.36bn, or 13.20 per cent, from N593.75bn in March 2025. The trend changed in April, when states received N410.90bn from VAT revenue shared in May. This represented a month-on-month increase of N127.43bn, or 44.96 per cent, from the March figure.
Compared with the N299.04bn allocated from April 2025 VAT revenue, the April 2026 figure rose by N111.86bn, or 37.41 per cent. The distributable VAT pool increased to N747.09bn in April 2026, from N598.08bn in the corresponding month of 2025. This amounted to a year-on-year increase of N149.01bn, or 24.92 per cent.
The OAGF said gross VAT revenue increased to N806.62bn in April from N664.43bn in March, reflecting increased collections before deductions for collection costs and other adjustments. States received N378.83bn from May 2026 VAT revenue distributed in June. This was N32.07bn, or 7.80 per cent, lower than the April allocation.
On a year-on-year basis, however, the amount was N32.98bn, or 9.53 per cent, higher than the N345.86bn received from VAT generated in May 2025. The May 2026 distributable VAT pool stood at N688.79bn, marginally below the N691.71bn recorded in May 2025. The N2.93bn difference represented a decline of 0.42 per cent.
In June, states’ VAT receipts recovered to N407.40bn. The revenue, shared in July, was N28.57bn, or 7.54 per cent, higher than the May allocation. It also exceeded the N315.75bn received from VAT generated in June 2025 by N91.64bn, representing an increase of 29.02 per cent.
The distributable VAT pool for June 2026 rose to N740.72bn, up by N109.22bn, or 17.29 per cent, from N631.51bn in June 2025. The monthly pattern showed that states received more VAT revenue year on year in January, February, April, May, and June. March was the only month in which their VAT allocation fell below the corresponding 2025 level.
Beyond VAT, the three tiers also benefited from increased overall FAAC distributions during the first half of the year. The Federal Government received N4.57tn from revenue generated between January and June 2026. This was N1.17tn, or 34.47 per cent, above the N3.40tn allocated to it in the corresponding period of 2025.
The Federal Government’s monthly allocations were N577.91bn from January revenue, N675.09bn in February, N789.16bn in March, N787.35bn in April, N818.68bn in May and N923.44bn in June.
Its allocation rose during most of the period despite the reduction in its VAT share because statutory federation revenue and other components of the distributable pool increased.
State governments received a total of N4.47tn in general FAAC allocations during H1 2026, excluding the separate 13 per cent derivation payments to oil-producing states. This represented an increase of N1.05tn, or 30.58 per cent, over the N3.43tn received by the states during the first half of 2025.
Their monthly general allocations stood at N794.01bn from January revenue, N651.53bn in February, N657.60bn in March, N772.36bn in April, N759.14bn in May, and N838.21bn in June.
Local government councils received N3.13tn during the six-month period, up from N2.50tn in H1 2025. This represented an increase of N625.42bn, or 24.98 per cent.
Their monthly allocations were N537.88bn from January revenue, N456.47bn in February, N468.83bn in March, N540.15bn in April, N534.28bn in May, and N591.39bn in June.
Oil-producing states also received N864.89bn as 13 per cent mineral revenue derivation during H1 2026. The amount was N73.57bn, or 9.30 per cent, higher than the N791.33bn paid as derivation revenue in the corresponding period of 2025.
The monthly derivation payments rose from N90.19bn in January to N110.95bn in February and N120.76bn in March. They increased to N157.25bn in April, N188.13bn in May, and N197.61bn in June. The figures show that the new VAT formula delivered an immediate gain to states while reducing the Federal Government’s claim on consumption tax revenue.
The Nigeria Economic Summit Group warned that the Federal Government could face revenue shortfalls if it does not increase the value-added tax rate as part of the ongoing tax reform process.
The Chief Executive Officer of NESG, Dr Tayo Aduloju, made this statement during an interactive media session in Abuja. He emphasised that while reforms to the VAT system are essential, maintaining the current VAT rate without an increase could result in a significant loss of revenue for the government.
According to him, simply reducing the number of taxes without adjusting the VAT rate could weaken the government’s revenue base.
Also, in its 2025 Consultation Report on Nigeria, the International Monetary Fund noted that although the recent tax reforms approved by the National Assembly and President Bola Tinubu represent a major step forward in modernising the VAT and Company Income Tax regimes, the choice to maintain the current VAT rate would lead to an immediate revenue shortfall.
It stated that the Federal Government may lose as much as 0.5 per cent of the country’s Gross Domestic Product in revenue following its decision not to raise the VAT rate.
According to the Fund, unless alternative financing options are found, subnational governments may be forced to either scale back spending or ramp up their own revenue efforts. The IMF, however, acknowledged the government’s justification for delaying a VAT hike, particularly at a time of worsening poverty and food insecurity.
Speaking earlier at the launch of the BudgIT State of States 2025 Report in Abuja, where he delivered the keynote address, the current Minister of Finance and the Coordinating Minister of the Economy, Mr Taiwo Oyedele, projected that states could earn more than N4tn annually from 2026 when new Value Added Tax reforms take effect.
He said, “With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent. That could amount to over N4tn in 2026. The question is: will this money be spent, or will it be invested?”
Economic analysts earlier called on state governments to intensify efforts to unlock internal revenue as their allocations under the revised sharing formula increase.
A former Chairman of the Chartered Institute of Bankers of Nigeria, Prof Segun Ajibola, called for transparency in the use of the increased allocations, adding, “If a state government wants to be accountable, each state government should set up a desk to account for the increase in the VAT allocation and make the report known to the public. There is so much to spend on agriculture and other public utilities.”
Also, the Chief Executive Officer of Economic Associates, Dr Ayo Teriba, earlier said VAT historically replaced state sales tax and originally belonged to states. “The tax belonged to the states. It is for ease of collection that the federal government decides to collect on behalf of the states,” Teriba noted.
He further cautioned states against overdependence on statutory allocations, advising, “Not to make a mountain out of a molehill (as) these are smaller amounts for the states.”
