Nigeria VAT earnings rose to N1.08tn in January 2026 as the new sharing formula boosts allocations to states and local governments

Nigeria VAT earnings rose to N1.08 trillion in January 2026, marking an 18.5 per cent increase from December 2025, as the revised Value Added Tax sharing formula came into effect.

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The new formula altered the distribution of net VAT among the Federal Government, states, and local governments.

Documents presented at the February meeting of the Federation Account Allocation Committee revealed that deductions at source amounted to N79.94 billion, leaving N1.00 trillion for distribution.

Under the new structure, the Federal Government received 10 per cent (N100.32 billion), state governments 55 per cent (N551.77 billion), and local governments 35 per cent (N351.13 billion).

The revised formula caused a reduction in the Federal Government’s share compared with December’s N126.98 billion under the previous 15 per cent allocation, a decline of 21 per cent.

States, by contrast, saw a 30.4 per cent increase, while local governments’ share rose by 18.5 per cent.

The cost of collection also increased, with the Nigeria Revenue Service’s VAT collection cost rising to N43.33 billion in January from N32.72 billion in December.

Other statutory deductions, including the North East Development Commission and the Revenue Mobilisation Allocation and Fiscal Commission, accounted for a combined N36.61 billion.

Lagos State remained the dominant beneficiary, generating N533.40 billion in non-import VAT and retaining N101.34 billion as net VAT for the state, with its local councils collectively receiving N70.57 billion.

Oyo, Rivers, Kano, and the Federal Capital Territory followed in allocation rankings.

Analysts welcomed the increase but urged states to leverage the higher allocations to improve internal revenue and public services.

Prof Segun Ajibola, former Chairman of the Chartered Institute of Bankers of Nigeria, noted that while VAT boosts state and local revenues, “the masses are the ones affected by poor infrastructure and dilapidated facilities.”

Dr Ayo Teriba, CEO of Economic Associates, added that VAT historically belonged to states and advised against overreliance on statutory allocations, highlighting Enugu State as a model for generating internally sourced revenue.

Economic observers also cautioned that while states’ revenue has risen under the new formula, the Federal Government could face shortfalls if VAT rates are not adjusted in line with ongoing tax reforms.

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Dr Tayo Aduloju, CEO of the Nigeria Economic Summit Group, emphasised the importance of balancing tax system simplification with revenue stability to prevent potential fiscal gaps.