Nigeria’s 36 states are set for a major revenue boost in 2026, as a new Value Added Tax (VAT) sharing formula under recently enacted National Tax Acts unlocks an estimated ₦5.07 trillion for subnational governments. The windfall follows the formal commencement of the revised tax framework in January 2026, according to projections contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council.
Under the new formula, the Federal Government’s share of VAT has been reduced from 15 per cent to 10 per cent, while states now receive 55 per cent, up from 50 per cent. Local governments retain their 35 per cent share. Based on a projected VAT pool of ₦9.23 trillion in 2026, states are expected to earn ₦5.07 trillion, compared with ₦3.47 trillion in 2025—an increase driven by both a higher allocation ratio and a growing VAT base.
The shift represents a ₦461.27 billion redistribution from the Federal Government to the states. Had the old formula remained, the Federal Government would have received about ₦1.38 trillion in 2026. Instead, it is projected to earn ₦922.5 billion, absorbing the loss as part of broader fiscal reforms aimed at deepening fiscal federalism and strengthening subnational finances.
Despite the reduced percentage share, rising VAT collections provide some relief for the Federal Government in the medium term. VAT revenue is projected to climb to ₦10.87 trillion in 2027 and ₦13.28 trillion in 2028, lifting federal VAT earnings to ₦1.09 trillion and ₦1.33 trillion respectively. However, the structure of the new law ensures that states and local governments remain the primary beneficiaries of consumption-driven revenue growth.
Analysts say the reforms mark a structural rebalancing of Nigeria’s public finance system, particularly as other revenue streams face volatility. While the main Federation Account—largely driven by oil revenue—is projected to shrink sharply in 2026, VAT and stamp duty revenues are expanding steadily. Policymakers and economists now warn that the challenge for states is no longer access to funds, but whether the growing inflows will be prudently spent or strategically invested to drive long-term economic growth.
source: punch