Nigeria’s Value Added Tax (VAT) revenue surged to a record N1.08 trillion in January 2026, marking the first full month under a new revenue-sharing formula, The PUNCH reports. This represents an 18.5% month-on-month increase from December 2025, when VAT collections stood at N913.96 billion. After deductions at source totaling N79.94 billion, the net VAT available for distribution was N1.00 trillion.
The revised sharing formula significantly shifted allocations between the Federal Government, states, and local governments. Under the new system, the Federal Government receives 10% of net VAT, states 55%, and local governments 35%. Previously, the Federal Government had a 15% share, states 50%, and local governments 35%. This change meant the Federal Government’s January allocation of N100.32 billion fell short of the previous N150.48 billion it would have received, while states gained an extra N50.16 billion.
The impact on subnational governments was immediate. States collectively received N551.77 billion in January, a 30.4% increase from December, while local governments received N351.13 billion, up 18.5%. Lagos emerged as the top beneficiary, with a net VAT allocation of N101.34 billion for the state and N70.57 billion for its local governments. Other major recipients included Oyo, Rivers, and Kano, highlighting the continued disparity between high-activity and lower-activity states due to population and derivation factors.
Experts say the VAT reform presents both opportunities and challenges. Economic analysts noted that VAT has historically been more critical to state revenue than the federal purse. Prof. Segun Ajibola, former Chairman of the Chartered Institute of Bankers of Nigeria, called for transparency in the use of increased allocations, stressing the importance of investing in infrastructure, healthcare, and agriculture. Similarly, Dr. Ayo Teriba of Economic Associates urged states not to rely solely on statutory allocations, citing Enugu State as a model for boosting internally generated revenue.
While the reform benefits states, the Federal Government faces potential revenue shortfalls unless VAT rates are increased in line with ongoing tax reforms. The International Monetary Fund warned that maintaining current rates could reduce government revenue by up to 0.5% of GDP. NESG CEO Dr. Tayo Aduloju echoed the caution, emphasizing the need to balance simplification of the tax system with rate adjustments to ensure stable revenue. Meanwhile, analysts anticipate that, if the current trend continues, total VAT collections for states in 2026 could exceed the projected N5.07 trillion.
source: punch