State governments across Nigeria received a combined N2.37 trillion in Value Added Tax (VAT) allocations during the first half of 2026, marking a significant 23.5 percent increase compared to the N1.92 trillion shared in the same period of 2025. The increase follows the implementation of a new VAT revenue-sharing formula under the Nigeria Tax Act, which took effect on January 1, 2026, and has substantially boosted the share of revenue going to states.
Data analysed from Federation Account Allocation Committee (FAAC) reports, sourced from the Office of the Accountant General of the Federation and the National Bureau of Statistics, showed that VAT remained one of the strongest sources of government revenue. Between January and June 2026, VAT contributed N4.39 trillion to the federation account, representing 31.2 percent of the N14.08 trillion distributed among the federal, state and local governments during the period.
Under the revised allocation structure, states received N2.37 trillion from the VAT pool, while local government councils got N1.51 trillion and the Federal Government received N431.43 billion. January delivered the highest allocation to states, with N551.77 billion shared from VAT revenue generated in the previous month. Although allocations dipped in February and March as collections moderated, they rebounded strongly in April and remained above 2025 levels for most of the review period.
The impressive growth in allocations was driven not only by stronger VAT collections but also by changes introduced through the new tax framework. Previously, the Federal Government received 15 percent of distributable VAT, while states got 50 percent and local governments received 35 percent. The new arrangement reduced the Federal Government’s share to 10 percent and increased the states’ allocation to 55 percent, leaving the local governments’ share unchanged at 35 percent.
As a result, an estimated N219.72 billion was effectively redirected from the Federal Government to state governments during the six-month period. The law also introduced a new distribution model among states, with 50 percent allocated equally, 20 percent based on population and 30 percent determined by the place of consumption. The change is expected to create a more balanced system by reducing the advantage previously enjoyed by states hosting the headquarters of major companies and ensuring that VAT benefits are distributed more broadly across the country.
source: nairametrics
