By Ayo Kehinde
In January 2026, Nigerian states recorded a significant increase in their share of Value Added Tax (VAT) revenue, receiving a total of about ₦551 billion. This sharp rise followed the implementation of new tax laws that adjusted the VAT distribution formula among the tiers of government. The development marked the first full month in which the revised revenue-sharing arrangement took effect.
Under the new formula, a larger percentage of VAT revenue is now allocated to state governments. Previously, the federal government received 15 percent of the VAT pool, while states received 50 percent and local governments received 35 percent. However, the new tax structure reduced the federal government’s share to 10 percent and increased the states’ portion to 55 percent, while the allocation for local governments remained unchanged at 35 percent. This shift in the sharing structure explains the substantial rise in the amount distributed to states in January.
Overall VAT collection for the month stood at roughly ₦1.08 trillion. After necessary deductions, about ₦1 trillion remained as the net distributable amount. From this sum, the federal government received just over ₦100 billion, state governments collectively received ₦551 billion, and local governments shared approximately ₦351 billion. The new formula is aimed at strengthening the financial capacity of subnational governments and enabling them to meet their developmental responsibilities more effectively.
Among the states, Lagos received the highest allocation due to its strong economic activity and large contribution to VAT generation. Other states such as Oyo, Rivers, and Kano also received notable shares. The large allocation to Lagos highlights the state’s dominant role in Nigeria’s commercial and service sectors, which generate a significant portion of the country’s VAT revenue.
The increase in VAT allocations is expected to provide state governments with more resources to fund infrastructure projects, improve social services, and address local development needs. However, analysts have also emphasised the importance of accountability and prudent management of these additional funds to ensure that the benefits of the new tax policy translate into tangible improvements in the lives of citizens.
Overall, the rise in states’ share of VAT revenue represents a major shift in Nigeria’s fiscal framework. By granting states a larger portion of the revenue, the new tax laws seek to promote fiscal decentralisation and encourage subnational governments to play a more active role in driving economic growth and development within their jurisdictions.
