A new VAT sharing formula will see Nigeria's 36 states receive an estimated N5.07 trillion from the tax pool in 2026.
A profound shift in Nigeria's fiscal landscape is set to commence in 2026, directing more financial resources to state governments. Approved under the new National Tax Acts, a revised Value Added Tax sharing formula will see states receive an estimated N5.07 trillion from the VAT pool next year.
The details, contained in the approved 2026–2028 Medium-Term Expenditure Framework, mark a decisive move towards fiscal federalism.
The Federal Government's share of VAT will drop from 15% to 10%, while the states' portion increases from 50% to 55%. Local Governments will retain their 35% share.
The redistribution is substantial. With total distributable VAT revenue projected to hit N9.23 trillion in 2026, the states' 55% share yields the N5.07 trillion figure.
This represents a significant jump from the N3.47 trillion they were allocated in 2025 under the old formula.
Conversely, the Federal Government will receive N922.5 billion (10% of the pool), down from the N1.38 trillion it would have received under the previous 15% arrangement.
This N461.27 billion difference is the direct fiscal transfer to states engineered by the new law.
“This structural rebalancing positions subnational governments as the primary beneficiaries of consumption-driven taxes,” the framework document notes, highlighting the long-term intent of the policy.
The change comes amid projected volatility in other revenue streams. The main Federation Account pool funded by oil and other taxes is expected to shrink sharply in 2026, falling by N19.2 trillion to N41.06 trillion.
This decline places greater emphasis on VAT and stamp duties as stable revenue sources for all tiers of government.
However, experts warn that maintaining the current VAT rate could lead to revenue shortfalls. The International Monetary Fund, in its latest assessment, estimated that not raising the VAT rate could reduce consolidated government revenue by up to 0.5% of GDP.
Dr. Tayo Aduloju, CEO of the Nigeria Economic Summit Group, echoed this concern. “Without those rate hikes, it means that the government might lose some revenue,” he stated, emphasising the need to balance tax simplification with revenue stability.
Projections show the VAT pool growing to N10.87 trillion in 2027 and N13.28 trillion in 2028. Under the new formula, states will see their allocations rise to N5.98 trillion and N7.30 trillion in those years, respectively.
This reform, championed by the Presidential Fiscal Policy and Tax Reforms Committee chaired by Mr. Taiwo Oyedele, fundamentally recalibrates fiscal power in Nigeria.
It grants states significantly larger, predictable revenue from the nation's consumption, theoretically empowering them to drive development closer to the people.
The success of this shift will now depend on how effectively states can translate this increased allocation into tangible public goods and services.
0 Comments