Lagos leads as January VAT hits record N1.08trn

Value Added Tax collections climbed to a record N1.08tn in January 2026, marking the first full month under the revised VAT sharing formula and significantly increasing allocations to state governments.

Documents presented at the February meeting of the Federation Account Allocation Committee showed that VAT collections by the Nigeria Revenue Service rose from N913.96bn in December 2025 to N1.08tn in January 2026, representing an 18.5 per cent month-on-month increase of N169.20bn.

After deductions at source amounting to N79.94bn, the net VAT available for sharing stood at N1.00tn, up from N846.51bn in December.

Under the new sharing structure, 10 per cent of net VAT goes to the Federal Government, 55 per cent to states and 35 per cent to local governments. Previously, the Federal Government received 15 per cent, states 50 per cent and local governments 35 per cent.

Based on the January distribution, the Federal Government received N100.32bn, states shared N551.77bn, while local governments were allocated N351.13bn.

Had the old 15 per cent formula remained in place, the Federal Government would have received about N150.48bn from the N1.00tn net VAT, implying a notional shortfall of roughly N50.16bn under the new arrangement. Conversely, states gained approximately N50.16bn compared to what they would have received under the previous 50 per cent structure.

In December, the Federal Government’s VAT share stood at N126.98bn, meaning the January allocation of N100.32bn reflects a decline of N26.65bn. Meanwhile, states’ collective share rose sharply from N423.25bn in December to N551.77bn in January, while local governments’ allocation increased from N296.28bn to N351.13bn.

The cost of VAT collection, calculated at four per cent by the Nigeria Revenue Service, rose to N43.33bn in January from N32.72bn in December. Other statutory deductions included three per cent for the North East Development Commission and 0.5 per cent for the Revenue Mobilisation Allocation and Fiscal Commission.

Overall, total funds available for distribution in January across all revenue lines stood at N3.04tn, with net distributable revenue of N1.90tn after deductions.

Lagos remained the dominant beneficiary among states, with a gross VAT allocation of N111.22bn and a net state VAT of N101.34bn after deductions. Its local governments received N70.57bn.

Oyo ranked second with N24.04bn in gross allocation, followed by Rivers with N23.57bn. Kano received N17.37bn, the FCT N15.76bn and Bayelsa N15.07bn.

Non-import VAT collections also surged to N913.47bn in January from N721.83bn in December. Lagos alone generated N533.40bn, accounting for over 58 per cent of total non-import VAT.

The revised formula follows tax reforms under the National Tax Acts, with projections indicating that states could receive about N5.07tn in VAT allocations in 2026 if current trends persist.

However, concerns have been raised over potential revenue gaps at the federal level. The Nigeria Economic Summit Group warned that maintaining the current VAT rate without an increase could result in revenue shortfalls. Similarly, the International Monetary Fund, in its recent Article IV Consultation Report on Nigeria, noted that the decision not to raise the VAT rate could reduce consolidated government revenue by up to 0.5 per cent of GDP.

Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, recently projected that states could earn over N4tn annually from 2026 under the revised VAT structure, urging prudent use of the additional funds.

Economic analysts have called on state governments to improve transparency and invest the increased allocations in critical sectors such as infrastructure, healthcare and agriculture, rather than relying solely on statutory transfers.