States receive N2.37trn VAT in H1 under new tax sharing formula

State governments received a combined N2.37tn in Value Added Tax allocations in the first half of 2026 following the implementation of Nigeria’s new tax regime, an increase of N451.25bn or 23.48 per cent compared to the N1.92tn received during the same period in 2025.

An analysis of Federation Account Allocation Committee reports, National Bureau of Statistics data and records from the Office of the Accountant-General of the Federation showed that the increase was driven by higher VAT collections and the revised revenue-sharing formula that took effect on January 1, 2026.

During the six-month period, the Federation shared N4.31tn in distributable VAT revenue among the Federal Government, states and local governments, up from N3.84tn recorded in the corresponding period of 2025.

Under the new tax laws signed in 2025, the Federal Government’s share of VAT fell from 15 per cent to 10 per cent, while states’ allocation increased from 50 per cent to 55 per cent. Local governments retained their 35 per cent share.

The adjustment effectively transferred about N215.72bn from the Federal Government to state governments during the first half of the year. Had the previous formula remained in place, the Federal Government would have received about N647.15bn from VAT, while states would have shared N2.16tn instead of N2.37tn.

Local government councils received about N1.51tn from VAT during the period.

States recorded their highest monthly VAT allocation in January, receiving N551.77bn from revenue shared in February, representing a 53.53 per cent increase over the corresponding period in 2025.

Allocations declined to N340.52bn in February and N283.47bn in March before rebounding to N410.90bn in April. States received N378.83bn in May and N407.40bn in June, with March being the only month that recorded a year-on-year decline.

Overall FAAC distributions also increased significantly during the period. The Federal Government received N4.57tn from federation revenues between January and June, representing a 34.47 per cent increase from the N3.40tn shared in the first half of 2025.

State governments received N4.47tn in general FAAC allocations, excluding derivation payments, up 30.58 per cent from N3.43tn recorded a year earlier, while local governments received N3.13tn, representing a 24.98 per cent increase.

Oil-producing states also received N864.89bn as 13 per cent derivation revenue during the six months.

The Nigeria Economic Summit Group has warned that retaining the current VAT rate despite the revised sharing formula could reduce Federal Government revenue unless alternative sources of income are developed.

Similarly, the International Monetary Fund said Nigeria’s decision not to increase the VAT rate could result in a revenue loss equivalent to about 0.5 per cent of Gross Domestic Product, although it acknowledged concerns over rising poverty and food insecurity.

Meanwhile, the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, has projected that state governments could earn more than N4tn annually from VAT beginning in 2026 under the new framework.

Economic experts have urged state governments to use the increased allocations transparently while strengthening internally generated revenue rather than relying solely on federal transfers.