New VAT sharing formula boosts states’ revenue to ₦551 billion in January – THIS UPDATE

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 approximately ₦551 billion. This sharp increase followed the implementation of new tax laws that changed the VAT distribution formula between levels of government. The development marked the first full month that the revised revenue sharing agreement came into effect.

Under the new formula, a larger percentage of VAT revenue is now allocated to state governments. Previously, the federal government received 15% of the sales tax, while states received 50% and local governments 35%. However, the new tax structure reduced the federal government’s share to 10% and increased the states’ share to 55%, while the split for local governments remained unchanged at 35%. This change in the sharing structure explains the substantial increase in the amount distributed to states in January.

The overall VAT collection for the month was around ₦1.08 trillion. After the necessary deductions, approximately ₦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 about ₦351 billion. The new formula aims to strengthen the financial capacity of subnational governments and enable them to meet their development responsibilities more effectively.

Among 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 sizeable shares. The large deployment in Lagos highlights the dominant role of the state in Nigeria’s commercial and service sectors, which generate a significant portion of the country’s VAT revenue.

The increased VAT allocations are expected to provide state governments with more resources to finance infrastructure projects, improve social services and address local development needs. However, analysts have also highlighted the importance of accountability and prudent management of these additional funds to ensure that the benefits of the new fiscal policy translate into tangible improvements in citizens’ lives.

Overall, the increase in the state share of VAT revenue represents a major change in Nigeria’s fiscal landscape. By granting states a larger share of revenue, the new tax laws seek to promote fiscal decentralization and encourage subnational governments to play a more active role in driving economic growth and development within their jurisdictions.

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