VAT Windfall for States: See Nigerian States With the Highest Shares as New Tax Law Begins
- Nigeria's VAT reforms boost state government revenues, raising their share from 50% to 55%
- The federal government has seen a decline in VAT earnings, dropping from N126.98 billion to N100.32 billion
- Lagos emerges as the largest VAT beneficiary, netting N101.34 billion after deductions in January 2026
Pascal Oparada is a journalist with Legit.ng, covering technology, energy, stocks, investment, and the economy for over a decade.
Nigeria’s fiscal landscape is shifting as the country begins implementing sweeping tax reforms that significantly change how Value Added Tax (VAT) revenue is shared among the tiers of government.
In January 2026, the 36 state governments collectively received N551.77 billion as their share of VAT revenue, out of a total N1.08 trillion collected during the month.
Source: Getty Images
The amount marks a 30.4 per cent increase from the N423.25 billion distributed to states in December 2025.
The new figures represent the first major VAT distribution under the Federal Government’s newly implemented tax laws, which altered the sharing formula among federal, state, and local governments.
New VAT sharing formula takes effect
Under the revised tax structure, the Federal Government’s share of net VAT revenue has been reduced from 15 per cent to 10 per cent.
In contrast, state governments now receive 55 per cent, up from 50 per cent under the previous arrangement. The 35 per cent allocation to local governments remains unchanged.
Data from the Nigeria Revenue Service, presented to the Federation Account Allocation Committee (FAAC), shows that total VAT collections increased sharply from N913.96 billion in December 2025 to N1.08 trillion in January 2026.
After deductions at source totaling N79.9 billion, the net VAT available for distribution stood at N1 trillion.
From this amount:
- Federal Government: N100.32 billion (10%)
- State Governments: N551.77 billion (55%)
- Local Governments: N351.13 billion (35%)
Federal share declines as states gain
The shift in the sharing formula resulted in a noticeable drop in the Federal Government’s VAT earnings.
In December, under the previous formula, the Federal Government received N126.98 billion. With the new system, its January allocation fell to N100.32 billion, representing a decline of N26.65 billion or about 21 percent, a BusinessDay report said.
States, however, experienced the opposite effect.
Their collective allocation rose from N423.25 billion in December to N551.77 billion in January, translating to an increase of N128.52 billion.
Local governments also saw an improvement in their share, receiving N351.13 billion in January, up from N296.28 billion in December, representing an 18.5 percent increase.
Deductions and collection costs rise
Alongside the higher revenue, costs and statutory deductions also increased.
The cost of VAT collection rose to N43.33 billion in January, compared to N32.72 billion in December, representing a 32.4 percent increase.
Other mandatory deductions included:
- 3 percent allocation to the North East Development Commission (NEDC) project account, which increased to N31.20 billion from N26.32 billion.
- 0.5 percent deduction to the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), which rose to N5.42 billion from N4.57 billion.
Combined, these deductions reached N36.61 billion in January, compared with N30.89 billion in December.
Total FAAC revenue hits N3.04 trillion
The broader revenue summary from FAAC showed that total funds available for distribution across revenue streams in January reached N3.04 trillion.
After total deductions of N1.14 trillion, the net distributable revenue stood at N1.90 trillion.
Of this total:
- N896.78 billion came from statutory revenue
- N1.00 trillion came from net VAT
When both revenue sources were combined:
- Federal Government received N525.23 billion
- State Governments received N767.29 billion
- Local Governments received N517.28 billion 13 percent derivation allocation totaled N90.19 billion
Lagos tops VAT beneficiaries
A breakdown of the VAT distribution across states shows Lagos State maintaining its position as the largest beneficiary.
The state recorded a gross VAT allocation of N111.22 billion in January. After deductions of N9.89 billion, Lagos retained N101.34 billion as its net VAT share, while its local governments collectively received N70.57 billion.
Other top beneficiaries include:
- Oyo State – N24.04 billion
- Rivers State – N23.57 billion
- Kano State – N17.37 billion
- Federal Capital Territory – N15.76 billion
- Bayelsa State – N15.07 billion
- Katsina State – N13.82 billion
- Jigawa State – N12.92 billion
- Delta State – N12.89 billion
- Kaduna State – N12.73 billion
States with lower VAT allocations
Some states received comparatively smaller shares of VAT revenue.
These include:
- Ebonyi State – N9.45 billion
- Ekiti State – N9.83 billion
- Taraba State – N9.37 billion
- Nasarawa State – N9.77 billion
Despite the disparities, the new tax regime appears to significantly strengthen state finances, giving subnational governments a larger share of VAT revenue as Nigeria pushes forward with its tax reform agenda.
Source: Facebook
List of 10 states with highest FAAC allocation
Legit.ng earlier reported that the list of the top 10 states with the highest Federation Account Allocation Committee (FAAC) allocation.
The 2025 ranking of receipts underscores a familiar fiscal pattern: oil-producing states and leading commercial hubs dominate the list.
As reported by The Nation, the 13 per cent derivation fund worked to the advantage of the oil-producing states, mostly from the south-south region.
Source: Legit.ng
