Nigeria’s Value Added Tax (VAT) collections surged to N1.08tn in January 2026, marking the first full month under a revised revenue-sharing formula that significantly increases allocations to state governments.
Documents presented at the February meeting of the Federation Account Allocation Committee (FAAC) show that VAT collections rose from N913.96bn in December 2025 to N1.08tn in January 2026—an 18.5 per cent month-on-month increase.
However, the entire sum was not available for distribution. VAT deductions at source amounted to N79.94bn, leaving a net distributable VAT of N1.00tn, compared to N846.51bn shared in December. This represents a net increase of N156.72bn, also 18.5 per cent higher than the previous month.
New Sharing Formula Alters Allocations
January marked the implementation of the new VAT allocation structure, which reduces the Federal Government’s share from 15 per cent to 10 per cent, increases states’ share from 50 per cent to 55 per cent, and retains 35 per cent for Local Governments.
Under the new formula, the Federal Government received N100.32bn from the N1.00tn net VAT pool. If the previous 15 per cent rate had remained, it would have received approximately N150.48bn—implying a shortfall of about N50.16bn.
States collectively received N551.77bn, representing an increase of N50.16bn compared to what they would have earned under the former formula. Local Governments were allocated N351.13bn.
Compared to December figures, the Federal Government’s VAT share declined by N26.65bn, or 21 per cent, from N126.98bn. In contrast, states saw a 30.4 per cent increase in allocation, rising from N423.25bn in December to N551.77bn in January. Local Governments’ allocation rose by 18.5 per cent from N296.28bn to N351.13bn.
Collection Costs and Statutory Deductions Rise
The cost of VAT collection also increased in line with higher earnings. The Nigeria Revenue Service (NRS) deducted N43.33bn as collection cost—calculated at 4 per cent—up from N32.72bn in December. Meanwhile, the Nigeria Customs Service recorded no import VAT collection cost in January, possibly reflecting ongoing tax reforms that designate the NRS as the primary revenue collection agency.
Other statutory deductions included:
- 3 per cent to the North East Development Commission (NEDC), rising to N31.20bn from N26.32bn.
- 0.5 per cent to the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), increasing to N5.42bn from N4.57bn.
Combined, these deductions totalled N36.61bn in January, up N5.72bn from December.
Overall, FAAC reported total revenue available for distribution across all revenue lines at N3.04tn in January. After total deductions of N1.14tn, net distributable revenue stood at N1.90tn. Of this, N896.78bn came from statutory revenue and N1.00tn from VAT.
The Federal Government’s total allocation from combined revenue sources was N525.23bn, while states received N767.29bn and Local Governments N517.28bn. The 13 per cent derivation share amounted to N90.19bn.
Lagos Dominates VAT Allocation
A breakdown of VAT distribution among states shows Lagos maintaining its dominance. The state recorded a gross VAT allocation of N111.22bn in January. After deductions of N9.89bn, it retained N101.34bn as net VAT, while its Local Governments collectively received N70.57bn.
Oyo ranked second with N24.04bn in gross VAT allocation, followed by Rivers with N23.57bn. Kano received N17.37bn, the FCT-Abuja N15.76bn, and Bayelsa N15.07bn. Other top beneficiaries included Katsina (N13.82bn), Jigawa (N12.92bn), Delta (N12.89bn), and Kaduna (N12.73bn).
At the lower end, Ebonyi received N9.45bn, Ekiti N9.83bn, Taraba N9.37bn, and Nasarawa N9.77bn.
Although 50 per cent of the states’ distribution formula is based on equality, the remaining 30 per cent population and 20 per cent derivation components continue to widen disparities between high-activity and lower-activity states.
VAT Generation Concentrated in Few States
Non-import local VAT collections rose significantly to N913.47bn in January from N721.83bn in December, a 26.5 per cent increase.
Lagos alone generated N533.40bn—accounting for 58.39 per cent of total non-import VAT. Oyo generated N67.18bn, Rivers N66.35bn, FCT-Abuja N39.73bn, and Bayelsa N34.62bn.
For Local Governments, Lagos councils received N70.57bn in net VAT, Oyo N18.04bn, Kano N16.29bn, Rivers N15.47bn, and Katsina N11.76bn.
January’s VAT collection of N913.96bn exceeded the benchmark of N625.13bn by N288.82bn. The total VAT earnings figure of N1.08tn surpassed projections by N458.03bn, producing a cumulative variance of N746.85bn over the period reviewed.
Outlook: Higher Earnings, Fiscal Questions
Projections in the 2026–2028 Medium-Term Expenditure Framework estimate that states could receive N5.07tn in VAT revenue in 2026 under the new sharing formula. With January and February collections already exceeding projections, total earnings could surpass this estimate if the trend continues.
However, fiscal experts have cautioned that maintaining the current VAT rate without adjustment may lead to revenue gaps. While some argue that raising VAT could stabilise government finances, others support delaying any rate increase due to high poverty levels and food insecurity.
Analysts also urge states to reduce reliance on statutory allocations and strengthen internally generated revenue. With increased VAT inflows, attention is shifting to accountability and how subnational governments will deploy the additional funds to address infrastructure deficits, healthcare challenges, and economic development needs.
As revenue grows under the revised framework, scrutiny is likely to intensify over whether higher allocations translate into measurable improvements in living standards across the country.
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