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Nigeria’s 36 states are projected to receive a combined ₦5.07 trillion in Value Added Tax (VAT) revenue in 2026, following the implementation of a new VAT sharing formula under the recently enacted National Tax Acts, findings by The PUNCH have revealed.
The new revenue outlook is contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council.
New VAT Formula Reshapes Revenue Distribution
Under the revised VAT allocation framework, which takes effect in January 2026, the Federal Government’s share of VAT revenue will decline from 15 per cent to 10 per cent, while states’ allocation will increase from 50 per cent to 55 per cent. Local governments will retain their 35 per cent share.
According to projections in the MTEF/FSP, the Federal Government’s VAT allocation is expected to fall to ₦922.53 billion in 2026, down from ₦1.04 trillion in 2025, despite significant growth in total VAT revenue.
The projected ₦922.5bn represents 10 per cent of the anticipated ₦9.23 trillion VAT pool for 2026, confirming the full rollout of the new formula.
States Gain as Federal Share Shrinks
In 2025, under the old formula, the Federal Government received 15 per cent of a ₦6.95 trillion VAT pool, amounting to approximately ₦1.04 trillion. If that formula had remained in place in 2026, the Federal Government would have earned about ₦1.38 trillion from VAT.
However, under the new arrangement, the Federal Government is projected to receive ₦922.5 billion, implying a ₦461.27 billion shortfall—a sum that effectively shifts to the states.
This five-percentage-point transfer is expected to boost states’ collective VAT receipts to ₦5.07 trillion in 2026, up from ₦3.47 trillion in 2025.
Local governments, whose share remains unchanged at 35 per cent, are projected to collect ₦3.23 trillion, compared to ₦2.43 trillion in the previous year.
VAT Growth Cushions Federal Revenue Loss
While the Federal Government’s percentage share has declined, the expansion of the VAT pool—from ₦6.95 trillion in 2025 to ₦9.23 trillion in 2026—provides partial compensation.
Nonetheless, the data highlights a structural shift in Nigeria’s fiscal framework, with the bulk of VAT growth now flowing directly to subnational governments as part of efforts to strengthen fiscal federalism.
Medium-Term Projections Favour States, LGs
Further projections show that the VAT pool is expected to rise to ₦10.87 trillion in 2027 and ₦13.28 trillion in 2028.
At a constant 10 per cent share, the Federal Government’s VAT revenue is projected at ₦1.09 trillion in 2027 and ₦1.33 trillion in 2028.
By contrast, states are expected to earn ₦5.98 trillion in 2027 and ₦7.30 trillion in 2028, while local governments would receive ₦3.81 trillion and ₦4.65 trillion, respectively.
Main Federation Account to Shrink in 2026
Beyond VAT, the broader Federation Account, dominated by oil revenue, company income tax, and customs duties, is projected to contract sharply in 2026.
The pool is expected to decline from ₦60.26 trillion in 2025 to ₦41.06 trillion in 2026, representing a ₦19.2 trillion drop.
Under the existing revenue-sharing formula:
- Federal Government: 52.68%
- States: 26.72%
- Local Governments: 20.60%
Based on these ratios, the Federal Government’s allocation is projected to fall from ₦31.74 trillion in 2025 to ₦21.63 trillion in 2026. States and local governments are also expected to see sharp declines.
Although modest recovery is projected in 2027 and 2028, federal earnings from this pool are expected to remain below 2025 levels.
Stamp Duty Revenue Also Favors States
Another bright spot for subnational governments is stamp duty revenue, formerly known as the Electronic Money Transfer Levy.
The distributable stamp duty pool is projected to rise from ₦228.85 billion in 2025 to ₦456.07 billion in 2026. The sharing formula mirrors VAT: 10% federal, 55% states, 35% local governments.
This implies:
- Federal Government: ₦45.61bn
- States: ₦250.84bn
- Local Governments: ₦159.62bn
The increase is attributed to the rapid growth of digital payments and electronic financial transactions.
Experts Warn of Revenue Risks Without VAT Rate Increase
Earlier, The PUNCH reported warnings from the Nigeria Economic Summit Group (NESG) that the Federal Government could face revenue shortfalls if it does not raise the VAT rate.
Speaking in Abuja, NESG CEO Dr Tayo Aduloju cautioned that simplifying the tax system without adjusting the VAT rate could weaken government revenue.
“Without those rate hikes, it means that the government might lose some revenue,” he said.
Similarly, the International Monetary Fund (IMF), in its latest Article IV Consultation Report on Nigeria, warned that maintaining the current VAT rate could lead to a revenue loss of up to 0.5 per cent of GDP.
While acknowledging the government’s decision to delay a VAT hike due to high poverty and food insecurity, the IMF noted that the move would constrain public finances unless alternative revenue sources are found.
States Could Earn Over ₦4tn Annually — Oyedele
At the launch of the BudgIT State of States 2025 Report, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele, projected that states could earn over ₦4 trillion annually from 2026 under the new VAT regime.
“With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent. That could amount to over ₦4tn in 2026. The question is: will this money be spent, or will it be invested?” he asked.
