By John Umeh
Nigeria’s Value Added Tax (VAT) collections climbed to a historic ₦1.08 trillion in January 2026, marking the first full month under the revised VAT sharing formula.
Documents presented at the February meeting of the Federation Account Allocation Committee show that VAT collections rose from ₦913.96bn in December 2025 to ₦1.08tn in January — an 18.5% month-on-month increase.
After deductions of ₦79.94bn at source, net VAT available for sharing stood at ₦1.00tn, up from ₦846.51bn in December.
New VAT Sharing Formula: Who Gains, Who Loses?
January marked the implementation of a new revenue-sharing structure:
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Federal Government: 10% (down from 15%)
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States: 55% (up from 50%)
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Local Governments: 35% (unchanged)
January Distribution (₦1.00tn net VAT)
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Federal Government: ₦100.32bn
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States: ₦551.77bn
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Local Governments: ₦351.13bn
If the old formula had remained, the Federal Government would have received about ₦150.48bn. Instead, it saw an effective shortfall of roughly ₦50.16bn.
By contrast, states gained approximately ₦50bn more than they would have under the previous 50% structure.
Broader FAAC Allocation
Total revenue available for distribution in January stood at ₦3.04tn, with net distributable revenue of ₦1.90tn after deductions.
From combined statutory revenue and VAT:
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Federal Government: ₦525.23bn
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States: ₦767.29bn
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Local Governments: ₦517.28bn
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13% derivation: ₦90.19bn
Lagos Remains VAT Powerhouse
A breakdown of VAT allocations shows Lagos State remains Nigeria’s dominant VAT contributor and beneficiary.
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Gross VAT allocation: ₦111.22bn
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Net VAT retained by Lagos State: ₦101.34bn
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Lagos LGs combined: ₦70.57bn
In terms of VAT generation:
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Lagos generated ₦533.40bn in non-import VAT (58.39% of total)
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Oyo: ₦67.18bn
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Rivers: ₦66.35bn
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FCT-Abuja: ₦39.73bn
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Bayelsa: ₦34.62bn
At the lower end, states like Ebonyi, Taraba, Ekiti, and Nasarawa recorded allocations below ₦10bn each.
Rising Collection Costs
The VAT cost of collection (4%) rose to ₦43.33bn in January, up 32.4% from ₦32.72bn in December.
Other statutory deductions included:
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3% to North East Development Commission: ₦31.20bn
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0.5% to Revenue Mobilisation Allocation and Fiscal Commission: ₦5.42bn
Combined, these deductions totalled ₦36.61bn.
Revenue Outlook and Debate
The strong VAT performance exceeds the benchmark by ₦288.82bn for January alone, raising expectations that states may surpass earlier projections of ₦5.07tn in VAT receipts for 2026.
However, debate continues over whether Nigeria should raise the VAT rate.
The International Monetary Fund, in its recent Article IV Consultation Report, warned that maintaining the current VAT rate could reduce consolidated government revenue by up to 0.5% of GDP.
Similarly, the Nigeria Economic Summit Group cautioned that without rate adjustments, revenue stability could weaken.
Analysts Urge States to Boost IGR
Economic analysts say the revised formula strengthens states’ fiscal position but caution against overdependence on FAAC allocations.
Dr. Ayo Teriba of Economic Associates noted that VAT historically replaced state sales taxes and primarily belongs to states. However, he advised subnational governments to prioritise internally generated revenue (IGR).
Former CIBN Chairman Prof. Segun Ajibola stressed accountability, urging states to transparently account for increased VAT receipts and channel funds into agriculture, healthcare, education, and infrastructure.
The Bigger Question
With states now receiving 55% of VAT proceeds, attention shifts from revenue distribution to how effectively the funds are utilised.
As Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, recently asked:
“The question is: will this money be spent, or will it be invested?”
The answer may determine whether the record ₦1tn VAT milestone translates into tangible improvements in living standards across Nigeria.
