Nigeria’s 36 states are projected to receive a combined N5.07tn from Value Added Tax (VAT) in 2026, following the implementation of a new VAT sharing formula under the National Tax Acts.
This is contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council, which outlines a significant redistribution of VAT revenues in favour of subnational governments.
Under the new framework, effective January 2026, the Federal Government’s VAT share will drop from 15 per cent to 10 per cent, while the states’ allocation will rise from 50 per cent to 55 per cent. Local Governments will retain their 35 per cent share.
The fiscal document projects that the VAT pool will expand to N9.23tn in 2026, from N6.95tn in 2025. Based on the revised formula, the Federal Government’s VAT allocation is expected to decline to N922.53bn in 2026, down from N1.04tn the previous year.
The projected N922.5bn represents 10 per cent of the estimated VAT pool, confirming the full application of the new sharing ratio. Had the old 15 per cent formula remained in place, the Federal Government would have received about N1.38tn in 2026.
The difference—N461.27bn—represents revenue that will instead flow to the states under the revised allocation. This shift lifts states’ total VAT receipts to N5.07tn in 2026, compared with N3.47tn in 2025.
Local Governments, whose share remains unchanged, are projected to receive N3.23tn in 2026, up from N2.43tn in 2025.
Although the growth in the overall VAT pool provides some buffer for the Federal Government, the data shows that the bulk of incremental VAT revenue will now structurally accrue to states and local governments, in line with the tax reforms’ objective of strengthening fiscal federalism.
Looking ahead, the VAT pool is projected to rise further to N10.87tn in 2027 and N13.28tn in 2028. Applying the 10 per cent allocation, the Federal Government’s VAT revenue is expected to increase to N1.09tn in 2027 and N1.33tn in 2028.
By contrast, states are projected to earn N5.98tn in 2027 and N7.30tn in 2028, while Local Governments are expected to receive N3.81tn and N4.65tn respectively.
The VAT pool is only one component of Nigeria’s distributable public revenue. The main Federation Account, dominated by oil revenue, company income tax, and customs duties, is projected to shrink sharply in 2026.
According to the MTEF/FSP, the main pool will decline from N60.26tn in 2025 to N41.06tn in 2026, a drop of N19.2tn. Based on the existing sharing formula—52.68 per cent for the Federal Government, 26.72 per cent for states, and 20.60 per cent for Local Governments—the Federal Government’s share is expected to fall from N31.74tn to N21.63tn.
States’ allocations from the main pool are projected to decline from N16.10tn to N10.97tn, while Local Governments’ share is expected to drop from N12.41tn to N8.46tn.
Although the Federation Account is projected to recover modestly in 2027 and 2028, revenues are still expected to remain below 2025 levels.
Another growing revenue stream is stamp duty, formerly known as the Electronic Money Transfer Levy. The distributable stamp duty pool is projected to rise sharply from N228.85bn in 2025 to N456.07bn in 2026.
Using the same sharing formula as VAT, the Federal Government is expected to receive N45.61bn in 2026, while states will collect N250.84bn, nearly double their 2025 allocation. Local Governments are projected to receive N159.62bn, up from N80.10bn.
The growth is attributed to the expansion of electronic payment channels and increased adoption of digital financial services.
Despite the rising VAT and stamp duty pools, concerns remain over overall government revenue. The Nigeria Economic Summit Group (NESG) has warned that the Federal Government could face revenue shortfalls if the VAT rate is not increased as part of the ongoing tax reforms.
Speaking at a media session in Abuja, NESG Chief Executive Officer Dr Tayo Aduloju said maintaining the current VAT rate could weaken government revenue.
“Without those rate hikes, it means that the government might lose some revenue,” he said, stressing the need to balance tax simplification with revenue sustainability.
Similarly, the International Monetary Fund (IMF), in its latest Article IV Consultation Report on Nigeria, noted that while recent tax reforms represent a major step forward, maintaining the current VAT rate would result in an immediate revenue shortfall of up to 0.5 per cent of GDP.
The IMF acknowledged the government’s decision to delay a VAT increase due to rising poverty and food insecurity but warned that, without alternative financing, subnational governments may be forced to cut spending or intensify internal revenue mobilisation.
Reinforcing the scale of the shift, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, recently said that states could earn more than N4tn annually from 2026 as the new VAT reforms take effect.
“With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent,” Oyedele said. “That could amount to over N4tn in 2026. The real question is whether this money will be spent—or invested.”
