Total Value Added Tax (VAT) collections rose sharply to N1.08tn in January 2026, marking the first full month under Nigeria’s revised VAT sharing formula.
Documents presented at the February meeting of the Federation Account Allocation Committee (FAAC) show that collections by the Nigeria Revenue Service (NRS) increased from N913.96bn in December 2025 to N1.08tn in January — a month-on-month rise of N169.20bn or 18.5 per cent.
After VAT deductions at source of N79.94bn, the net VAT available for distribution stood at N1.00tn, up from N846.51bn in December.
Under the new structure introduced by the National Tax Acts, 10 per cent of net VAT is allocated to the Federal Government, 55 per cent to state governments, and 35 per cent to local governments. Previously, the Federal Government received 15 per cent, states 50 per cent, and local governments 35 per cent.
Based on the revised formula, the Federal Government received N100.32bn in January, states collectively got N551.77bn, while local governments were allocated N351.13bn. Had the former 15 per cent structure remained in place, the Federal Government would have received approximately N150.48bn — about N50.16bn more than its current share.
Despite the reduced percentage, total allocations across all tiers increased due to the higher VAT pool. States’ allocations rose by 30.4 per cent compared with December, while local governments saw an 18.5 per cent increase.
Total funds available for distribution across revenue lines in January stood at N3.04tn, with N1.90tn distributed after deductions. Of this, the Federal Government received N525.23bn in combined statutory revenue and VAT, states received N767.29bn, local governments got N517.28bn, and the 13 per cent derivation allocation amounted to N90.19bn.
A breakdown of state VAT allocations shows that Lagos State remained the dominant beneficiary, generating N533.40bn in non-import VAT — 58.39 per cent of the national total. The state’s gross VAT allocation stood at N111.22bn, from which it retained N101.34bn after deductions. Its local governments received N70.57bn.
Other top beneficiaries included Oyo State, Rivers State, Kano State and the Federal Capital Territory.
Meanwhile, the International Monetary Fund has warned that maintaining the current VAT rate could reduce consolidated government revenue by up to 0.5 per cent of GDP. The Fund acknowledged, however, that delaying a VAT rate increase may be justified amid rising poverty and food insecurity.
Similarly, the Nigeria Economic Summit Group cautioned that without rate adjustments, the Federal Government could face revenue shortfalls.
Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, projected that states could earn over N4tn annually from 2026 under the revised VAT regime, raising questions about whether the additional revenue will be invested or merely spent.
With VAT earnings already exceeding projections in January, states may ultimately surpass the estimated N5.07tn share forecast for 2026 if current trends persist.
