Economic analysts have urged state governments to intensify efforts to grow their internally generated revenue (IGR) as allocations increase under the revised Value Added Tax sharing formula.
In separate interviews, financial experts noted that VAT has historically not been a primary revenue source for the Federal Government, arguing that the revised formula was deliberately structured to favour states and local governments.
A former Chairman of the Chartered Institute of Bankers of Nigeria, Prof Segun Ajibola, said the Federal Government traditionally relies more heavily on other revenue streams.
“The federal government has never emphasised VAT as a major revenue source. When the law was amended, the government made it clear that it would benefit the state and the local government more,” Ajibola explained.
He added that the Federal Government is strengthening alternative revenue channels such as capital gains tax, excess duties, and other federally collected revenues. According to him, the real concern is not the increase in VAT allocations, but how effectively states utilise the additional funds.
“The states are bleeding. And when I say the states are bleeding, I mean the masses. Schools are dilapidated, roads are bad, people are hungry, health care facilities are nowhere,” he said.
Ajibola called for greater transparency and accountability, suggesting that each state government establish a dedicated reporting mechanism to publicly account for increases in VAT allocations. He emphasised that agriculture, infrastructure and public utilities require urgent investment.
Also speaking, Dr Ayo Teriba, Chief Executive Officer of Economic Associates, observed that VAT historically replaced state sales taxes and originally belonged to states before being centralised for ease of collection.
“The tax belonged to the states. It is for ease of collection that the federal government decides to collect on behalf of the states,” Teriba noted.
However, he argued that the Federal Government could justifiably retain a stronger share of cross-border VAT payments, citing its broader national responsibilities.
Teriba cautioned states against overreliance on statutory allocations from the Federation Account Allocation Committee (FAAC), describing the additional VAT receipts as relatively modest in the broader fiscal context.
He pointed to Enugu State as an example of proactive revenue reform, noting that states capable of unlocking economic activity without overtaxing residents could generate IGR exceeding FAAC and VAT allocations combined.
According to the analysts, sustainable fiscal health for states will depend less on redistribution formulas and more on structural reforms that expand economic productivity and transparency.
