State VAT Windfall Hits N551bn as New Tax Laws Take Effect

In a definitive shift for Nigeria’s fiscal federalism, the 36 state governments saw their share of Value Added Tax (VAT) soar to ₦551.77 billion in January 2026. This represents a 30.4% increase from the previous month and marks the first distribution under the Nigeria Tax Act 2025. Under the new framework, the Federal Government’s take was slashed to 10% of net VAT, down from 15%, while the states’ allocation jumped to 55%. This rebalancing has effectively transferred billions from the centre to the sub-nationals, providing states with much-needed liquidity amid rising operational costs.

Total VAT collections for January reached ₦1.08 trillion, a sharp climb from December’s ₦913.96 billion. After statutory deductions at source, the net distributable VAT stood at ₦1 trillion. While the states and local governments celebrated double-digit gains, the Federal Government’s VAT revenue declined by 21%, falling to ₦100.32 billion. This planned contraction at the federal level is a core pillar of the administration’s strategy to decentralise financial resources and empower state-led development.

Lagos State remains the undisputed titan of the VAT pool, securing a gross allocation of ₦111.22 billion. After internal deductions, the state retained ₦101.34 billion, while its local governments collectively pocketed ₦70.57 billion. Oyo and Rivers followed as the next highest beneficiaries, receiving ₦24.04 billion and ₦23.57 billion, respectively. At the other end of the spectrum, states like Taraba and Ebonyi received the lowest allocations, both hovering below the ₦10 billion mark, highlighting the persistent disparity in internal consumption across the federation.

VAT Distribution by State (January 2026 Top Tier)

The Nigeria Revenue Service (NRS) also reported a 32.4% spike in the cost of collection, which rose to ₦43.33 billion. Statutory deductions to the North East Development Commission (NEDC) and the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) also increased, totalling ₦36.61 billion. Despite these deductions, the broader Federation Account Allocation Committee (FAAC) summary showed a healthy ₦3.04 trillion available for distribution across all revenue lines, suggesting a robust start to the 2026 fiscal year.

Critics of the new law argue that while the states have more cash, the lack of a corresponding increase in accountability frameworks remains a concern. With more money flowing into state capitals, the pressure on governors to deliver visible infrastructure and social investment has never been higher. For the local governments, an 18.5% increase in their share to ₦351.13 billion offers a rare opportunity to tackle grassroots development, provided the funds are not diverted at the state level.

The surge in VAT revenue is a strong validation of the government’s push to modernise the tax system and improve collection efficiency. As the 2026 fiscal year progresses, the focus will shift to how these windfalls are utilised. For the Federal Government, the 21% dip in its VAT share is a calculated gamble that stronger states will lead to a more resilient national economy.