Nigeria’s Value Added Tax (VAT) collections rose sharply to ₦1.08 trillion in January 2026, marking the first full month under a revised revenue-sharing formula that significantly increased allocations to state governments.
Documents presented at the February meeting of the Federation Account Allocation Committee (FAAC) show that total VAT collections by the Nigeria Revenue Service (NRS) climbed from ₦913.96 billion in December 2025 to ₦1.08 trillion in January 2026 — an increase of ₦169.20 billion or 18.5 percent month-on-month.
Net VAT for Distribution Stands at ₦1.00tn
Despite the headline figure, the full ₦1.08 trillion was not available for distribution. VAT deductions at source rose to ₦79.94 billion in January, compared to ₦67.45 billion in December, leaving a net distributable VAT of ₦1.00 trillion.
This represents an 18.5 percent increase over the ₦846.51 billion shared in December, with the net distributable amount rising by ₦156.72 billion.
New VAT Sharing Formula Takes Effect
January marked the first implementation month of the revised VAT allocation structure. Under the new formula:
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Federal Government – 10%
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State Governments – 55%
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Local Governments – 35%
Previously, the Federal Government received 15 percent, states 50 percent, and local governments 35 percent.
From the ₦1.00 trillion net VAT shared in January:
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The Federal Government received ₦100.32 billion
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States received ₦551.77 billion
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Local Governments received ₦351.13 billion
Had the former 15 percent structure remained, the Federal Government would have received approximately ₦150.48 billion, implying a shortfall of about ₦50.16 billion under the new formula. Compared with December’s ₦126.98 billion VAT allocation, January’s ₦100.32 billion represents a 21 percent decline for the Federal Government.
In contrast, states saw a significant gain. Their combined VAT share rose from ₦423.25 billion in December to ₦551.77 billion in January — an increase of ₦128.52 billion or 30.4 percent. Local governments also benefited, with allocations increasing from ₦296.28 billion to ₦351.13 billion.
Cost of Collection and Statutory Deductions
The 4 percent VAT cost of collection by the Nigeria Revenue Service rose to ₦43.33 billion from ₦32.72 billion. Meanwhile, the import VAT cost of collection by the Nigeria Customs Service, which stood at ₦3.84 billion in December, was nil in January, likely reflecting ongoing tax reforms consolidating revenue collection under the NRS.
Other statutory deductions included:
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3% to the North East Development Commission – ₦31.20 billion
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0.5% to the Revenue Mobilisation Allocation and Fiscal Commission – ₦5.42 billion
Combined, these deductions totalled ₦36.61 billion in January.
Overall, FAAC reported ₦3.04 trillion available for distribution across revenue lines in January, with total deductions of ₦1.14 trillion, leaving ₦1.90 trillion as net distributable revenue. The Federal Government’s total allocation stood at ₦525.23 billion, states received ₦767.29 billion, local governments got ₦517.28 billion, while ₦90.19 billion was paid as 13 percent derivation.
Lagos Leads VAT Beneficiaries
Breakdown of VAT distribution among states showed that Lagos State remained the dominant beneficiary. The state recorded a gross VAT allocation of ₦111.22 billion and retained ₦101.34 billion after deductions. Its local governments collectively received ₦70.57 billion.
Other top beneficiaries included:
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Oyo State – ₦24.04 billion
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Rivers State – ₦23.57 billion
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Kano State – ₦17.37 billion
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FCT-Abuja – ₦15.76 billion
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Bayelsa State – ₦15.07 billion
At the lower end, Ebonyi State, Ekiti State, Taraba State, and Nasarawa State received allocations below ₦10 billion.
Non-import VAT collections further highlighted concentration in economic hubs. Total non-import VAT stood at ₦913.47 billion, with Lagos alone generating ₦533.40 billion — accounting for 58.39 percent of the total.
IMF, NESG Raise Revenue Concerns
The Nigeria Economic Summit Group warned that maintaining the current VAT rate without an increase could create revenue gaps for the Federal Government. Its CEO, Tayo Aduloju, stated that failure to adjust VAT rates may weaken the government’s revenue base.
Similarly, the International Monetary Fund, in its recent Article IV Consultation report on Nigeria, estimated that retaining the current VAT rate could reduce consolidated government revenue by up to 0.5 percent of GDP.
However, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, projected that with states now receiving 55 percent of VAT, they could earn over ₦4 trillion annually from 2026 if current trends continue.
States Urged to Boost Internally Generated Revenue
Economic analysts, including Segun Ajibola and Ayo Teriba, advised states not to rely solely on FAAC and VAT allocations but to strengthen internally generated revenue sources.
With January VAT collections exceeding benchmarks by over ₦288 billion, analysts note that if the trend continues throughout 2026, states may surpass earlier projections of ₦5.07 trillion in VAT receipts for the year.
