Nigerian state governments recorded a significant increase in Value Added Tax (VAT) allocations, receiving N2.37 trillion in the first half of 2026. This figure marks a 23.5% rise from the N1.92 trillion allocated during the same period in 2025.
The surge is largely attributed to a new VAT sharing formula, which redirected an estimated N219.72 billion from the Federal Government to the states. This adjustment underscores VAT's growing importance as a major contributor to federation revenue.
According to an analysis by Nairametrics, utilizing data from the Office of the Accountant General of the Federation and the National Bureau of Statistics, VAT accounted for 31.2% of the N14.08 trillion shared among the three tiers of government in H1 2026. The analysis covers VAT revenue generated between January and June 2026, with distributions occurring in the subsequent month.
The Federation Account Allocation Committee (FAAC) distributed a total of N4.39 trillion from VAT in the first six months of 2026, an increase of 14.3% from N3.84 trillion in H1 2025. Out of this total, state governments received N2.37 trillion, local government councils obtained N1.51 trillion, and the Federal Government received N431.43 billion.
Monthly state allocations from VAT showed fluctuations throughout the period. January revenue, shared in February, yielded the highest allocation for states at N551.77 billion. This amount decreased to N340.52 billion from February revenue (shared in March) and further to N283.47 billion from March collections (shared in April).
Allocations rebounded in April, with states receiving N410.90 billion from VAT collected in March. The figure slightly declined to N378.83 billion in May before recovering to N407.40 billion in June.
Comparing with the corresponding period in 2025, states recorded higher VAT receipts in five of the six months reviewed. January saw the largest increase, with allocations rising from N359.39 billion in 2025 to N551.77 billion in 2026. February increased from N304.72 billion to N340.52 billion, while March was the only month to record a slight year-on-year decline, falling from N296.88 billion to N283.47 billion.
April allocations rose from N299.04 billion to N410.90 billion, May increased from N345.86 billion to N378.83 billion, and June climbed from N315.75 billion to N407.40 billion. This stronger performance reflects both higher VAT collections and the implementation of the new revenue-sharing framework.
A significant driver behind this increase was the Nigeria Tax Act, which came into effect on January 1, 2026. Under the previous VAT sharing formula, the Federal Government received 15% of distributable VAT, states received 50%, and local governments received 35%.
The new law reduced the Federal Government’s share to 10%, increased the states’ allocation to 55%, and maintained the local governments’ share at 35%. Based on the N4.39 trillion VAT distributed during H1 2026, this revised formula transferred an estimated N219.72 billion from the Federal Government to state governments.
Had the previous formula remained in place, the Federal Government would have received approximately N651.15 billion from VAT during the six-month period, while states would have collected roughly N2.15 trillion. Instead, the Federal Government received N431.43 billion, and states collected N2.37 trillion.
Beyond the collective share, the new law also altered how VAT is distributed among states. The new framework allocates 50% based on equality, 20% according to population, and 30% using the place of consumption. This replaces the previous approach that primarily rewarded states where companies maintained their headquarters.
