Nigeria’s Value Added Tax (VAT) revenue surged to N1.08tn in January 2026, marking the first full month under a revised sharing formula that reduced the Federal Government’s allocation while increasing states’ share.
Documents presented at the February meeting of the Federation Account Allocation Committee showed that VAT collections by the Nigeria Revenue Service rose from N913.96bn in December 2025 to N1.08tn in January — an 18.5 per cent month-on-month increase.
After deductions at source of N79.94bn, the net VAT available for distribution stood at N1.00tn, compared to N846.51bn shared in December.
Under the revised structure, the Federal Government now receives 10 per cent of net VAT, states 55 per cent, and Local Governments 35 per cent. Previously, the Federal Government received 15 per cent, states 50 per cent, and Local Governments retained 35 per cent.
As a result, the Federal Government received N100.32bn in January, about N50bn less than it would have earned under the old formula. In contrast, states shared N551.77bn — roughly N50bn more than under the previous structure — while Local Governments received N351.13bn.
Overall funds available for distribution across revenue lines in January stood at N3.04tn, with total net distributable revenue amounting to N1.90tn.
A breakdown of VAT distribution showed Lagos maintaining dominance in revenue generation. Lagos State recorded a gross VAT allocation of N111.22bn, retaining N101.34bn after deductions, while its Local Governments received N70.57bn.
Oyo followed with N24.04bn, Rivers with N23.57bn, Kano with N17.37bn, and the FCT-Abuja with N15.76bn.
Non-import VAT collections rose sharply to N913.47bn in January from N721.83bn in December — a 26.5 per cent increase — with Lagos alone generating N533.40bn, accounting for nearly 58 per cent of the total.
The cost of VAT collection, calculated at 4 per cent, climbed to N43.33bn in January. Deductions to the North East Development Commission and the Revenue Mobilisation Allocation and Fiscal Commission totalled N36.61bn.
The surge in VAT earnings comes amid broader tax reforms under the administration of President Bola Ahmed Tinubu.
The Nigeria Economic Summit Group has warned that failure to increase the VAT rate could trigger revenue shortfalls. Its Chief Executive Officer, Tayo Aduloju, cautioned that maintaining the current rate without adjustment may weaken government finances.
Similarly, the International Monetary Fund, in its recent Article IV Consultation Report on Nigeria, projected that retaining the current VAT rate could reduce consolidated government revenue by up to 0.5 per cent of GDP.
However, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, projected that states could earn over N4tn annually from 2026 as the 55 per cent VAT allocation takes full effect.
Economic experts have urged states to utilise the increased allocations prudently and strengthen internally generated revenue (IGR).
A former President of the Chartered Institute of Bankers of Nigeria, Prof. Segun Ajibola, stressed the need for transparency in managing the additional funds, warning that improved allocations must translate into better public services.
As VAT receipts continue to outperform benchmarks — exceeding January projections by over N288bn — analysts say states could surpass earlier revenue estimates if the current growth trend persists throughout 2026.
