Nigeria’s 36 states are projected to receive about N5.07tn in Value Added Tax (VAT) revenue in 2026 following the implementation of a new sharing formula under the National Tax Acts, according to findings from the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper approved by the Federal Executive Council.
Under the revised formula, which takes effect from January 2026, the Federal Government’s share of VAT will drop from 15 per cent to 10 per cent, while states’ allocation will rise from 50 per cent to 55 per cent. Local governments will retain their 35 per cent share.
The fiscal document projects total distributable VAT revenue of N9.23tn in 2026. Of this amount, the Federal Government is expected to receive N922.53bn, states N5.07tn, and local governments N3.23tn. By comparison, states received N3.47tn from VAT in 2025, when the VAT pool stood at N6.95tn.
The shift in allocation means states will gain an additional N461.27bn in 2026, representing the five percentage points transferred from the Federal Government under the new law. Had the old 15 per cent formula remained in place, the Federal Government’s share would have been about N1.38tn.
Although the VAT pool is projected to grow significantly in the coming years—rising to N10.87tn in 2027 and N13.28tn in 2028—the new structure ensures that most of the growth will flow to subnational governments. States’ VAT receipts are projected to increase to N5.98tn in 2027 and N7.30tn in 2028, while local governments are expected to earn N3.81tn and N4.65tn respectively. Federal VAT revenue, meanwhile, is forecast at N1.09tn in 2027 and N1.33tn in 2028.
The data highlight a broader rebalancing of Nigeria’s fiscal structure in favour of states and local governments, particularly through consumption-based taxes such as VAT.
However, the gains from VAT come against a backdrop of a sharp decline in the main Federation Account pool, which is dominated by oil revenue and company income tax. The pool is projected to fall from N60.26tn in 2025 to N41.06tn in 2026. As a result, the Federal Government’s share from this source is expected to drop from N31.74tn to N21.63tn, while states’ allocations decline from N16.10tn to N10.97tn.
Another boost for subnational governments is expected from stamp duty revenue, formerly the Electronic Money Transfer Levy. The distributable stamp duty pool is projected to double from N228.85bn in 2025 to N456.07bn in 2026, with states receiving N250.84bn under the same 55 per cent sharing formula used for VAT.
Despite these gains, concerns remain about overall revenue adequacy. The Nigeria Economic Summit Group and the International Monetary Fund have warned that the Federal Government could face revenue shortfalls if the VAT rate is not increased as part of ongoing tax reforms. The IMF estimates that maintaining the current VAT rate could cost the government up to 0.5 per cent of GDP in lost revenue.
Nevertheless, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has said VAT reforms from 2026 could earn states more than N4tn annually, raising questions about how effectively the additional funds will be deployed for development rather than consumption.
