Documents presented during the February session of the Federation Account Allocation Committee (FAAC) and accessed by BrandIconImage on Tuesday indicate that the Nigeria Revenue Service (NRS) collected a total of N1.08 trillion in VAT for January, marking a significant rise from the N913.96 billion recorded in December 2025. This surge reflects a month-on-month increase of N169.20 billion, equivalent to an 18.5 per cent growth, highlighting the immediate effects of the revised allocation system on national revenue mobilization.
However, not all of the N1.08 trillion was available for distribution. VAT deductions at source, which include collection costs and statutory remittances, rose to N79.94 billion in January, from N67.45 billion in December, leaving a net distributable VAT of N1.00 trillion. By comparison, December’s net VAT shared stood at N846.51 billion, meaning the net distributable VAT rose by N156.72 billion, also an 18.5 per cent increase.
New VAT Sharing Formula Takes Effect
January marked the first full month under the revised VAT-sharing formula. The new structure allocates 10 per cent of net VAT to the Federal Government, 55 per cent to state governments, and 35 per cent to Local Governments. Previously, the Federal Government received 15 per cent, states 50 per cent, and Local Governments 35 per cent.
Under the new formula, the Federal Government received N100.32 billion from the N1.00 trillion net VAT in January, a shortfall of roughly N50.16 billion compared to the N150.48 billion it would have received under the old 15 per cent allocation. States, in contrast, saw a significant boost to N551.77 billion, an increase of approximately N50.16 billion over the previous 50 per cent allocation of N501.61 billion. Local Governments received N351.13 billion, up from N296.28 billion in December, representing an 18.5 per cent rise.
The Federal Government’s VAT share in January fell by N26.65 billion, or about 21 per cent, compared with December 2025’s allocation of N126.98 billion under the old formula. Conversely, states enjoyed a collective increase of N128.52 billion, equivalent to a 30.4 per cent rise, reinforcing the policy shift towards strengthening subnational revenue.
Rising Collection Costs
The cost of VAT collection also rose in line with higher collections. The NRS cost of collection, calculated at 4 per cent, increased to N43.33 billion in January from N32.72 billion in December, a 32.4 per cent rise. The Nigeria Customs Service’s import VAT collection cost, which stood at N3.84 billion in December, was nil in January, likely due to reforms that designated the NRS as the main revenue collection agency.
Other statutory deductions included a 3 per cent allocation to the North East Development Commission (NEDC) Project Account, rising to N31.20 billion from N26.32 billion, and a 0.5 per cent deduction to the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), which increased to N5.42 billion from N4.57 billion. Combined, NEDC and RMAFC deductions totaled N36.61 billion in January, reflecting a month-on-month increase of N5.72 billion.
FAAC’s broader summary showed that total funds available for distribution across revenue lines stood at N3.04 trillion in January. After deductions totaling N1.14 trillion, net distributable revenue amounted to N1.90 trillion, comprising N896.78 billion from statutory revenue and N1.00 trillion from net VAT. The Federal Government’s total allocation, including VAT and statutory revenue, stood at N525.23 billion, while states received N767.29 billion, Local Governments N517.28 billion, and the 13 per cent derivation share N90.19 billion.
State-Level VAT Distribution
Lagos State remained the leading VAT beneficiary, with a gross allocation of N111.22 billion in January. After deductions of N9.89 billion, Lagos retained N101.34 billion as net state VAT, while its local governments collectively received N70.57 billion. Oyo State followed with N24.04 billion, Rivers N23.57 billion, Kano N17.37 billion, the FCT-Abuja N15.76 billion, and Bayelsa N15.07 billion. Other notable recipients included Katsina (N13.82 billion), Jigawa (N12.92 billion), Delta (N12.89 billion), and Kaduna (N12.73 billion). At the lower end, Ebonyi received N9.45 billion, Ekiti N9.83 billion, Taraba N9.37 billion, and Nasarawa N9.77 billion.
While the equality component accounts for 50 per cent of the states’ VAT allocation formula, the 30 per cent population factor and 20 per cent derivation component continue to create disparities between high-activity and lower-activity states.
Non-Import VAT Concentration
Total non-import VAT collections in January stood at N913.47 billion, up from N721.83 billion in December, representing a 26.5 per cent increase. Lagos generated N533.40 billion alone, accounting for 58.39 per cent of the total. Oyo contributed N67.18 billion, Rivers N66.35 billion, FCT-Abuja N39.73 billion, and Bayelsa N34.62 billion. Among local governments, Lagos councils received N70.57 billion, Oyo N18.04 billion, Kano N16.29 billion, Rivers N15.47 billion, and Katsina N11.76 billion.
A VAT income comparison sheet showed that the January VAT collection of N913.96 billion exceeded a benchmark of N625.13 billion by N288.82 billion. The total N1.08 trillion VAT earnings exceeded the same benchmark by N458.03 billion, producing a cumulative difference of N746.85 billion for the period reflected.
Implications for 2026 Projections
Earlier reports by The PUNCH indicated that the 36 states of the federation were projected to receive an estimated N5.07 trillion in VAT allocations for 2026 under the new sharing formula outlined in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper approved by the Federal Executive Council. With actual VAT collections exceeding projections in January and February, states may surpass this estimate if current trends continue.
Economic experts have urged subnational governments to leverage their increased allocations to boost internally generated revenue (IGR), noting that VAT has historically been a minor revenue source for the Federal Government. Prof Segun Ajibola, a former Chairman of the Chartered Institute of Bankers of Nigeria, explained that VAT benefits states and local governments more directly, while the Federal Government has focused on alternative revenue streams such as capital gains tax and other federally collected revenues. He emphasized the need for transparency in the use of increased allocations to improve public services.
Dr Ayo Teriba, CEO of Economic Associates, highlighted that VAT originally belonged to states before federal collection was introduced for administrative ease. While the federal government could justify retaining a larger share, he cautioned states against overreliance on statutory allocations, pointing to Enugu State as a model for boosting internally generated revenue without imposing additional taxes.
Global Perspectives and Policy Considerations
The Nigeria Economic Summit Group (NESG) has warned that without adjustments to the VAT rate, the Federal Government could face revenue shortfalls. Dr Tayo Aduloju, NESG CEO, emphasized the importance of balancing tax simplification with rate adjustments to sustain revenue stability.
Similarly, the International Monetary Fund (IMF) noted in its latest Article IV Consultation Report that while VAT and company tax reforms modernize Nigeria’s tax system, the decision not to raise the VAT rate could reduce consolidated government revenue by up to 0.5 per cent of GDP. The IMF highlighted the risk of subnational governments being forced to scale back spending or increase local revenue efforts unless alternative financing is identified.
The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele, projected that states could earn more than N4 trillion annually from VAT once the new reforms fully take effect in 2026. He stressed that the challenge now lies in ensuring the additional resources are effectively invested rather than merely spent.
With VAT revenue hitting record levels and the new sharing formula in place, states stand to benefit significantly, but the onus remains on them to translate increased allocations into tangible improvements in infrastructure, social services, and economic development.