States to Receive N5.07tn VAT Allocation in 2026 as New Sharing Formula Takes Effect

Nigeria’s 36 states are projected to receive a combined N5.07tn as their share of Value Added Tax (VAT) in 2026, following the implementation of a revised VAT sharing formula under the newly enacted National Tax Acts. This is contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council.

Under the new framework, which takes effect from January 2026, the Federal Government’s share of VAT will reduce from 15 per cent to 10 per cent, while states’ allocation will increase from 50 per cent to 55 per cent. Local governments will retain their 35 per cent share. The adjustment reflects a major structural shift aimed at strengthening fiscal federalism and boosting subnational revenue capacity.

According to projections in the fiscal document, total distributable VAT revenue is expected to rise significantly from N6.95tn in 2025 to N9.23tn in 2026. Despite the growth in the VAT pool, the Federal Government’s allocation is projected to decline to N922.53bn in 2026 from N1.04tn in 2025 due to its reduced percentage share. If the old formula had been retained, the Federal Government would have received about N1.38tn, implying a revenue shift of N461.27bn in favour of the states.

The additional five percentage points allocated to states will push their collective VAT revenue from N3.47tn in 2025 to N5.07tn in 2026. Local governments are also expected to benefit from the expanded VAT base, with their allocation rising to N3.23tn from N2.43tn in the previous year.

While year-on-year VAT growth provides some cushion for the Federal Government, the MTEF/FSP data shows that most of the gains from consumption taxes will now flow to states and local governments. Projections indicate that this trend will continue through 2027 and 2028, further positioning subnational governments as primary beneficiaries of Nigeria’s evolving tax reforms.