States earn N1.18tn VAT under new formula

States received N1.18tn from Value Added Tax revenue generated in the first quarter of 2026, following the commencement of the new VAT sharing formula, an analysis of Federation Account Allocation Committee reports has shown.

The figure was calculated from FAAC reports and data from the National Bureau of Statistics and the Office of the Accountant-General of the Federation, collated by The PUNCH on Monday.

The analysis covered VAT revenue generated in January, February, and March 2026, which was shared in February, March, and April, respectively, in line with FAAC’s practice of distributing the previous month’s revenue in the following month.

The N1.18tn received by states in Q1 2026 represented an increase of N214.78bn or 22.35 per cent compared with the N960.97bn they received from VAT revenue generated in the corresponding period of 2025.

The increase was driven largely by the implementation of the new VAT sharing formula under the tax reforms, which reduced the Federal Government’s share of VAT from 15 per cent to 10 per cent and raised the states’ share from 50 per cent to 55 per cent, while local governments retained 35 per cent. The new formula took effect in 2026 under the National Tax Acts approved by President Bola Tinubu.

Under the old formula, the Federal Government would have received 15 per cent of the VAT pool, while states would have received 50 per cent. But under the new arrangement, five percentage points of the VAT pool moved from the Federal Government to the states.

Based on the actual VAT allocations shared to the three tiers in Q1 2026, the VAT pool distributed among the Federal Government, states, and Local Governments stood at about N2.14tn.

At 10 per cent, the Federal Government received N213.77bn from VAT in the quarter.

Under the old 15 per cent formula, it would have received about N320.66bn. This means the Federal Government effectively gave up about N106.89bn to states in the first quarter of 2026 as a result of the formula change.

The states, which got N1.18tn under the 55 per cent formula, would have received about N1.07tn under the previous 50 per cent formula. The difference of about N106.89bn represents the additional amount accruing to states from the Federal Government’s reduced share.

A breakdown showed that states received their highest VAT allocation in January 2026 revenue, which was shared in February. Out of the N3.04tn total FAAC disbursement for that month, states received N794.01bn in total allocation, made up of N215.52bn from statutory revenue, N26.72bn from other revenue sources and N551.77bn from VAT.

The Federal Government received N577.91bn from the January 2026 revenue, comprising N424.91bn from statutory revenue, N52.68bn from other revenue sources and N100.32bn from VAT. Local government councils received N537.88bn, consisting of N166.16bn from statutory revenue, N20.60bn from other revenue and N351.13bn from VAT. Oil-producing states also received N90.19bn as 13 per cent derivation.

For February 2026 revenue, which was shared in March, total FAAC distribution fell sharply to N1.894tn. The amount comprised N1.274tn in distributable statutory revenue and N619.119bn in distributable VAT revenue. Out of this, the Federal Government received N675.088bn, states got N651.525bn, local governments received N456.467bn, while N110.949bn was shared among oil-producing states as 13 per cent derivation.

From the VAT component for February 2026 revenue, the Federal Government received N61.912bn, states received N340.515bn, while local governments got N216.692bn. This means states’ VAT receipts dropped by N211.26bn or 38.29 per cent from the N551.77bn received from January revenue.

The decline followed a fall in gross VAT revenue, which dropped from N1.083tn in January 2026 to N668.450bn in February 2026, according to the FAAC communiqué. The OAGF said gross VAT revenue in February was lower than the January figure by N414.710bn.

For March 2026 revenue, shared in April, total distributable revenue rose to N2.036tn. It comprised N1.320tn in distributable statutory revenue, N515.391bn in distributable VAT revenue and N200bn augmentation.

From the total March revenue distribution, the Federal Government received N789.159bn, states got N657.596bn, and local governments received N468.826bn. Oil-producing states also received N120.759bn as 13 per cent derivation revenue.

Out of the VAT revenue for March, the Federal Government received N51.539bn, states received N283.465bn, while local government councils got N180.387bn. States’ VAT allocation fell by N57.05bn or 16.75 per cent from the N340.515bn received from February revenue.

The OAGF said gross VAT revenue declined marginally from N668.450bn in February to N664.425bn in March, a decrease of N4.025bn. However, the distributable VAT component fell more steeply from N619.119bn to N515.391bn, affecting the amounts received by the three tiers of government.

In total, the three tiers of government and other statutory beneficiaries shared N6.97tn from January to March 2026 revenue. The amount comprised N3.04tn from January revenue, N1.894tn from February revenue, and N2.036tn from March revenue.

The VAT component listed in the FAAC reports for the quarter stood at N2.21tn, representing 31.77 per cent of the N6.97tn total distributable revenue. This showed that VAT accounted for nearly one-third of total revenue shared in the quarter, strengthening its role as a major non-oil revenue source for the federation.

However, compared with Q1 2025, total FAAC disbursements declined despite an improvement in states’ VAT receipts. In Q1 2025, the total amount shared stood at N7.40tn, comprising N2.641tn from January 2025 revenue, N2.345tn from February revenue and N2.411tn from March revenue. This means total FAAC distribution fell by N427.19bn or 5.77 per cent year-on-year in Q1 2026.

VAT revenue, however, moved in the opposite direction. The VAT component of FAAC distribution rose from N2.064tn in Q1 2025 to N2.215tn in Q1 2026, an increase of about N150.55bn or 7.29 per cent. VAT’s share of total FAAC distribution also rose from 27.90 per cent in Q1 2025 to 31.77 per cent in Q1 2026.

The year-on-year monthly comparison showed mixed movements. For January revenue, states’ VAT receipts rose from N359.39bn in 2025 to N551.77bn in 2026, an increase of N192.38bn or 53.53 per cent. This was the strongest monthly performance in the quarter and reflected the combined effect of a larger VAT pool and the new 55 per cent state share.

For February revenue, states’ VAT receipts rose from N304.71bn in 2025 to N340.515bn in 2026, an increase of N35.81bn or 11.75 per cent. Although the February 2026 figure was lower than the January 2026 figure on a month-on-month basis, it still exceeded the amount received by states from February 2025 revenue.

For March revenue, states’ VAT receipts fell from N296.87bn in 2025 to N283.465bn in 2026, a decline of N13.41bn or 4.52 per cent. This was the only month in the quarter in which states received less VAT than they did in the corresponding month of the previous year.

Generally, states received N2.10tn from all FAAC revenue streams in Q1 2026, compared with N1.69tn in Q1 2025. This represented an increase of N416.79bn or 24.72 per cent. The Federal Government received N2.04tn in Q1 2026, while local governments got N1.46tn. Oil-producing states received N321.90bn as 13 per cent derivation during the quarter.

In Q1 2025, the Federal Government received N1.65tn, states got N1.69tn, and local governments received N1.23tn, while oil-producing states received N393.93bn as 13 per cent derivation. This means that while states and the Federal Government recorded higher allocations in Q1 2026, derivation payments to oil-producing states fell year-on-year by N72.03bn or 18.28 per cent.

The data also showed that local governments received N748.21bn in VAT in Q1 2026, up from N672.68bn in the corresponding period of 2025. This represented an increase of N75.53bn or 11.23 per cent, even though their formula share remained unchanged at 35 per cent.

The Federal Government received N213.77bn from VAT in Q1 2026, compared with N288.29bn in Q1 2025. This represented a decline of N74.52bn or 25.85 per cent, despite the larger VAT pool in 2026. The drop reflected the reduction in the Federal Government’s share of VAT under the new formula.

The figures indicate that the new VAT formula has materially changed the structure of FAAC distribution, with states emerging as the biggest beneficiaries. The PUNCH earlier reported that the Nigeria Economic Summit Group warned that the Federal Government could face revenue shortfalls if it does not increase the value-added tax rate as part of the ongoing tax reform process.

The Chief Executive Officer of NESG, Dr Tayo Aduloju, made this statement during an interactive media session in Abuja. He emphasised that while reforms to the VAT system are essential, maintaining the current VAT rate without an increase could result in a significant loss of revenue for the government.

According to him, simply reducing the number of taxes without adjusting the VAT rate could weaken the government’s revenue base.

Also, in its most recent Article IV Consultation Report on Nigeria, the International Monetary Fund noted that although the recent tax reforms approved by the National Assembly and President Bola Tinubu represent a major step forward in modernising the VAT and Company Income Tax regimes, the choice to maintain the current VAT rate would lead to an immediate revenue shortfall.

It stated that the Federal Government may lose as much as 0.5 per cent of the country’s Gross Domestic Product in revenue following its decision not to raise the VAT rate.

According to the Fund, unless alternative financing options are found, subnational governments may be forced to either scale back spending or ramp up their own revenue efforts. The IMF, however, acknowledged the government’s justification for delaying a VAT hike, particularly at a time of worsening poverty and food insecurity.

Speaking earlier at the launch of the BudgIT State of States 2025 Report in Abuja, where he delivered the keynote address, the current Minister of Finance and the Coordinating Minister of the Economy, Mr Taiwo Oyedele, projected that states could earn more than N4tn annually from 2026 when new Value Added Tax reforms take effect.

He said, “With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent. That could amount to over N4tn in 2026. The question is: will this money be spent, or will it be invested?”

Economic analysts earlier called on state governments to intensify efforts to unlock internal revenue as their allocations under the revised sharing formula increase. A former Chairman of the Chartered Institute of Bankers of Nigeria, Prof Segun Ajibola, called for transparency in the use of the increased allocations, adding, “If a state government wants to be accountable, each state government should set up a desk to account for the increase in the VAT allocation and make the report known to the public. There is so much to spend on agriculture and other public utilities.”

Also, the Chief Executive Officer of Economic Associates, Dr Ayo Teriba, earlier said VAT historically replaced state sales tax and originally belonged to states. “The tax belonged to the states. It is for ease of collection that the federal government decides to collect on behalf of the states,” Teriba noted.

He further cautioned states against overdependence on statutory allocations, advising, “Not to make a mountain out of a molehill (as) these are smaller amounts for the states.”