Business - News - 1 hour ago

Nigeria Hits ₦1 Trillion VAT as New Sharing Formula Takes Effect

Nigeria’s government saw a remarkable increase in Value Added Tax (VAT) revenue in January 2026. Collections reached ₦1.08 trillion, marking the highest monthly total ever recorded following a new revenue-sharing formula that began this month.

According to reports, official figures shared at the February meeting of the Federation Accounts Allocation Committee (FAAC) reveal that the Nigeria Revenue Service (NRS) collected ₦1.08 trillion in VAT for January. This is an increase from ₦913.96 billion in December 2025, reflecting about an 18.5 percent rise month-over-month.

However, deductions like administrative fees and remittances reduced the total available for distribution to around ₦1.00 trillion. Still, this amount remained above the symbolic trillion-naira mark.

January was the first full month that Nigeria used a revised VAT revenue allocation formula outlined in the 2026 National Tax Act, which the Federal Executive Council approved.

Under the new system:

10 percent of net VAT goes to the Federal Government,
55 percent to state governments,
35 percent to Local Government Areas (LGAs).

In contrast, the previous formula allocated 15 percent to the Federal Government, 50 percent to states, and 35 percent to LGAs. Thus, the new formula better supports subnational shares, particularly for states.

The Federal Government’s share from January’s distributable VAT was ₦100.32 billion, about ₦50 billion less than it would have obtained under the old formula.

State and Local Government Allocations

With the new formula, Lagos State continued to be the largest recipient of VAT revenue, receiving a gross allocation of ₦111.22 billion in January. After deductions, this came to approximately ₦101.34 billion.

Other significant contributors included:

Oyo State – ₦24.04 billion,
Rivers – ₦23.57 billion,
Kano – ₦17.37 billion,
Federal Capital Territory (Abuja) – ₦15.76 billion,
Bayelsa – ₦15.07 billion.

Local governments showed a similar allocation pattern, with Lagos councils getting ₦70.57 billion, Oyo ₦18.04 billion, and Kano ₦16.29 billion, among others.

Experts suggest these figures highlight how economic activity and tax compliance are concentrated in specific areas. Lagos, being Nigeria’s commercial center and most populous state, accounted for over 58 percent of non-import VAT collections during this period.

Broader VAT Trends and Revenue Growth

The January 2026 milestone reflects ongoing growth in Nigeria’s VAT performance. The National Bureau of Statistics (NBS) reports that total VAT revenue hit ₦2.28 trillion in the third quarter of 2025. This is a 10.66 percent increase from the second quarter and a 28.10 percent rise year-on-year from Q3 2024.

According to detailed figures from the NBS, local VAT payments contributed ₦1.12 trillion, while foreign VAT totaled ₦680.23 billion and import VAT amounted to ₦479.79 billion within that quarter.

This data illustrates the increasing non-oil tax revenue in Africa’s largest economy, which has long been a goal for the government as it seeks to reduce its dependence on oil income.

Policy Implications and Outlook

The new sharing formula represents a significant change in Nigeria’s fiscal federalism approach, granting states greater control over revenue from consumption taxes. Policymakers believe this change will allow states to access funds more equitably and predictably, especially those with robust economic bases.

Critics, both within and outside the government, have expressed concerns in the past that the old VAT allocation system did not adequately reward states that generate substantial tax revenues, potentially worsening fiscal disparities between states.

However, the true impact of the updated framework will become clearer as more data comes in over the following months.

Looking forward, economists anticipate that Nigeria’s VAT collections will continue to play a vital role in non-oil revenue growth in 2026, particularly if the ongoing improvements in tax administration and compliance are maintained.