Nigeria’s new tax-sharing formula has handed state governments a major revenue boost.
States received ₦2.37 trillion from Value Added Tax collections in the first half of 2026. The amount rose by ₦451.25 billion from the ₦1.92 trillion they received during the same period in 2025.
This represents a 23.48 per cent increase and gives state governments more money to fund roads, schools, healthcare, agriculture, and other public services.
But the bigger question is not how much the states received.
It is what they will do with the money.
New Formula Gives States a Larger Share
Nigeria distributed ₦4.31 trillion in VAT revenue among the federal, state, and local governments during the first six months of 2026.
That figure rose by ₦471.07 billion from the ₦3.84 trillion shared during the same period last year.
The increase came from stronger VAT collections and a new revenue-sharing formula that transferred more money to state governments.
Before January 2026, the Federal Government received 15 per cent of distributable VAT revenue. States received 50 per cent, while local governments took 35 per cent.
The new tax regime reduced the Federal Government’s share to 10 per cent and raised the states’ portion to 55 per cent. Local governments kept their 35 per cent share.
That five-percentage-point shift moved about ₦215.72 billion from the Federal Government to the states during the first half of the year.
Under the old formula, states would have received about ₦2.16 trillion. The new arrangement increased their allocation to roughly ₦2.37 trillion.
VAT Revenue Did Not Rise Every Month
The growth did not follow a straight line.
States received ₦551.77 billion from VAT generated in January. That was their highest monthly allocation during the first half of 2026.
The figure fell to ₦340.52 billion in February and dropped further to ₦283.47 billion in March.
Revenue recovered in April when states received ₦410.90 billion. It then declined to ₦378.83 billion in May before rising to ₦407.40 billion in June.
March was the only month in which states received less VAT revenue than they did during the same month in 2025.
The pattern shows that the new formula increased the states’ share, but it did not remove monthly volatility.
Consumer spending, business activity, tax compliance, and collection efficiency will continue to influence VAT revenue.
Where the Money Is Coming From
The ₦4.31 trillion VAT pool accounted for 33.09 per cent of the ₦13.04 trillion shared by the Federation Account Allocation Committee during the first half of 2026.
VAT contributed a larger share of total distributions in the same period of 2025. However, other government revenue sources grew faster in 2026.
Total distributable federation revenue increased by ₦2.92 trillion, or 28.86 per cent, from ₦10.12 trillion in the first half of 2025 to ₦13.04 trillion in 2026.
The growth gave every tier of government more money.
The Federal Government received ₦4.57 trillion during the period, up 34.47 per cent from ₦3.40 trillion in 2025.
State governments received ₦4.47 trillion in general FAAC allocations, excluding oil derivation payments. This marked a 30.58 per cent increase from the ₦3.43 trillion they received one year earlier.
Local governments collected ₦3.13 trillion, while oil-producing states received another ₦864.89 billion through the 13 per cent derivation formula.
More Revenue Raises the Accountability Test
The VAT increase gives governors more financial room, but it also raises the standard for performance.
State governments can no longer blame every stalled project on weak federal allocations.
The additional revenue should help them address infrastructure gaps, improve public services, and support economic activity. It should also reduce the pressure to borrow for routine spending.
However, higher allocations will make little difference if states use the money to expand political appointments, fund wasteful projects, or cover rising administrative costs.
Former Chartered Institute of Bankers of Nigeria chairman Segun Ajibola has called on states to explain how they use the increase in VAT allocations. He urged each government to create a system that tracks the additional funds and reports the results to the public.
That level of disclosure matters.
Citizens should know how much their states receive, where the money goes, and what measurable outcomes it produces.
The Accountability Question
Higher allocations give governors fewer excuses for poor public services.
States now have more money to repair roads, improve hospitals, support agriculture and strengthen local businesses.
However, the additional revenue will make little difference if governments spend it on political appointments, inflated contracts or recurrent expenses.
Former Chartered Institute of Bankers of Nigeria chairman Segun Ajibola urged state governments to track the additional VAT revenue and publish reports showing how they use it.
What States Must Do Next
States must not allow higher FAAC allocations to weaken their internal revenue efforts.
They should improve property records, digitize tax payments, reduce leakages, and expand their formal economies without overtaxing small businesses.
They must also attract factories, support agriculture, and create conditions that allow businesses to grow.
A productive state economy will generate more VAT, create jobs, and reduce dependence on monthly federal allocations.
The Bigger Picture
Finance Minister Taiwo Oyedele projected that states could earn more than ₦4 trillion annually under the new VAT arrangement.
The first-half figures show that the reform has already strengthened state finances.
The real test is whether governors can convert the additional revenue into better roads, stronger public services, more businesses, and new jobs.
