Nigeria’s Value Added Tax (VAT) revenue rose to N1.08tn in January 2026, marking a strong start to the year under a revised revenue-sharing formula that changes how the money is divided between the Federal Government, state governments, and local councils.

According to documents presented at the February Federation Account Allocation Committee (FAAC) meeting, total VAT collections by the Nigeria Revenue Service jumped from N913.96bn in December 2025 to N1.08tn in January 2026, an 18.5% increase month-on-month — a sign of both rising consumption and stronger tax administration.

After statutory deductions — including VAT taken at source — the net distributable VAT stood at N1.00tn in January, compared with N846.51bn in December.

Under the New Sharing Formula: Who Gets What

January was the first full month under Nigeria’s new VAT sharing structure. Under the revised formula:

• Federal Government receives 10 % of net VAT
• State governments receive 55 %
• Local governments receive 35 %

Previously, the Federal Government got 15 % and states 50 %, with locals still at 35 %.

As a result of the change:

• The Federal Government received N100.32bn, down from what would have been about N150.48bn under the old 15 % share.
• States collectively received N551.77bn, about N50.16bn more than they would have under the old system.
• Local governments were allocated N351.13bn.

The shift in allocation is part of a broader tax reform designed to boost subnational governments’ revenue and strengthen fiscal federalism.

What It Means for Governments

For the Federal Government, the reduced VAT share reflects a deliberate policy change that prioritises state and local finances. Analysts say this move could help states fund critical services and development projects without relying too heavily on federal transfers.

States — especially those with stronger economic activity — are expected to benefit significantly under the new formula. For example, Lagos State remained the top beneficiary in January, with over N101bn in net VAT after deductions. Other high-receiving states included Oyo, Rivers, Kano, and the Federal Capital Territory.

Collection Costs and Deductions

The rise in VAT revenue also increased the cost of collection. The Nigeria Revenue Service’s 4 % cost of collection jumped to N43.33bn in January from N32.72bn in December, reflecting higher total VAT receipts.

Other statutory deductions — including 3 % to the North East Development Commission (NEDC) and 0.5 % to the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) — also rose alongside the larger VAT pool.

FAAC Overview: Total Net Revenue

Across all revenue sources at the January FAAC meeting, total funds available for distribution were about N3.04tn. After deductions of N1.14tn, the net distributable revenue was N1.90tn — comprising VAT and other statutory revenues.

Combined with statutory allocations, the Federal Government’s total share was N525.23bn, while states received N767.29bn and local governments N517.28bn. Oil-producing states also received a 13 % derivation share amounting to N90.19bn.