BY GODWIN OBI
Nigeria’s 36 states are projected to receive a combined ₦5.07 trillion in Value Added Tax (VAT) revenue in 2026 following the implementation of a new VAT sharing formula under the National Tax Acts.
The projection 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 tax framework, which takes effect from January 2026, the Federal Government’s share of VAT revenue drops from 15 per cent to 10 per cent, while the states’ allocation increases from 50 per cent to 55 per cent. Local governments retain their 35 per cent share.
According to the fiscal projections, the total VAT pool is expected to rise sharply to ₦9.23 trillion in 2026, up from ₦6.95 trillion in 2025. Of this amount, the Federal Government is projected to receive ₦922.53 billion, representing 10 per cent of the distributable pool.
Had the previous 15 per cent sharing formula remained in place, the Federal Government would have earned approximately ₦1.38 trillion in 2026. The revised allocation therefore represents a potential ₦461.27 billion shift from the centre to the states.
As a result, state governments’ collective VAT allocation is expected to rise to ₦5.07 trillion in 2026, compared to ₦3.47 trillion in 2025. Local governments, whose share remains unchanged, are projected to receive ₦3.23 trillion, up from ₦2.43 trillion the previous year.
While the growth in total VAT revenue provides some cushion for the Federal Government, the figures confirm a structural redistribution of consumption-based tax revenues in favour of subnational governments, in line with efforts to deepen fiscal federalism.
Projections indicate that the VAT pool will continue to expand, reaching ₦10.87 trillion in 2027 and ₦13.28 trillion in 2028. At a constant 10 per cent share, the Federal Government’s VAT revenue is expected to rise to ₦1.09 trillion in 2027 and ₦1.33 trillion in 2028. States, with their 55 per cent share, are projected to receive ₦5.98 trillion and ₦7.30 trillion over the same period, while local governments would earn ₦3.81 trillion and ₦4.65 trillion, respectively.
Beyond VAT, the broader Federation Account—largely driven by oil revenue, company income tax, and customs duties—is projected to decline sharply in 2026. Total distributable revenue from the main pool is expected to fall from ₦60.26 trillion in 2025 to ₦41.06 trillion in 2026, a drop of ₦19.2 trillion.
Based on the existing revenue-sharing ratios, the Federal Government’s allocation from this pool is projected to decline from ₦31.74 trillion in 2025 to ₦21.63 trillion in 2026. States’ share is expected to fall from ₦16.10 trillion to ₦10.97 trillion, while local governments’ allocation is projected at ₦8.46 trillion, down from ₦12.41 trillion.
Although revenues from the main pool are expected to recover moderately in subsequent years, allocations across all tiers of government remain below 2025 levels.
Another key revenue stream—stamp duties, formerly known as the Electronic Money Transfer Levy—is projected to rise significantly. The distributable stamp duty pool is expected to increase from ₦228.85 billion in 2025 to ₦456.07 billion in 2026.
Using the same 10-55-35 sharing formula, the Federal Government is projected to receive ₦45.61 billion, states ₦250.84 billion, and local governments ₦159.62 billion in 2026. The growth is attributed to increased digital transactions and wider adoption of electronic payment platforms.
By 2028, stamp duty revenue is projected to reach ₦752.45 billion, further strengthening the revenue position of states and local governments.
Overall, the revised VAT formula and rising consumption-based revenues signal a significant rebalancing of Nigeria’s public finance structure, with subnational governments emerging as the primary beneficiaries of tax reforms beginning in 2026.
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