VAT Hits N1 Trillion as New Formula Begins

Nigeria recorded a sharp rise in Value Added Tax (VAT) revenue to N1.08 trillion in January 2026, marking the first full month under a revised sharing formula that reallocates proceeds among the Federal Government, states, and local governments.

Data presented at the February meeting of the Federation Account Allocation Committee (FAAC) showed VAT collections increased from N913.96 billion in December 2025, reflecting month-on-month growth of N169.20 billion or 18.5 per cent.

After deductions at source amounting to N79.94 billion, the net VAT available for distribution stood at N1.00 trillion, up from N846.51 billion shared in December, representing an 18.5 percent increase.

Under the new formula, the Federal Government now receives 10 per cent of VAT revenue, while states get 55 per cent and local governments 35 percent. This marks a shift from the previous structure of 15 percent for the Federal Government, 50 per cent for states, and 35 percent for local governments.

As a result, the Federal Government received N100.32 billion in January, about N50.16 billion less than it would have earned under the old formula. In contrast, states gained N551.77 billion, an increase of roughly N50.16 billion compared to the previous structure, while local governments received N351.13 billion.

Compared to December, the federal allocation from VAT dropped by N26.65 billion (about 21 percent), while the states’ share rose significantly by N128.52 billion (30.4 percent). Local government allocations also increased by N54.85billion (18.5 percent).

The cost of VAT collection also rose alongside higher revenues. The Nigeria Revenue Service’s collection cost, pegged at 4 per cent, rose to N43.33 billion from N32.72 billion in December. Meanwhile, import VAT collection costs by the Nigerian Customs Service dropped to zero in January, suggesting a shift in revenue collection structure.

Other statutory deductions included 3 per cent for the North East Development Commission (N31.20 billion) and 0.5 per cent for the Revenue Mobilisation Allocation and Fiscal Commission (N5.42 billion), bringing total deductions under these categories to N36.61 billion.

Overall, FAAC reported total distributable revenue of N1.90 trillion for January out of N3.04 trillion generated across revenue streams. Of this, the Federal Government received N525.23 billion, states got N767.29 billion, and local governments received N517.28 billion, while N90.19 billion was allocated as derivation revenue.

At the state level, Lagos remained the largest beneficiary, receiving a gross VAT allocation of N111.22 billion and retaining N101.34 billion after deductions. Its local governments received N70.57 billion.

Other top recipients included Oyo (N24.04 billion), Rivers (N23.57 billion), Kano (N17.37 billion), and the Federal Capital Territory (N15.76 billion). At the lower end, states such as Taraba (N9.37 billion), Ebonyi (N9.45 billion), Ekiti (N9.83 billion), and Nasarawa (N9.77 billion) recorded smaller allocations.

VAT generation remained heavily concentrated, with non-import VAT collections rising to N913.47 billion in January from N721.83 billion in December. Lagos alone accounted for N533.40 billion, representing over 58 percent of total collections.

The strong performance means VAT revenue significantly outperformed its benchmark of N625.13 billion, exceeding it by over N288 billion for the month. With sustained growth in collections, states could surpass earlier projections of N5.07 trillion in VAT revenue for 2026.