The 36 states of the federation are set to receive an estimated ₦5.07trillion as their share of Value-Added Tax (VAT) in 2026, following the commencement of a new VAT sharing formula introduced under the National Tax Acts, findings have shown.
This development is contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council.
According to the fiscal framework, the implementation of the new National Tax Acts from January 2026 will reduce the Federal Government’s VAT share from 15% to 10%, while the states’ share rises from 50% to 55%, and Local Government Councils continue to receive 35%.
According to the projections in the MTEF/FSP document, the Federal Government’s VAT allocation is expected to drop to ₦922.53billion in 2026, down from ₦1.04trillion in 2025, even as the VAT pool itself grows significantly year on year.
The projected ₦922.5billion allocation to the Federal Government represents 10% of the anticipated N9.23trillion distributable VAT revenue for 2026, confirming the full implementation of the new formula.
Under the previous formula used in 2025, the Federal Government received 15 percent of the VAT pool, which was projected at ₦6.95trillion for that year. The difference in share means the Federal Government will now receive five percentage points less of a larger pool.
If the previous 15% formula had been retained in 2026, the Federal Government’s VAT share would have amounted to approximately ₦1.38trillion. With only 10% allocated under the revised law, the Federal Government is projected to receive ₦922.5billion.
The difference between the two figures is ₦461.27bn, which represents what the Federal Government may forfeit to the states as a result of the revised allocation ratio, if the revenue target is met.
The five percentage point shift in VAT share from the Federal Government to states is projected to give states an additional ₦461.27bn in 2026, pushing their collective allocation to ₦5.07trillion, up from ₦3.47tr in 2025.
The 2026 figure represents 55% of the ₦9.23trillion pool, when compared to the 50% share of the ₦6.95trillion pool in 2025. Local Government Councils, whose VAT share remains unchanged at 35%, are expected to collect ₦3.23trillion in 2026, up from ₦2.43tr in 2025.
The year-on-year growth in total VAT revenue, from ₦6.95trillion to ₦9.23tr, provides some cushion to the Federal Government, even as it absorbs the loss in its percentage share. However, the data also makes it clear that the bulk of the VAT growth is now structurally flowing to subnational governments under the new tax law, which aims to deepen fiscal federalism.
Further projections in the fiscal document show that the VAT pool is expected to increase to ₦10.87trillion in 2027 and ₦13.28tr in 2028. Applying the 10% share, the Federal Government’s VAT revenue is projected to rise to ₦1.09trillion in 2027 and ₦1.33tr in 2028.
These nominal increases reflect the expanding VAT base but do not reverse the structural shift in distribution. By contrast, the states’ 55 percent share will yield ₦5.98trillion in 2027 and ₦7.30trillion in 2028, while Local Government Councils are projected to receive ₦3.81trillion and ₦4.65trillion respectively under their constant 35% share.
The long-term trend indicates that state and local governments are now better positioned to benefit from rising VAT collections, especially as tax net expansion and digital enforcement continue to improve.
The VAT pool is only one segment of the total distributable public revenue. The main Federation Account pool—dominated by oil revenue, company income tax, and customs duties—is projected to decline sharply in 2026 before rebounding in subsequent years.
The main pool is expected to shrink from ₦60.26trillion in 2025 to N41.06trillion in 2026, representing a ₦19.2tr drop. The current revenue-sharing formula for the main pool gives the Federal Government 52.68%, states 26.72%, and local governments 20.60 percent.
Based on these ratios, the Federal Government’s share is projected to decline from ₦31.74trillion in 2025 to ₦21.63tr in 2026; this reflects a loss of about ₦10.1trillion. State governments will see their share fall from ₦16.10trillion to ₦10.97tr, while local governments will collect ₦8.46trillion, down from ₦12.41tr. Although the main pool is expected to improve slightly in subsequent years – rising to ₦45.67trillion in 2027 and ₦50.90tr in 2028 – the Federal Government’s earnings from this stream remain significantly below 2025 levels. Its share is projected to recover to ₦24.06trillion in 2027 and ₦26.81tr in 2028.
Similarly, states are expected to receive ₦12.20trillion and ₦13.60tn, while local government councils would get ₦9.41trillion and ₦10.48tr over the two years. Another key component of the distributable pool is Stamp Duty revenue, formerly the Electronic Money Transfer Levy. The distributable Stamp Duty pool is projected to rise from ₦228.85bn in 2025 to ₦456.07bn in 2026.
The formula for this stream mirrors the VAT structure: 10% to the Federal Government, 55% to states, and 35% to local governments. This means the Federal Government will collect ₦45.61billion in 2026, up from ₦34.33bn in 2025. States will receive ₦250.84bn, nearly doubling their previous year’s allocation of ₦114.43bn. Local Governments are projected to receive ₦159.62bn in 2026, compared to ₦80.10bn in 2025.
The rise is attributed to growth in electronic payment channels and the wider adoption of digital financial services, which are driving up transaction volumes and collections.
Projections for 2027 and 2028 suggest continued expansion in stamp duty revenue, reaching ₦579.82bn and ₦752.45bn, respectively. Of this, the Federal Government is expected to receive ₦57.98bn in 2027 and ₦75.24bn in 2028, while states will get N318.90bn and ₦413.85bn. Local Government Councils will be entitled to ₦202.94bn in 2027 and ₦263.36bn in 2028.
It was earlier reported that the Nigeria Economic Summit Group warned that the Federal Government could face revenue shortfalls if it does not increase the VAT rate, as part of the ongoing tax reform process.
Speaking recently at the launch of the BudgIT State of States 2025 Report in Abuja, where he delivered the keynote address, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, projected that states could earn more than ₦4trillion annually from 2026 when new VAT reforms take effect.
He said, “With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent. That could amount to over N4tn in 2026. The question is: will this money be spent, or will it be invested?”
