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Tax law: N5tn VAT windfall for states as new formula begins

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The 36 states of the federation are set to receive an estimated N5.07tn as their share of Value Added Tax in 2026, following the commencement of a new VAT sharing formula introduced under the National Tax Acts, findings by The PUNCH have shown.

This development is contained in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper 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 per cent to 10 per cent, while the states’ share rises from 50 per cent to 55 per cent, and Local Governments continue to receive 35 per cent.

According to the projections in the MTEF/FSP document, the Federal Government’s VAT allocation is expected to drop to N922.53bn in 2026, down from N1.04tn in 2025, even as the VAT pool itself grows significantly year on year.

The projected N922.5bn allocation to the Federal Government represents 10 per cent of the anticipated N9.23tn 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 per cent of the VAT pool, which was projected at N6.95tn 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 per cent formula had been retained in 2026, the Federal Government’s VAT share would have amounted to approximately N1.38tn. With only 10 per cent allocated under the revised law, the Federal Government is projected to receive N922.5bn.

The difference between the two figures is N461.27bn, 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 N461.27bn in 2026, pushing their collective allocation to N5.07tn, up from N3.47tn in 2025.

The 2026 figure represents 55 per cent of the N9.23tn pool, compared to the 50 per cent share of the N6.95tn pool in 2025. Local Governments, whose VAT share remains unchanged at 35 per cent, are expected to collect N3.23tn in 2026, up from N2.43tn in 2025.

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The year-on-year growth in total VAT revenue, from N6.95tn to N9.23tn, 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 N10.87tn in 2027 and N13.28tn in 2028. Applying the 10 per cent share, the Federal Government’s VAT revenue is projected to rise to N1.09tn in 2027 and N1.33tn in 2028.

These nominal increases reflect the expanding VAT base but do not reverse the structural shift in distribution. By contrast, the states’ 55 per cent share will yield N5.98tn in 2027 and N7.30tn in 2028, while Local Governments are projected to receive N3.81tn and N4.65tn respectively under their constant 35 per cent 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 N60.26tn in 2025 to N41.06tn in 2026, representing a N19.2tn drop. The current revenue-sharing formula for the main pool gives the Federal Government 52.68 per cent, states 26.72 per cent, and local governments 20.60 per cent.

Based on these ratios, the Federal Government’s share is projected to decline from N31.74tn in 2025 to N21.63tn in 2026. This reflects a loss of about N10.1tn. State governments will see their share fall from N16.10tn to N10.97tn, while local governments will collect N8.46tn, down from N12.41tn.

Although the main pool is expected to improve slightly in subsequent years—rising to N45.67tn in 2027 and N50.90tn in 2028—the Federal Government’s earnings from this stream remain significantly below 2025 levels. Its share is projected to recover to N24.06tn in 2027 and N26.81tn in 2028.

Similarly, states are expected to receive N12.20tn and N13.60tn, while local governments would get N9.41tn and N10.48tn over the two years.

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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 N228.85bn in 2025 to N456.07bn in 2026.

The formula for this stream mirrors the VAT structure: 10 per cent to the Federal Government, 55 per cent to states, and 35 per cent to local governments. This means the Federal Government will collect N45.61bn in 2026, up from N34.33bn in 2025.

States will receive N250.84bn, nearly doubling their previous year’s allocation of N114.43bn. Local Governments are projected to receive N159.62bn in 2026, compared to N80.10bn 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 N579.82bn and N752.45bn, respectively. Of this, the Federal Government is expected to receive N57.98bn in 2027 and N75.24bn in 2028, while states will get N318.90bn and N413.85bn. Local Governments will be entitled to N202.94bn in 2027 and N263.36bn in 2028.

The new VAT formula and rising stamp duty revenues reflect a broader structural rebalancing of public finance in Nigeria, with states and local governments increasingly positioned as primary beneficiaries of consumption-driven taxes.

The PUNCH earlier reported that the Nigeria Economic Summit Group warned that the Federal Government could face revenue shortfalls if it does not increase the value-added tax rate as part of the ongoing tax reform process.

The Chief Executive Officer of NESG, Dr Tayo Aduloju, made this statement during an interactive media session in Abuja. He emphasised that while reforms to the VAT system are essential, maintaining the current VAT rate without an increase could result in a significant loss of revenue for the government.

Speaking on the issue, Aduloju said, “Without those rate hikes, it means that the government might lose some revenue.” Aduloju explained that the current tax reform process must strike a balance between simplifying the tax system and increasing the VAT rate to maintain revenue stability.

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According to him, simply reducing the number of taxes without adjusting the VAT rate could weaken the government’s revenue base.

Also, in its most recent Article IV Consultation Report on Nigeria, the International Monetary Fund noted that although the recent tax reforms approved by the National Assembly and President Bola Tinubu represent a major step forward in modernising the VAT and Company Income Tax regimes, the choice to maintain the current VAT rate would lead to an immediate revenue shortfall.

It stated that the Federal Government may lose as much as 0.5 per cent of the country’s Gross Domestic Product in revenue following its decision not to raise the VAT rate.

“The decision not to raise the VAT rate now is reasonable, given high poverty and food insecurity, and with the cash transfer system to support the most vulnerable households not yet fully rolled out. However, this will reduce consolidated government revenue by up to ½ per cent of GDP in the authorities’ estimates,” the report noted.

According to the Fund, unless alternative financing options are found, subnational governments may be forced to either scale back spending or ramp up their own revenue efforts.

The IMF, however, acknowledged the government’s justification for delaying a VAT hike, particularly at a time of worsening poverty and food insecurity.

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, Mr Taiwo Oyedele, projected that states could earn more than N4tn annually from 2026 when new Value Added Tax 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?”

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Read how Nigerians tap savings, loans to buy Dangote refinery shares

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Some Nigerians seeking to invest in the Dangote Petroleum Refinery and Petrochemicals FZE Initial Public Offering have turned to personal savings, loans and proceeds from the sale of assets to raise funds to buy shares, Saturday PUNCH has learnt.

Findings by our correspondents revealed strong interest in the shares among prospective retail investors, some of whom said they expected the investment to yield substantial returns in the future.

While some respondents said they were dipping into savings or raising funds through other means, others said the prevailing economic hardship had made it difficult for them to participate in the offer.

The refinery opened its IPO on Monday, September 14, giving Nigerians an opportunity to own equity in the company.

The offer comprises 4.1 billion ordinary shares priced at N525 each, with the company targeting about N2.15tn to part-fund an expansion that would nearly double the refinery’s capacity to 1.4 million barrels per day.

The minimum subscription is 10 shares, costing N5,250.

Dangote Group Chief Executive Officer, Aliko Dangote, said the low entry threshold was deliberately set to allow ordinary workers, including drivers, cooks and domestic staff, to become shareholders, describing the offer as “the IPO for the people.”

The offer is expected to close on October 13.

Investors turn to savings, loans

A staff member of the Federal Ministry of Works, David Adelabu, described the shares as expensive for struggling civil servants but said he considered the offer an opportunity to become a shareholder in the refinery.

He said, “I have small shares in some companies, including Glo and MTN, but Dangote’s shares will be the highest I will be buying. It is on the high side, but I feel this is an opportunity to become a shareholder in Dangote.

“I understand that the dividends are not going to be immediate, but I don’t mind even if it will entail selling a plot of land I have in Metumbi here in Minna. I will gladly do so.”

A trader in Dutse, Jigawa State, Adamu Bala, said he planned to use savings from his business to buy the shares.

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“I will not sell my house. I will use a small profit from my shop to buy,” he said.

Similarly, a civil servant, Fatima Mannir, said women in her group had started raising money through contributions, known as adashe, to participate in the offer.

“We have started raising money through adashe,” she said.

A trader in Damaturu, Yobe State, Malam Musa Ibrahim, said he invested part of his business savings after learning about the offer.

“I am using part of the money I have saved from my business.

“I believe that if I can invest a small amount now, it may become useful to me in the future. But I am also being careful because business is not easy at the moment,” he said.

Another resident, Aisha Mohammed, said she raised money by cutting down on some household expenses.

“I did not borrow money to buy the shares. I have been saving little by little, and when I heard about the offer, I decided to use part of what I had saved,” she said.

A businessman, Abdullahi Yusuf, however, said he obtained financial assistance from a friend to increase his subscription.

“I wanted to buy more shares than what my savings could afford, so I discussed it with a friend who agreed to lend me some money.

“I know that borrowing money to invest carries risks, but I am hoping that the investment will perform well. I will repay the money from my business income,” he said.

A petty trader, Hauwa Lawan, said she sold some personal belongings she no longer used and added the proceeds to her savings to finance her purchase.

“I sold some things that I was no longer using and added the money to my savings,” she said.

A farmer, Mallam Abdullahi Adamu, said he sold farm produce to raise about N500,000 to invest in the shares.

In Kano State, an investor, Abdulmalik Ibrahim, said he bought 10 shares for N5,250 using personal funds.

Hardship keeps some investors away

While some Nigerians are finding ways to participate in the IPO, others said economic pressures had put the investment beyond their reach.

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A civil servant in Kogi State, Saliu Joseph, said he would have loved to invest but had just paid his children’s school fees.

“Right now, I don’t think I can afford to participate unless a miracle happens,” he said.

A retired permanent secretary in the state, Bola Boro, also said he would not participate because he could not afford the investment at the moment.

“As a retired civil servant, I cannot afford such an amount to invest in the offer. Even though I am a fan of investment through the stock market, which I have been doing for years, I don’t think it will be convenient for me to participate considering the time frame of just one month,” he said.

A civil servant, Kuta Abdulahi, said the financial demands of his children’s education had left him unable to participate in the share offer.

“I must tell you the truth, I know about the Dangote Refinery shares, but I cannot even think of it at this time. My children are just resuming a new term in school. Where will I get the money for their school fees before thinking of buying shares? Please, I have a lot on my head,” he said.

Similarly, a vulcaniser, Ahmed Alkali, said his income was barely enough to meet his family’s basic needs, making investment in shares difficult.

“With the kind of job I do, I am working from hand to mouth. So, how can I buy shares when I have not eaten?” he asked.

Experts warn against borrowing

Investment experts, however, cautioned Nigerians against taking loans, selling properties or committing all their savings to the IPO, warning that equity investments carry risks.

Speaking with Saturday PUNCH, the Group Managing Director of Lancelot Group, Adebayo Adeleke, urged prospective investors to understand the risks associated with the capital market before committing their funds to the IPO.

Adeleke, who is also a former Secretary of the Independent Shareholders Association of Nigeria, said capital market investments should be made with funds that investors could afford to leave untouched for the long term, noting that equities were unsuitable for people struggling to meet immediate financial needs.

He said, “When you buy shares, you are buying a portion of the ownership of the business. Investment takes a lot of time to pass through gestation, to stability, to profitability. And you cannot, with any degree of certainty, predict when the company is going to turn the corner and begin to produce profits.

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“So, investment money is not the money you are likely to need in the next two months, three months, six months, even one year. If you cannot part with your money for a minimum of three to five years, the capital market is not the place to invest.”

Adeleke, however, described the IPO as a strategic investment, citing the refinery’s scale and demand for its products.

Also speaking, the Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, urged Nigerians to consider the risks associated with the investment and avoid committing all their savings to the offer.

He said, “There are plenty of risks to this business. It’s not risk-free. Things can get worse for the business. Valuation is based on expectations of what will happen in the future. Things might not go as planned. And, like we all know, equity is a risky business.”

Olubunmi particularly cautioned prospective investors against selling property or using up all their savings to invest in the offer.

He advised them to invest only a portion of their funds and diversify their portfolios.

The expert also advised those considering taking loans to buy the shares to have a separate and reliable repayment plan rather than depending on returns from the investment.

The Emir of Kano, Muhammadu Sanusi II, had earlier warned prospective investors against using their children’s school fees or selling their homes to invest in the shares.

Sanusi, who gave the warning on Thursday while speaking at the company’s roadshow in Kano, urged prospective investors to invest only money they could afford to set aside for some time, suggesting amounts such as N10,000, N20,000 or N30,000.

Source: punchng.com

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ARE NIGERIANS BUILDING CHINA’S ECONOMY WHILE NEGLECTING THEIR OWN?

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While other nations are busy producing, manufacturing and exporting, Nigeria must ask itself a difficult question: Are we building our own economy, or simply creating a bigger market for other countries?

Nigeria has a huge population, abundant natural resources and a massive consumer market. Yet the country continues to depend heavily on imported finished products—from electronics and clothing to machinery, household goods and other consumer items.

The issue is not simply about Chinese businesses or businesses from any other foreign country operating in Nigeria. Foreign investment can bring capital, technology, jobs and expertise.

The bigger issue is whether **Nigerian businesses are being given the opportunity and support to manufacture competitively at home.

Instead of remaining primarily a consumer of finished products, Nigeria needs to strengthen its manufacturing sector and move further up the value chain.

Nigeria needs to produce, not just consume.

A stronger manufacturing economy could help Nigeria:

* Create more jobs for Nigerians
* Add value to locally available raw materials
* Develop industrial skills and technology
* Reduce excessive dependence on imported finished goods
* Build competitive Nigerian companies
* Increase the country’s ability to export

The goal should not be to drive legitimate foreign businesses out of Nigeria. The goal should be to build an economy where **Nigerian manufacturers can compete, grow and eventually take Nigerian-made products to markets around the world.

The question Nigerians should be asking is simple:

**Why should Nigeria remain one of the world’s biggest markets for finished products when we have the potential to manufacture many of them ourselves?

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🇳🇬 **Nigeria must move from being predominantly a consumer nation to becoming a stronger producer, manufacturer and exporter.

What do you think?

Which products should Nigeria prioritize for local manufacturing instead of relying heavily on imports?

Share your thoughts in the comments.

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ICRC defends toll pricing on highways

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The Infrastructure Concession Regulatory Commission has defended the toll pricing structure under the Highway Development and Management Initiative, saying charges are evaluated against the quality and benefits of the upgraded roads.

In a statement made available to PUNCH Online on Thursday, the Director-General, Dr. Jobson Ewalefoh, cited the 227-kilometre Akwanga–Makurdi road corridor as an example.

He said the route has four toll gates, and motorists pay as they travel along it.

He argued that toll payments should be viewed against the previous costs imposed by the poor condition of the road, including lost man-hours, vehicle damage and accident risks.

Feedback from road users, he said, shows many motorists are willing to pay tolls where they see clear improvements in road quality.

Some drivers have expressed support for similar arrangements on other major corridors if the roads are upgraded to the same standard.

“That, to me, is the beauty of a well-structured PPP,” Ewalefoh said.

He explained that negotiators carefully consider toll pricing to keep charges fair. A portion of the revenue is set aside specifically for road maintenance. Under the concession agreements, the government does not bear additional maintenance costs for the duration of the contract.

The government must repair potholes within 48 hours, and it funds major routine repairs from the dedicated toll revenue.

Source: punchng.com

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