Business

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

Published

9 months ago

January 8, 2026

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.

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.

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.

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?”

punch.ng

FOLLOW US ON:

FACEBOOK

TWITTER

PINTEREST

TIKTOK

YOUTUBE

LINKEDIN

TUMBLR

INSTAGRAM

Business

Nigerian states’ revenues rise 93%, but education spending drops — World Bank

Published

17 hours ago

October 9, 2026

Newsbreak365_Admin

The World Bank says Nigeria’s 36 states recorded a 93 per cent increase in revenues between 2023 and 2025 but education received a declining share of the sector’s expenditure.

The bank disclosed this in its latest Nigeria Development Update, which examined how increased public revenues have influenced spending priorities across the federation.

The report was made available to the News Agency of Nigeria by the World Bank in Washington D.C.

According to the report, states’ aggregate revenues rose by approximately 93 per cent in real terms, while expenditure increased by 92 per cent during the period.

The report attributed the improvement partly to exchange-rate reforms, petrol subsidy removal, stronger revenue administration and increased allocations from the federation account.

It said states also benefited from refunds, settlement of longstanding federal obligations, intervention funds, and stronger Value Added Tax collections.

However, education’s share of total state expenditure declined from 14.9 per cent in 2021 to 12.1 per cent in 2025, according to the report.

Health expenditure remained broadly stable at approximately seven per cent, while social protection’s share increased from 1.4 per cent to 4.4 per cent.

The bank said capital expenditure increased significantly, accounting for 61 per cent of state spending, compared with 46 per cent previously.

Transport infrastructure recorded the largest increase, alongside substantial spending on housing, agriculture and other economic investments.

The report quoted Mathew Verghis, the World Bank Country Director for Nigeria, as saying that increased revenues provided the opportunity to improve infrastructure, education, healthcare, and water services.

He said greater spending efficiency, accountability and improved service delivery were essential to ensuring that additional public resources benefited Nigerians.

The bank acknowledged improvements in states’ fiscal reporting, transparency and internally generated revenue.

It, however, stressed that stronger investment in human capital was necessary to translate economic reforms into sustainable employment and improved living standards.

The report also projected average economic growth of 4.4 per cent between 2026 and 2028, subject to sustained reforms and improved service delivery.

It urged federal and state authorities to ensure that increased public revenues translated into tangible improvements in Nigerians’ welfare.

NAN

Source: punchng.com

FOLLOW US ON:

FACEBOOK

TWITTER

PINTEREST

TIKTOK

YOUTUBE

LINKEDIN

INSTAGRAM

Business

Nigeria promotes investment without building production capacity – UNILAG don

Published

17 hours ago

October 9, 2026

Newsbreak365_Admin

A professor of Comparative Political Economy at the University of Lagos, Adelaja Odukoya, has asserted that Nigeria’s economic policies promote investment without sufficiently strengthening domestic production.

Odukoya argued that the contradiction had weakened the country’s productive foundations, with policies encouraging investment and entrepreneurship while failing to create the technological capacity, productive employment and processing industries needed to drive sustainable development.

Odukoya spoke at the maiden edition of the Adeleke University Toyin Falola Annual Lecture, held on Thursday at the Performing Arts Theatre, Adeleke University, Ede.

The lecture had as its theme, “History, Power and Accumulation: Reimagining Africa in the Globally Disorderly Order.”

Odukoya identified several contradictions in the way the Nigerian state manages economic activity.

He said, “The state promotes investment without creating conditions for technological transfer. It encourages entrepreneurship without generating sufficient productive employment.

“It expands primary-product exports while leaving processing capacity undeveloped. It constructs infrastructure without establishing strong linkages with domestic production.”

According to him, the contradictions explain why increased economic activity and accumulation do not necessarily translate into development.

“Accumulation is not synonymous with development,” Odukoya stated.

He argued that genuine development should be measured by the expansion of productive, technological, institutional and human capabilities.

“A country could attract investment, export minerals and agricultural commodities and record economic activity while still failing to build the domestic industries and technological capabilities required for long-term development,” he said.

His argument was echoed by Prof Toyin Falola, who said Africa’s vast natural resources would continue to reinforce dependency unless governments developed the industrial, technological and institutional capacity to transform them into productive power.

Falola said Africa’s resource problem was not simply one of historical exploitation, but also the continent’s failure to convert its resource endowments into power.

“The issue, however, is not just to repeat the history of exploitation. It is more important to know how Africa turns its great resources into power,” Falola said.

He argued that Africa could not afford to remain a spectator as global economic and geopolitical arrangements continued to change, stressing that resource ownership without the capacity to add value would not guarantee influence.

Falola said the continent required a combination of knowledge, government policy and industrial capacity to change its economic position.

“There must be universities that generate new knowledge; there must be governments that translate this knowledge into policies; there must be industries that add value to the continent’s natural resources,” he said.

He added that Africa needed more than improved infrastructure and stronger economies if it wanted to exercise greater influence in the global system.

“The future of the continent will require more than just better infrastructure, improved economies, and more effective political institutions,” Falola said.

Source: punchng.com

FOLLOW US ON:

FACEBOOK

TWITTER

PINTEREST

TIKTOK

YOUTUBE

LINKEDIN

INSTAGRAM

Business

Import waivers, insecurity end two-year agric trade surplus

Published

17 hours ago

October 9, 2026

Newsbreak365_Admin

Import waivers meant to ease hunger and insecurity on farms have led to a deficit, ending a two-year run of surpluses, as Nigeria’s agricultural trade balance swung from a N740.27bn surplus in the first half of 2025 to a N56.13bn deficit in H1 2026, according to agriculture and trade experts.

Recent foreign trade data from the National Bureau of Statistics showed that agricultural exports fell by 33.28 per cent, or N985.14bn, to N1.98tn in H1 2026 from N2.96tn in H1 2025.

Agricultural imports fell by only 8.50 per cent, or N188.74bn, to N2.03tn from N2.22tn over the same period. The gap between the two movements produced a N796.40bn swing in the trade balance.

Nigeria recorded a N365.74bn deficit in H1 2023, when imports of N926.25bn far exceeded exports of N560.51bn. The balance then turned to a N194.92bn surplus in H1 2024 before it widened to N740.27bn in H1 2025.

In separate phone interviews with The PUNCH, Agribusiness experts, including the Chairman of the Lagos Chamber of Commerce and Industry’s Agricultural and Allied Group, Tunde Banjoko, explained that recent government policy led to the shift.

Banjoko said, “Some waivers were given for products like palm oil and rice, and the import tariffs were drastically reduced. It became more favourable for people to import than to patronise local producers.”

He said the waivers on food commodities hurt domestic producers, even though lower tariffs on tractors and manufacturing equipment helped them.

According to Banjoko, “The effect is that our imports will rise above our exports. Second, we will discourage local production. Thirdly, we will be reducing employment, because some factories will shut down if they are not able to compete.”

Banjoko also said weak funding for processors compounds the problem. He said foreign direct investment flows mainly into the capital market rather than into production and processing, so local processors cannot scale.

He urged the Federal Government to speed up the Special Agro-Industrial Processing Zones programme. “We should speed up such projects where we can produce enough for our country and start exporting, not look for shortcuts by reducing prices,” Banjoko added.

Meanwhile, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, identified two major factors behind the deficit. He said the first was the Federal Government’s decision to allow some food imports to tackle runaway inflation.

Yusuf said, “The first is the decision of the government to allow for some food imports as a result of the challenges of food inflation, which at a point was getting almost completely out of hand.”

He added that insecurity worsened the supply gap and cut export capacity, stating, “Insecurity led many farmers to leave their farms. Many of them have ended up in IDP camps, and quite a number have completely abandoned farming.”

He added that farmers cannot export without output. Yusuf said, “You can only export when you have the output.”

Yusuf also said high input costs and falling produce prices have discouraged farming. He said, “Most of these inputs are imported, so the exchange rate situation has seriously affected the cost of inputs, and the prices of produce have gone down.”

He urged the Federal Government to cut the cost of fertiliser, agrochemicals, machinery and improved seedlings. He also called for a minimum guaranteed price for agricultural produce.

Yusuf said, “The government can establish a threshold below which, if prices fall, it will give farmers some compensation. That is the way it is done in many other economies.”

Source: punchng.com

FOLLOW US ON:

FACEBOOK

TWITTER

PINTEREST

TIKTOK

YOUTUBE

LINKEDIN

INSTAGRAM