Nigeria’s 36 states are set for a major revenue boost in 2026, with an estimated ₦5.07 trillion expected from Value Added Tax (VAT) collections following the implementation of a new revenue-sharing formula under the National Tax Acts.

According to findings from The PUNCH, the development is outlined in the 2026–2028 Medium-Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) approved by the Federal Executive Council. The revised formula, which takes effect from January 2026, reduces the Federal Government’s share of VAT from 15 per cent to 10 per cent, while increasing states’ allocation from 50 per cent to 55 per cent. Local governments retain their 35 per cent share.

Based on projections, total distributable VAT revenue is expected to rise sharply to ₦9.23 trillion in 2026, up from ₦6.95 trillion in 2025. Under the new formula, states will collectively receive ₦5.07 trillion, compared to ₦3.47 trillion in 2025, an increase of about ₦1.6 trillion year-on-year.

The Federal Government’s VAT allocation is projected to fall to ₦922.53 billion in 2026, down from ₦1.04 trillion in 2025, despite growth in the overall VAT pool. If the previous 15 per cent sharing formula had remained in place, the Federal Government would have earned about ₦1.38 trillion in 2026. The revised allocation effectively shifts an estimated ₦461.27 billion from the centre to the states.

Local governments are also expected to benefit from higher VAT receipts, with projected earnings of ₦3.23 trillion in 2026, up from ₦2.43 trillion in 2025.

The fiscal framework projects further growth in VAT revenue, with the pool expected to reach ₦10.87 trillion in 2027 and ₦13.28 trillion in 2028. At a 55 per cent share, states are projected to receive ₦5.98 trillion in 2027 and ₦7.30 trillion in 2028, while local governments would earn ₦3.81 trillion and ₦4.65 trillion respectively over the same period.

While rising VAT revenues offer some relief, the Federal Government is expected to face pressure from a sharp decline in the main Federation Account, projected to fall from ₦60.26 trillion in 2025 to ₦41.06 trillion in 2026. As a result, federal, state, and local government allocations from oil revenue and other sources are expected to dip significantly before a gradual recovery in later years.

Stamp duty revenue, formerly the Electronic Money Transfer Levy, is also projected to rise sharply, from ₦228.85 billion in 2025 to ₦456.07 billion in 2026. Using the same 10–55–35 sharing formula, states are expected to receive ₦250.84 billion from stamp duties in 2026, nearly double their allocation in 2025.

Economists say the reforms signal a structural shift in Nigeria’s public finance system, favouring subnational governments and strengthening fiscal federalism. However, concerns remain about potential revenue shortfalls at the federal level.

The Nigeria Economic Summit Group has warned that maintaining the current VAT rate without an increase could weaken government revenues. Similarly, the International Monetary Fund noted that the decision not to raise VAT, although justified by rising poverty and food insecurity, could reduce consolidated government revenue by up to 0.5 percent of GDP.

Despite these concerns, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has projected that states could earn over ₦4 trillion annually from VAT starting in 2026, urging subnational governments to invest the funds prudently rather than merely spend them.