States get ₦2.37 trillion VAT in H1 2026, up 23.5%
State governments received ₦2.37 trillion in VAT allocations during the first half of 2026, a 23.5% increase driven by stronger collections and a new revenue-sharing formula.
State governments received ₦2.37 trillion in Value Added Tax (VAT) allocations during the first half of 2026, a 23.5 per cent increase from ₦1.92 trillion in the same period of 2025, driven by stronger VAT collections and a new revenue-sharing formula. Under the revised tax regime, which took effect on January 1, 2026, states’ share of distributable VAT rose from 50 per cent to 55 per cent, while the Federal Government’s share fell from 15 per cent to 10 per cent. This shift transferred about ₦215.7 billion from the Federal Government to the states.
Overall, ₦4.31 trillion in VAT revenue was distributed among the three tiers of government during the six-month period, while total FAAC allocations reached ₦13.04 trillion. Analysts welcomed the higher allocations but urged state governments to improve transparency and channel the additional revenue into infrastructure, agriculture and other productive sectors. Meanwhile, the IMF and Nigeria Economic Summit Group warned that retaining the current VAT rate could reduce future government revenues.
The increased allocations reflect the growing importance of VAT as a revenue source for states. As oil revenues have declined, VAT has become a more significant source of funding for state governments. The new revenue-sharing formula, which gives states a larger share, is designed to address the fiscal challenges facing sub-national governments.
This echoes the 2020 VAT rate increase, which also boosted state revenues. The mechanism then was different, but the result was the same: states receiving more money and being urged to spend it wisely.
The winners: state governments, which have received more revenue, and the Nigerian economy, which benefits from stronger VAT collections. The losers: the Federal Government, which has lost revenue, and the Nigerian public, which pays VAT and must trust that states will spend the money wisely.
Bottom Line: States received ₦2.37 trillion in VAT allocations in the first half of the year. The money is flowing to the states. The question is whether they will spend it wisely or waste it.