States to Get N5.07tn Under New 2026 VAT Formula

The 36 states of Nigeria are projected to receive an estimated N5.07 trillion as their share of Value Added Tax (VAT) in 2026. This significant increase follows the official implementation of a new sharing formula introduced under the National Tax Acts.

Notably, this fiscal shift is detailed in the 2026–2028 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper. The Federal Executive Council recently approved this document to guide national spending.

A Major Shift in Revenue Allocation

Starting in January 2026, the new National Tax Acts will fundamentally alter how the government distributes VAT revenue. Specifically, the new formula introduces the following changes:

• Federal Government: The share will be reduced from 15% to 10%.
• State Governments: The share will increase from 50% to 55%.
• Local Governments: The share remains constant at 35%.

While the total VAT pool is expected to grow, the Federal Government’s specific allocation will decrease. Projections show its share falling to N922.53 billion in 2026. This is a noticeable drop from the N1.04 trillion recorded in 2025.

Impact on State and Local Finances

The five-percentage-point increase for states is expected to provide an additional N461.27 billion in 2026 alone. Consequently, this boost pushes the collective state allocation to N5.07 trillion, which is a sharp rise from the N3.47 trillion seen in 2025.

Similarly, Local Governments are set for a revenue surge due to an expanding tax base. Although their percentage share remains at 35%, their actual collection is projected to reach N3.23 trillion in 2026. This represents a substantial gain from the N2.43 trillion collected the previous year.

Long-Term Growth and Digital Efficiency

The expansion of the VAT net and improved digital enforcement are primary drivers of this revenue growth. Furthermore, the fiscal document provides optimistic long-term projections for the total VAT pool:

• 2027: N10.87 trillion
• 2028: N13.28 trillion

As the pool grows, state and local governments are positioned as the primary beneficiaries of this consumption-driven tax. In fact, by 2028, the states’ 55% share is expected to yield a staggering N7.30 trillion.

Rebalancing the Main Federation Account

While VAT revenue is rising, the main Federation Account—which includes oil revenue and customs duties—is expected to face a sharp decline. Specifically, the main pool is projected to shrink from N60.26 trillion in 2025 to N41.06 trillion in 2026.

This contraction means that despite the gains in VAT, the Federal Government’s total earnings will likely stay below 2025 levels for several years. Therefore, subnational governments will play a more critical role in national economic stability.

The Rise of Digital Transaction Revenue

Another growing component of public finance is Stamp Duty revenue (formerly the Electronic Money Transfer Levy). This pool is expected to double, rising from N228.85 billion in 2025 to N456.07 billion in 2026.

The distribution for Stamp Duty follows the same model as VAT (10/55/35). This growth is largely attributed to the wider adoption of digital financial services. As more Nigerians use electronic payment channels, the revenue generated from transaction levies continues to climb.