Tax law: States To Receive N5trillion VAT in 2026

The 36 states of the federation are set to receive an estimated N5.07trillion as their share of Value Added Tax in 2026.

This follows the commencement of a new VAT sharing formula 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.

With 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 N1.38trillion.

With only 10 per cent allocated under the revised law, the Federal Government is projected to receive N922.5billion.

Punch