Nigerian state governments received a combined ₦2.37 trillion in Value Added Tax (VAT) allocations during the first half of 2026, a 23.5% year-on-year increase.
The rise follows stronger VAT collections and a revised revenue-sharing formula that significantly boosted the states’ share of federal proceeds.
According to an analysis by SBM Intelligence, the new formula raised states’ share of the Federation Account to 55%, while the Federal Government’s share was cut to 10%.
That adjustment redirected about ₦215.7 billion in additional revenue to state governments over the six-month period.
States Gain More Funds, But Efficiency Questions Remain
Overall, the Federation Account Allocation Committee (FAAC), the body responsible for sharing federally collected revenue among the three tiers of government, distributed ₦4.31 trillion in VAT revenue and ₦13.04 trillion in total federal revenue between January and June 2026.
That points to VAT’s growing importance as one of Nigeria’s major non-oil revenue sources, especially as the country leans more on non-oil income amid volatile global crude prices.
The extra funds are expected to give states greater room to spend on infrastructure, healthcare, education and security.
However, economists cautioned that the windfall would only produce real economic gains if states spend it efficiently and transparently, rather than expanding recurrent costs.
Analysts said state governments should channel the extra revenue into productive investments that create jobs and grow their own internally generated revenue.
Meanwhile, both the International Monetary Fund and the Nigerian Economic Summit Group have warned that Nigeria’s current VAT rate may be too low to meet the country’s rising fiscal needs in the long run.
They said that although the new sharing formula has boosted state allocations now, the existing VAT rate could limit future revenue growth as government spending continues to climb.
With states retaining a larger share of VAT proceeds, fiscal analysts believe governors will face more pressure to show accountability and deliver visible improvements in public services.
The VAT boost comes as many states seek additional resources to fund capital projects, service debts and support development plans, with experts maintaining that improved tax efficiency and disciplined spending remain key to turning the windfall into lasting benefits.
I am not an economist, but these allocations given to the states in Nigeria, why is the poor masses not getting some type of relief or gain from it??
And the IMF and it’s cohorts saying to increase it ke, this is why we need our own policies, economists, researchers and whatnot, we can not depend on the advice or suggestions from these organisations who have not tested our waters.
They see water and think it is a little variation from the one they have, but for us water and wata no mean same thing.