Tax law: VAT hits record N1tn as new sharing era begins.

Nigeria’s Value Added Tax (VAT) collections soared to a record N1 trillion in January 2026, marking the first full month under a revised revenue-sharing framework that changes how VAT proceeds are distributed among the Federal Government, states, and local councils. After deductions at source, about N1 trillion was available for distribution, representing an 18.5% increase compared with December 2025. 

The surge highlights growing non-oil revenue and the government’s focus on diversifying the economy.

Under the new tax sharing formula, the Federal Government now receives 10% of net VAT, while state governments take 55% (up from 50%) and local councils retain 35%. This adjustment means states benefit more from rising VAT collections, while the federal government’s share is slightly reduced. In January, the Federal Government received approximately N100 billion, states got N551 billion, and local governments shared N351 billion of the distributable VAT.

Lagos State remained the largest beneficiary, receiving a gross allocation of about N111 billion, with other economically active states like Oyo, Rivers, and Kano also seeing significant allocations. The new system rewards states generating higher economic activity and consumption, signaling a new era of revenue sharing that could impact budget planning and local development projects across the country.