Nigeria's 36 states and the Federal Capital Territory (FCT) shared a total of N2.37 trillion in Value Added Tax (VAT) revenue during the first half of 2025, following the implementation of a new VAT sharing formula approved by the Federation Account Allocation Committee (FAAC). This represents a significant increase from the N1.95 trillion distributed in the same period of 2024, reflecting a 21.5 percent growth year-on-year.
Breakdown of VAT Distributions
According to data released by the National Bureau of Statistics (NBS), the monthly allocations ranged from N360 billion in January to N425 billion in June. The new formula, which came into effect in January 2025, allocates 50 percent of VAT revenue based on derivation (where the goods are consumed), 30 percent based on equality (equal shares to all states), and 20 percent based on population.
Lagos State received the highest cumulative amount of N412 billion over the six months, followed by Rivers State with N198 billion, and Delta State with N176 billion. The FCT received N89 billion. At the lower end, states like Yobe, Ebonyi, and Ekiti received the smallest shares, with N28 billion, N31 billion, and N33 billion respectively.
Impact of the New Formula
The new derivation-based component has significantly benefited states with high economic activity and consumption, such as Lagos, Rivers, and Delta, which are major commercial and industrial hubs. According to the Minister of Finance, Wale Edun, the revised formula aims to incentivize states to improve their internal revenue generation and economic productivity. He stated, "The new VAT sharing formula is designed to reward states that are driving economic growth and consumption, thereby encouraging all states to create a more business-friendly environment."
However, some less industrialized states have expressed concerns that the formula may widen fiscal disparities. The Governor of Yobe State, Mai Mala Buni, noted, "While we support efforts to boost productivity, the derivation component could leave poorer states struggling to meet basic obligations. We need complementary measures to ensure balanced development."
Monthly Distribution Trends
January saw the lowest distribution at N360 billion, partly due to the transition period. February recorded N380 billion, March N395 billion, April N410 billion, May N400 billion, and June N425 billion. The increase in June was attributed to improved compliance and economic activities during the festive period. The FAAC also disclosed that the total VAT revenue collected in the first half of 2025 was N2.5 trillion, with the balance of N130 billion set aside for administrative costs and other statutory deductions.
Comparison with Previous Years
In the first half of 2024, total VAT distribution stood at N1.95 trillion, meaning the new formula has resulted in an additional N420 billion for states and the FCT. The federal government retained N380 billion as its share of VAT in H1 2025, down from N450 billion in the same period of 2024, due to the reduced federal allocation under the new formula.
Stakeholder Reactions
Economists have praised the reform for promoting fiscal responsibility. Dr. Uche Uwaleke, a professor of finance at the University of Abuja, commented, "The new formula aligns with the principles of fiscal federalism and encourages subnational governments to expand their tax base. It is a step in the right direction for Nigeria's fiscal sustainability."
Conversely, civil society groups have called for transparency in the utilization of the funds. The Socio-Economic Rights and Accountability Project (SERAP) urged state governments to publish detailed expenditure reports to ensure the additional revenue translates into tangible development for citizens.
Future Outlook
The FAAC has indicated that the VAT sharing formula may be reviewed after two years based on its impact on revenue generation and equity. Meanwhile, states are expected to intensify efforts to boost consumption and compliance to increase their derivation-based allocations. The federal government also plans to expand the VAT net by formalizing more informal sector activities, which could further increase the total distributable pool.
