Nigeria’s states are set to receive a major revenue boost following the commencement of a new Value Added Tax (VAT) sharing formula, with projections indicating a combined windfall of about ₦5 trillion.

The revised formula, which took effect this fiscal period, places greater emphasis on derivation and consumption, reducing the weight previously assigned to equal sharing. Under the new arrangement, states that generate and consume more taxable goods and services are expected to receive a significantly larger share of VAT proceeds.

Officials familiar with the implementation say the reform is aimed at encouraging fiscal responsibility, boosting internally generated revenue (IGR), and rewarding economic productivity across the federation. The Federal Inland Revenue Service (FIRS) is expected to remit VAT collections based on the updated criteria to the Federation Accounts Allocation Committee (FAAC) for onward distribution.

Early estimates suggest that commercially active states—particularly Lagos, Rivers, Ogun, Oyo, Delta, and the Federal Capital Territory—will benefit most from the new framework, while less industrialised states may experience slower growth in VAT receipts unless they expand their economic base.

State governments have welcomed the development, describing it as a step toward fiscal federalism and improved financial autonomy. However, some analysts warn that the new formula could widen revenue disparities if states fail to invest in economic diversification, infrastructure, and business-friendly policies.

The Federal Government has maintained that the VAT reform is lawful and consistent with ongoing tax administration changes designed to strengthen public finance, reduce overdependence on oil revenue, and improve service delivery at the subnational level.

As the new VAT sharing regime unfolds, attention will be on how states deploy the anticipated ₦5 trillion inflow to drive development, create jobs, and improve living standards for citizens.