The Nigerian federal government has agreed to hand over a larger slice of consumption tax revenues to states and local governments, part of a sweeping reform package aimed at boosting development outside the capital.In a significant shift in fiscal policy, the federal government’s share of Value Added Tax (VAT) will drop from 15% to 10% starting this year. The remaining 5% will be redistributed to sub-national governments, effectively giving states and local authorities control over 90% of all VAT collected nationwide.The Tinubu Media Support Group (TMSG) hailed the move, predicting that state allocations will shatter previous records.”
Grassroots Empowerment
In 2025, Nigerian states received approximately N3.77 trillion ($2.4bn) from VAT. With the new 2026 reforms and improved collection efficiency by the newly renamed Nigeria Revenue Service (NRS), analysts expect that figure to rise significantly. Under the new distribution formula:
States:
55%Local Governments: 35%
Federal Government: 10%”
The goal is to ensure Nigerians at the grassroots feel the benefit of these allocations,” the TMSG stated, adding that the reform is designed to empower local leaders to fund infrastructure and social projects.
Deregulation “Gains” reach N6 Trillion
The tax news comes as the administration defends its controversial but “essential” reforms in the oil sector. The Democratic Front (TDF), a policy advocacy group, reports that Nigeria has recouped N6 trillion ($3.8bn) thanks to the deregulation of the downstream petroleum sector. For decades, Nigeria spent trillions of naira on fuel subsidies—a practice many economists called a “monumental waste” of national resources.
A blow to corruption?The TDF argues that by removing these subsidies and allowing market forces to dictate fuel prices, the government has:
Curbed Smuggling: Reduced the incentive for illegal cross-border fuel trade.
Attracted Investment: Encouraged private refineries to begin domestic production.
Boosted Transparency: Eliminated the “bureaucratic bottlenecks” that fostered corruption.” Nigeria’s corruption perception index is bound to improve,” a TDF spokesperson said. “The era of wasting taxpayers’ money on a system that held the nation back for 40 years is coming to an end.”
The Bottom Line
While these reforms have led to higher costs of living in the short term, the government’s message is clear: the “savings” from oil and the “gains” from taxes are finally being redirected from the federal center back into the hands of local communities.
Add Comment