By Joy Odor Reportcircle News | Abuja
Sub-national governments may be heading for a fresh revenue surge as the Federal Government concedes five percentage points of its Value Added Tax (VAT) share, effectively reducing its allocation from 15 percent to 10 percent and increasing the distributable pool for states and local governments.
The Tinubu Media Support Group (TMSG) on Thursday described the move as a decisive push toward fiscal decentralisation, arguing that it would translate into higher VAT accruals for states beyond the ₦3.77 trillion shared in 2025.
In a statement signed by its Chairman, Emeka Nwankpa, and Secretary, Dapo Okubanjo, the group said the tax reform framework reflects President Bola Tinubu’s commitment to strengthening grassroots development through improved revenue flows to sub-nationals.
Citing data from the Federation Account Allocation Committee (FAAC), TMSG noted that VAT disbursements to the three tiers of government rose by 26.46 percent year-on-year from ₦6.11 trillion in 2024 to ₦7.73 trillion in 2025.
While inflationary pressures may partly explain the jump, the group attributed a significant portion of the increase to enhanced compliance and improved revenue administration by the Federal Inland Revenue Service (FIRS), now renamed the Nigerian Revenue Service (NRS).
With tax reforms now operational and the federal share trimmed to 10 percent, TMSG projects even stronger accruals to sub-national governments in the current fiscal cycle.
Under the revised VAT structure, 55 percent of collections will go to states, 35 percent to local governments, and 10 percent to the Federal Government effectively transferring 90 percent of VAT proceeds to sub-national entities.
The group argued that the concession signals a structural shift in Nigeria’s fiscal architecture, where the centre retains less and federating units gain more headroom for capital and social spending.
“We believe the administration deserves commendation not only for improved VAT collections but also for conceding 90 percent of all accruals from VAT to states and local governments,” the statement read.
Fiscal Decentralisation in Motion
Analysts say VAT has become one of the most buoyant non-oil revenue streams for Nigeria, particularly as oil receipts fluctuate and subsidy reforms reshape fiscal flows.
The latest adjustment aligns with broader tax reforms aimed at expanding the tax net, digitising collection processes, and enhancing transparency in remittances.
If collections sustain their growth trajectory, sub-national governments could receive significantly more than the ₦3.77 trillion allocated to states in 2025, a development that may strengthen state budgets strained by rising wage bills and infrastructure deficits.
TMSG expressed confidence that increased allocations would filter down to grassroots communities, urging state and local governments to complement federal reforms with improved governance and accountability.
“There is no reason why Nigerians, especially at the grassroots, should not feel the benefit of improved allocations,” the group stated.
For investors and fiscal watchers, the VAT recalibration signals a deeper commitment to revenue-led federalism, a policy direction that could redefine intergovernmental fiscal relations and reshape development spending across Nigeria’s 36 states and 774 local government areas.
Whether the higher accruals translate into visible infrastructure and social outcomes will depend on sub-national execution but for now, the numbers suggest that the VAT tide may be rising in favour of the states.
