Nigeria’s fiscal structure is set for a major transformation as the Value Added Tax (VAT) reform takes full effect in 2026, granting states a larger share of the nation’s consumption tax revenue.
The development, according to fiscal policy experts, could lift state revenues by more than ₦4 trillion annually and usher in a new era of subnational fiscal autonomy.
The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, said the VAT reform represents one of the most significant adjustments to Nigeria’s revenue allocation system in decades.
Under the new framework, states are expected to receive a 55 per cent share of VAT collections—an increase designed to enhance their financial independence and reduce reliance on federal allocations.
The policy shift follows months of comprehensive fiscal reforms intended to streamline taxation, widen the revenue base, and improve compliance through digital systems. With implementation slated for 2026, the reform will empower states to manage a greater portion of their fiscal resources while aligning taxation more closely with economic activity at the local level.
Economic analysts note that while the increase in revenue potential is substantial, the real challenge lies in governance discipline.
The additional ₦4 trillion inflow, they argue, must be deployed into productive sectors such as education, healthcare, transport, and infrastructure to stimulate job creation and long-term growth.
Experts warn that unless funds are invested rather than spent, the benefits of the reform could be quickly eroded by inflation and poor fiscal management.
The broader fiscal reform agenda has already doubled intergovernmental transfers through the Federation Account Allocation Committee, improving liquidity at both federal and state levels.
However, many Nigerians continue to grapple with rising costs and limited purchasing power, underscoring the need for reforms that directly impact citizens’ welfare.
Fiscal observers have described the VAT reform as a necessary correction to Nigeria’s historical overcentralisation of tax revenues. By expanding states’ financial control, the policy aims to incentivise local economic growth and encourage healthy competition in tax administration.
States that demonstrate effective use of their increased allocations are expected to attract greater investor confidence and private sector participation.
The new VAT structure will also interact with recent changes that transfer the full proceeds of electronic money transfer levies to states and exempt state bonds from tax obligations—measures that further strengthen subnational balance sheets and reduce borrowing costs.
Analysts believe that if well implemented, the reform could redefine fiscal federalism in Nigeria, encouraging states to develop robust internal revenue systems while maintaining transparency and accountability in public finance.
For Oyedele and his team, the objective extends beyond raising revenues—it is about repositioning states to operate as engines of economic development.
By 2026, when the new VAT regime becomes effective, the measure of success will not be the size of state earnings but the tangible improvements in infrastructure, public services, and living standards across Nigeria’s subnational economies.