Between January and November 2024, a total of N5.718 trillion in distributable Value Added Tax (VAT) revenue was shared by the Federation Accounts Allocation Committee (FAAC), with three states and the Federal Capital Territory (FCT) receiving N4.183 trillion of the total. The remaining N1.534 trillion was divided among the other 33 states.
Lagos State, under the current VAT revenue sharing formula, received 42% of the total, amounting to N2.401 trillion. Rivers State, which gets 16%, received N914.88 billion, while the FCT, with a share of 10%, earned N571.8 billion. Oyo State, entitled to 5.2%, received N297.336 billion.
The VAT revenue distribution formula has become a point of contention, especially following the introduction of a new tax reform bill that proposes significant changes to the current sharing structure.
Under the current formula, the Federal Government receives 15% of VAT revenue, while states and the FCT take 50% and local governments receive 35%. Of the 50% allocated to the states, 20% is retained by each state as derivation, 30% is distributed based on population, and the remaining 50% is shared equally among all states.
The Presidential Committee on Fiscal Policy and Tax Reforms has raised concerns about the formula, noting that it does not account for the fact that over 70% of goods and services are consumed outside the locations where they are produced or where VAT is remitted. As a result, the committee proposes a new formula, allocating 10% to the Federal Government, 55% to the states and the FCT, and maintaining the 35% share for local governments.
Meanwhile, the Independent Media and Policy Initiatives (IMPI) has voiced support for the tax reform bills awaiting approval by the National Assembly, praising them as a crucial step in revitalizing Nigeria’s economy. During a press conference in Abuja, IMPI Chairman Omoniyi Akinsiju stressed the importance of the proposed legislation, highlighting its potential to generate revenue, stimulate business growth, and increase citizens’ purchasing power. He also expressed disappointment over the controversy surrounding the VAT-sharing formula, describing it as a distraction from the broader benefits of the reforms.
