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The short answer
Under the 2025 tax reform the VAT pool is shared 10% to the Federal Government, 55% to states and 35% to local governments, up from 50% for states and down from 15% for the Federal Government. Among states, 50% is shared equally, 20% by population and 30% by consumption, replacing the old 50/30/20 split with 20% derivation. The derivation share was contested because a proposed 60% would have favoured high-collection states.
Two splits, not one
VAT sharing in Nigeria happens in two steps. The vertical split decides how much of the national VAT pool goes to each tier of government. The horizontal split decides how the states' and councils' shares are divided among them. VAT itself stays at 7.5% under the Nigeria Tax Act 2025 (Forvis Mazars) and is collected by the Nigeria Revenue Service (Nigeria Tax Administration Act, section 3(1)).
Old and new formula
As summarised by Gresyndale Legal on Mondaq in May 2025, when the formula was agreed during the reform's passage:
| Old (VAT Act) | New (2025 reform) | |
|---|---|---|
| Federal Government | 15% | 10% |
| States and FCT | 50% | 55% |
| Local governments | 35% | 35% |
| Among states: equality | 50% | 50% |
| Among states: population | 30% | 20% |
| Among states: derivation / consumption | 20% derivation | 30% consumption |
The article was written when the reform was still a bill; check the enacted text of the 2025 Acts for the final wording before quoting a section.
A worked example
Example: imagine a monthly VAT pool of ₦1,000 billion after allowed deductions.
- Federal Government 10%: ₦100 billion.
- States 55%: ₦550 billion.
- Local governments 35%: ₦350 billion.
Within the states' ₦550 billion: equality 50% = ₦275 billion shared equally; population 20% = ₦110 billion shared by population; consumption 30% = ₦165 billion shared by where the VAT-bearing consumption happened. ₦275bn + ₦110bn + ₦165bn = ₦550bn.
Why derivation was contested
Derivation means sharing by where VAT is generated or recorded. Because large companies are often headquartered in Lagos, VAT paid on goods consumed nationwide can look as if it arose there. According to the Mondaq summary, the reform bill first proposed raising the derivation share from 20% to 60%. The Nigeria Governors' Forum opposed this as detrimental to northern and lower-collecting states and offered 50% equality, 20% population and 30% derivation. The final compromise kept those weights but replaced "derivation" with "consumption", which aims to credit the state where the goods or services are actually used rather than where the seller files.
Equality, population and consumption in plain terms
Each weight rewards something different. The equality share treats every state the same regardless of size, which protects smaller and poorer states. The population share sends more to states with more people, on the reasoning that more residents need more services. The consumption share follows spending, so a state where more VAT-bearing goods and services are bought receives more. Moving 10 percentage points from population to consumption therefore shifts the balance a little towards states with larger economies, while the 50% equality share keeps a strong floor for everyone.
Why it matters to you
- More VAT for states and councils should mean more money for state-run services such as roads, schools and clinics.
- Consumption-based sharing depends on good data about where sales happen, which is one reason the Acts lean on e-invoicing and Tax IDs.
- Your price at the till does not change with the formula; only the rate does, and that stays 7.5%.
Related: does a small business have to charge VAT?, which laws the 2025 Acts replaced and the Joint Revenue Board. This is information, not tax advice.
Questions people ask
What is the new VAT sharing formula in Nigeria?
10% Federal Government, 55% states, 35% local governments; among states 50% equality, 20% population and 30% consumption.
What was the old VAT sharing formula?
15% Federal, 50% states, 35% local governments; among states 50% equality, 30% population and 20% derivation.
Why did northern governors oppose the VAT bill?
A proposed 60% derivation share would have shifted VAT towards high-collection states; the Governors' Forum said it would harm less-generating states.
Did VAT go up under the new tax law?
No. VAT remains 7.5%.
Sources
- Taxation in Nigeria: a review of the newly approved VAT formula (Mondaq, 1 May 2025) · accessed Oct 2026
- 2025 NTA VAT key business changes (Forvis Mazars, 16 Mar 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025 (gazette text) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.