… A SPEAR NEWS analysis of the FAAC report shows that the six states of the South-West contributed N929.87 billion, representing 56% of Nigeria’s total VAT pool for Q1 2025…
The first quarter of 2025 has laid bare the stark disparities in Nigeria’s Value-Added Tax (VAT) generation and distribution, with the latest Federation Account Allocation Committee (FAAC) data revealing a familiar pattern of economic imbalance. While Lagos State continues its dominance as the nation’s commercial powerhouse, contributing a staggering N819.62 billion, more than the combined total of 32 other states, the redistribution mechanism ensures that states generating the least VAT receive significantly more than they put into the national purse.
A SPEAR NEWS analysis of the FAAC report shows that the six states of the South-West contributed N929.87 billion, representing 56% of Nigeria’s total VAT pool for Q1 2025. Lagos alone accounted for 88% of the region’s contribution, with Oyo (N79.78bn), Ogun (N7.20bn), Ondo (N7.14bn), Osun (N5.95bn), and Ekiti (N10.17bn) making up the rest. Yet, the entire region received just N258.19 billion in return—a mere 28% of what it generated.
The South-South followed closely as the second highest contributor, with N364.99 billion, driven largely by Rivers (N278.23bn), Bayelsa (N27.26bn), Delta (N20.04bn), Edo (N20.73bn), Akwa Ibom (N16.08bn), and Cross River (N2.65bn). However, the region received only N171.19 billion, equivalent to 47% of its contribution.
In sharp contrast, the South-East contributed N28.37 billion but received N104.50 billion, a staggering 368% return. Similarly, the North-East, which generated N30.04 billion, was allocated N124.20 billion (345%), while the North-West, with N68.05 billion in contributions, got back N176.74 billion (260%). The North-Central received N126.16 billion against its N52.70 billion contribution, translating to a 239% redistribution.
This redistribution model, designed to promote fiscal federalism and equitable development, continues to spark debates over economic justice. States like Lagos and Rivers, which serve as Nigeria’s commercial and industrial hubs, bear the heaviest VAT burden but see a fraction of their contributions returned. Meanwhile, economically weaker states benefit disproportionately from the pool.
Kano, Nigeria’s second-most populous state, contributed N22.97 billion—just 2.8% of Lagos’s output—while Sokoto (N10.88bn), Borno (N7.87bn), and Katsina (N5.96bn) posted modest contributions. Yet, their allocations under the sharing formula ensure sustained fiscal support from the federation.
The data also highlights regional economic disparities. The entire South-East contributed less than Oyo State’s N79.78 billion, with Abia (N2.92bn), Imo (N2.34bn), and Enugu (N4.96bn) among the lowest contributors. Similarly, the North-West’s N68.05 billion contribution was propped up mainly by Kano, as Jigawa (N11.22bn), Kaduna (N8.12bn), and Kebbi (N5.13bn) recorded minimal VAT inflows.
As the federal government pushes for broader tax compliance and an expanded VAT net, questions linger over whether the current allocation formula truly fosters balanced development or perpetuates dependency.
Nigeria’s VAT Reforms to Spur State-Level Economic Revival
The Federal Government’s proposed VAT reforms mark a strategic shift toward incentivizing fiscal responsibility across Nigeria’s states. By restructuring the current redistribution model, the legislation aims to reward economic productivity while gradually reducing dependency on federal allocations.
Under the new framework, high-contributing states like Lagos (N819.62bn) and Rivers (N278.23bn) may retain 30-50% of locally generated VAT, a significant increase from the current 15%. This creates immediate incentives for commercial hubs to expand their tax bases.
More crucially, the reforms compel low revenue states to develop sustainable IGR strategies. Regions like the South-East (N28.37bn contribution) and North-East (N30.04bn) that currently receive 368% and 345% returns respectively will face phased reductions in federal transfers. The legislation ties continued support to verifiable progress in:
- Formalization of informal sectors
- Implementation of digital tax collection
- Annual IGR growth benchmarks
Mid-tier states including Oyo (N79.78bn) and Kano (N22.97bn) stand to benefit from enhanced revenue capture mechanisms, particularly through the bill’s nationwide electronic VAT tracking system.
The reforms present a calculated transition – maintaining essential redistribution while creating structural pressures for economic diversification. States resisting this inward-looking shift risk declining allocations as the new performance-based model takes effect.
This legislative intervention could redefine Nigeria’s fiscal federalism, replacing the current culture of dependency with competitive productivity. Success hinges on balanced implementation that considers regional economic disparities while maintaining national cohesion. The coming quarters will reveal whether state governments rise to this challenge or cling to diminishing federal lifelines.
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