By: Okoi Obono-Obla
Ever since Nigeria returned to democratic civil rule in 1999, following many decades of military dictatorship, there have been persistent calls for the country to embrace fiscal federalism or devolve powers from the Federal Government to the States and Local Government Councils. Advocates argue that such a shift would foster financial independence and autonomy by revising the revenue-sharing formula governing allocations from the Federation Account.
Critics of the current formula contend that it is unjust and inequitable for the Federal Government to retain the bulk of the revenue accruing to the Federation Account, while allocating only marginal portions to the States and Local Government Areas. This imbalance has led to a recurring scenario where States are compelled to approach Abuja, figuratively with cups in hand, to solicit funds for basic governance and development needs.
However, the administration of President Bola Ahmed Tinubu has, without noise or hassle—and without the usual tension and acrimonious atmosphere that typically accompanies any attempt to alter the status quo ante in a fractious federation where centripetal and centrifugal forces underpin the system—quietly restructured the arrangement through the instrumentality of the Nigeria Tax Administration Act (NTAA), 2025. This reform is particularly significant in relation to revenue accruing from the Value Added Tax (VAT).
Revenue Distribution Under NTAA, 2025:
According to Section 81, Subsections 1(a)(b)(c) and 2(a)(b)(c) of the NTAA, notwithstanding any formula prescribed by other laws, the net revenue accruing by virtue of Chapter Six of the NTAA shall be distributed as follows:
– 10% to the Federal Government
– 55% to the State Governments and the Federal Capital Territory
– 35% to the Local Governments
Additionally, the VAT revenue standing to the credit of States and Local Governments shall be distributed among them based on the following criteria:
– Equally — 50%
– Population — 20%
– Consumption — 30%
Understanding Value Added Tax (VAT)
VAT, or Value Added Tax, is a consumption tax levied on the value added at each stage of a product’s production and distribution. Unlike a traditional sales tax, which is applied only at the point of final sale, VAT is imposed incrementally at each stage of the supply chain. Although it is an indirect tax—meaning the consumer ultimately bears the cost—it is collected and remitted by businesses involved in the production and distribution process.
Conclusion:
The NTAA, 2025 represents a quiet but profound shift in Nigeria’s fiscal structure. By recalibrating the revenue-sharing formula and granting greater financial autonomy to subnational entities, the Tinubu administration has taken a decisive step toward true federalism. While the journey toward full fiscal decentralization may still be ongoing, this reform signals a meaningful departure from the centralized model that has long stifled local governance and development.
