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By Tracy Moses
States across Nigeria could see their revenues swell by more than ₦4 trillion annually from 2026 when the new Value Added Tax (VAT) structure comes into force.
This is according to the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele.
Oyedele disclosed this on Tuesday in Abuja while delivering the keynote address at the launch of BudgIT’s “State of States 2025” Report, which also marked the 10th anniversary of the civic tech initiative.
He revealed that under the new fiscal arrangement, states will receive 55 percent of VAT proceeds, a significant shift expected to deepen subnational fiscal autonomy and enhance development financing.
“With the VAT reforms kicking in from 2026, states’ share will rise to 55 percent. That could amount to over ₦4 trillion. The real question is: will it be spent or invested?” Oyedele queried.
The fiscal policy expert observed that while government revenues have surged—FAAC allocations jumped from ₦5.4 trillion in 2023 to ₦11.4 trillion in 2024—the impact on households remains minimal.
“States are getting more money than ever before, yet citizens have less purchasing power. Governments are richer, but the people are poorer,” he lamented, urging governors to direct new inflows toward projects that tangibly improve lives.
The BudgIT 2025 report revealed that 21 states still rely on federal allocations for over 70 percent of their income, a trend Oyedele described as unhealthy for sustainable growth. Nonetheless, he commended the fiscal progress recorded in Enugu and Bayelsa, which saw 381 percent and 174 percent increases in internally generated revenue, respectively.
He noted that the new tax regime—transferring full electronic money transfer levy proceeds to states and granting tax exemptions for state bonds—would reduce borrowing costs and create room for capital investments.
“This is a rare opportunity for states to build resilience, plug leakages, and channel funds into productive infrastructure,” he said.
Oyedele further pointed out that, for the first time in years, capital expenditure has surpassed recurrent spending, though implementation in key social sectors remains weak.
“States implemented only about two-thirds of their education budgets, spending less than ₦7,000 per person. Health sector execution was even lower—barely ₦3,500 per citizen,” he observed.
On the debt front, Oyedele reported modest progress, with a ₦2 trillion reduction in domestic debt and a $200 million decline in external obligations, as 31 states trimmed their debt profiles. However, he cautioned that over ₦1.2 trillion in unpaid arrears to pensioners, workers, and contractors continues to weigh down state finances.
“Borrowing isn’t inherently bad; it’s how the money is used that matters,” he stressed.
According to the 2025 BudgIT ranking, Anambra led the fiscal performance index, followed by Lagos, Kwara, Abia, and Edo, while Cross River slipped sharply from fifth to 29th position, sparking concerns over fiscal governance.
Also speaking at the event, Dr. Muhammad Abdullahi, Deputy Governor of the Central Bank of Nigeria (CBN) in charge of Economic Policy, urged states to institutionalize fiscal discipline and transparency as revenues expand.
He described the BudgIT report as “a vital compass that has consistently illuminated fiscal truths, benchmarked state performance, and reinforced the importance of capital-focused budgeting.”
Abdullahi noted that fiscal reforms in 2024 and 2025 had improved revenue and pushed capital spending above recurrent costs, but warned that complacency could reverse the gains.
“The challenge now is to sustain this fiscal discipline,” he said, advising states to digitize revenue collection, fully adopt Treasury Single Accounts, and raise education and health budget execution above 80 percent.
He further disclosed that the CBN was developing a hedging instrument to protect states from foreign exchange risks and enhance liquidity.
The CBN chief explained that Nigeria’s fiscal challenges stemmed from years of “multiple exchange rates, unchecked deficit financing, and depleted reserves,” noting that the apex bank’s current strategy is restoring credibility through orthodox monetary policy and a unified FX market.
Representing the Nigerian Governors’ Forum (NGF), Razaq Fatai, Head of Economic Intelligence, said the State of States report had evolved into a vital accountability tool for governors and citizens alike.
He noted that the NGF had collaborated with BudgIT over the years to improve data quality and ensure governors use findings to strengthen fiscal management.
“The essence of this report is to guide decision-making and ensure data drives governance outcomes,” Fatai said, adding that the Forum’s initiatives—such as the State Fiscal Transparency, Accountability and Sustainability (SFTAS) programme and the State Action on Business Enabling Reforms (SABER)—had deepened transparency and improved competitiveness among states.
Earlier, BudgIT Co-founder and Global Director, Oluseun Onigbinde, described the State of States report as “a mirror reflecting the choices of subnational governments.”
“What began as a simple call to make every kobo traceable has become a national benchmark for fiscal accountability,” Onigbinde said.
He warned, however, that Nigeria’s fiscal stability remains fragile, with rising inflation, growing debt, and overdependence on FAAC still constraining state-level resilience.
Onigbinde urged states to prioritize education, healthcare, and infrastructure, emphasizing that “transparency must remain the foundation for public trust and progress.”