Abuja | M10News Business Desk — Nigerian states could collectively earn more than ₦4 trillion annually from 2026 following sweeping Value Added Tax (VAT) reforms, according to the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele.
Oyedele made the projection on Tuesday at the launch of the BudgIT State of States 2025 Report in Abuja, where he delivered the keynote address marking the 10th anniversary of the initiative.
He said the reforms would significantly alter the fiscal landscape for state governments, increasing their share of VAT revenue to 55 per cent.
“With VAT reforms kicking in from 2026, states’ share will rise to 55 per cent. That could amount to over ₦4 trillion in 2026,” Oyedele stated. “The question is: will this money be spent, or will it be invested?”
Rising Revenues, Shrinking Disposable Income
Oyedele observed that while government revenues had more than doubled in the past year, the economic impact on households remained minimal.
He noted that allocations from the Federation Account Allocation Committee (FAAC) surged from ₦5.4 trillion in 2023 to ₦11.4 trillion in 2024.
Despite the revenue growth, he said many Nigerians were still struggling with rising costs and reduced purchasing power.
“States are receiving more money than ever before. But there is a paradox: while governments have more naira, ordinary Nigerians have less disposable income in their pockets,” he warned.
He called on governors to channel the increased revenues into programmes that directly impact citizens’ welfare.
According to him, “this period of fiscal expansion presents a rare opportunity for states to invest wisely rather than expand bureaucracy.”
The BudgIT report revealed that 21 states still depend on federal allocations for over 70 per cent of their total income.
Oyedele described the trend as “unsustainable” and urged states to expand internal revenue generation through transparency and accountability.
He commended Enugu and Bayelsa States for their performance, citing Enugu’s 381 per cent increase in internally generated revenue and Bayelsa’s 174 per cent rise.
Reforms to Strengthen State Finances
Explaining the mechanics of the tax changes, Oyedele said the new VAT framework and related fiscal measures would enhance state autonomy and efficiency.
He noted that under the new laws, proceeds from electronic money transfer levies would go directly to states, while state government bonds would become tax-exempt.
According to him, this will lower borrowing costs and create fiscal breathing room for capital investment.
“This is a unique opportunity for states to build resilience, close existing tax gaps, and invest in infrastructure,” he added.
Oyedele, however, cautioned that increased revenue would mean little without accountability.
He pointed to the persistent gap between budgeted spending and implementation outcomes across critical sectors.
“For the first time in years, capital expenditure has overtaken recurrent expenditure, yet performance in education and health remains poor,” he said.
He revealed that states implemented only two-thirds of their education budgets, spending less than ₦7,000 per citizen.
In health, execution was even lower, averaging just ₦3,500 per citizen.
He noted modest progress in debt management, with domestic obligations down by ₦2 trillion and external debts reduced by $200 million.
Despite that, states still owe more than ₦1.2 trillion to pensioners, contractors, and workers.
“Borrowing is not the problem; unproductive application of debt is,” Oyedele emphasised.
Fiscal Leadership and Future Outlook
According to the 2025 BudgIT rankings, Anambra State emerged as the top performer in fiscal sustainability, followed by Lagos, Kwara, Abia, and Edo.
Cross River State, which ranked fifth in 2024, fell sharply to 29th place this year, raising questions about governance and fiscal choices.
Also speaking at the event, the Deputy Governor of the Central Bank of Nigeria in charge of Economic Policy, Dr Muhammad Abdullahi, urged states to entrench fiscal discipline.
Abdullahi said the success of ongoing reforms would depend on how well states manage their growing revenues.
He added that transparency and accountability were essential for ensuring that higher allocations translate into public benefit.
In his goodwill message, the Head of Economic Intelligence at the Nigerian Governors’ Forum, Razaq Fatai, representing the Director-General, Dr Abdulateef Shittu, said the State of States report had become an indispensable tool for guiding policy.
“The essence of this report is to help governors make informed decisions and ensure citizens feel the impact of governance,” Fatai said.
He added that programmes such as the State Fiscal Transparency, Accountability and Sustainability (SFTAS) initiative had strengthened budget credibility across the country.
Fatai also highlighted the State Action on Business Enabling Reforms (SABER) programme as a key driver for improving subnational business environments.
Meanwhile, BudgIT Co-founder and Global Director, Oluseun Onigbinde, reflected on the organisation’s decade-long journey in promoting fiscal openness.
Onigbinde said transparency was now a competitive advantage among state governments.
“This report began with a simple belief — that every kobo meant for citizens should be traceable and justified,” he said.
He noted that despite visible progress, Nigeria remained at a crossroads marked by inflation, high debt, and excessive dependence on federal transfers.
Onigbinde urged state governments to prioritise investments in education, healthcare, and infrastructure while strengthening public trust.
Oyedele concluded that states which embrace discipline and data-driven governance would lead Nigeria’s next phase of sustainable growth.
Editing by M10News Business Desk | Contact: business@m10news.com
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