Nasarawa State Governor Abdullahi Sule’s opposition to the federal government’s initial proposal to raise Value Added Tax (VAT) has sharpened a broader question for the state. Local authorities must determine how to increase public revenue without raising costs for households and businesses or weakening the investment needed to expand the tax base.
Sule said he opposed the initial proposal because of its potential impact on consumers and commercial enterprises. The Nigeria Tax Act 2025 subsequently retained the standard VAT rate at 7.5 percent.
Expanding the Local Economy and Internal Revenue
For Nasarawa, the issue extends beyond the statutory VAT rate. The state is seeking to increase internally generated revenue (IGR) while attracting investment into mining, mineral processing, agriculture, agro-processing, and manufacturing. Its primary fiscal challenge is to expand economic formalisation while maintaining a tax environment that local businesses can absorb.
VAT represents a major source of revenue distributed through the Federation Account. The Federation Accounts Allocation Committee (FAAC) reported N3.184 trillion in gross Federation Account revenue for April 2026, including N806.617 billion in gross VAT revenue. FAAC subsequently distributed N2.257 trillion to the three tiers of government, of which N747.088 billion constituted the VAT component.
These figures reflect distinct accounts: N806.617 billion represents gross VAT revenue, while N747.088 billion represents the VAT component of distributed FAAC funds. Under the Nigeria Tax Administration Act 2025, net VAT revenue is shared among government tiers, allocating 10 percent to the federal government, 55 percent to states and the Federal Capital Territory, and 35 percent to local governments.
Balancing Revenue Needs with Private Sector Growth
For Nasarawa, VAT holds dual significance by contributing to federally distributed revenue while directly affecting local consumption, retail prices, and business activity. The governor’s objection highlights the ongoing tension between aggressive revenue mobilisation and broader economic expansion.
Higher consumption taxes can be passed through supply chains to consumers, potentially depressing market demand. Smaller enterprises operating on thin margins face acute pressure from rising compliance and working-capital costs. However, the state requires sustainable revenue to finance public infrastructure and services that private enterprises require.
Targeted public investment can lower logistics costs, improve regional market access, and make industrial locations attractive to commercial investors. The core policy challenge is whether the state can raise revenue while preserving incentives for businesses to formalise and expand. That balance is critical as Nasarawa transitions from primary agricultural production to industrial processing.
Evaluating Increased Allocations and Capital Expenditure
Sule said Nasarawa’s monthly Federation Account allocation increased from between N3.8 billion and N4.5 billion prior to petrol subsidy removal up to N14 billion-N16 billion. He attributed the gain to subsidy removal and structural reforms under President Bola Tinubu.
The governor noted that the state has executed about N90 billion in infrastructure projects without commercial bank borrowing, citing increased revenue capacity. These statements represent executive claims that require reconciliation with audited fiscal statements, procurement records, and budget implementation reports. Monthly FAAC receipts fluctuate based on distributable revenue pools.
For private enterprises, the ultimate value of higher public revenue depends on deployment. Direct investment in roads, transport infrastructure, and public utilities lowers private operating costs. The true measure of fiscal progress is not allocation size alone, but whether public funds yield productive economic assets.
Converting Investment Commitments to Tax Base Expansion
Capital investment remains central to state economic expansion. The Nasarawa State Investment and Development Agency (NASIDA) reported that 10 companies invested $465.775 million across five local government areas in 2024. NASIDA also noted that nine prospective investors announced over $766 million in planned projects, estimating 3,740 new jobs.
These figures track distinct stages of capital deployment. The $465.775 million figure covers actual capital deployed by active firms, whereas the $766 million total represents non-binding prospective announcements. Converting prospective commitments into operational facilities expands employment, increases local incomes, and generates taxable transactions.
Converting these commitments broadens the tax base through economic growth rather than increased levies on existing operators. Sustainable tax administration depends on building taxpayer confidence and maintaining transparent institutional governance.
Building Taxpayer Trust and Formalising the Economy
Nasarawa State University Accounting and Taxation Professor Abdullahi Danjuma Zubairu emphasised these governance principles during his 61st inaugural lecture on May 20, 2026. He described taxation as a visible contract between the state and its citizens, noting that weak taxpayer confidence, fragmented implementation, and informal sector integration hinder collection efforts.
Zubairu’s analysis directly applies to Nasarawa’s internal revenue strategy. Predictable tax rates, transparent administration, and visible public infrastructure encourage voluntary tax compliance and business formalisation.
The state reported over N52 billion in IGR for 2025 and set a N60 billion target for 2026, requiring N5 billion monthly. The N52 billion represents reported historical revenue, while N60 billion remains a forward target. The government plans to hit this target by formalising artisanal mining and increasing collections from solid-mineral royalties and haulage fees.
A larger formal economy generates taxable transactions without requiring higher tax rates. The ultimate success of national and state tax reforms depends on providing regulatory certainty without depressing private production and capital investment.