Tax Reforms, NELFUND and State Allocations: Are Nigerian States Ready to Deliver?

By George Omagbemi Sylvester | Published by SaharaWeeklyNG.com

When President Bola Ahmed Tinubu signed the landmark tax reform bills into law on June 26, 2025, it signaled a critical turning point in Nigeria’s fiscal history. It was a bold attempt to restructure the nation’s underperforming tax system, expand the national revenue base and empower sub-national entities through an equitable redistribution of funds. The reforms didn’t just aim to increase federal control or raise revenue, they marked the beginning of a new power shift toward the states.

Under the new law, the tax-to-GDP ratio is expected to rise from its current abysmal 10.8% (one of the lowest in Africa) towards a more sustainable and development-oriented figure. The reforms created the Nigeria Revenue Service (NRS), replacing the Federal Inland Revenue Service (FIRS), streamlined the tax administration framework, introduced a development levy and revised the Value Added Tax (VAT) allocation formula from 15% to the federal government to just 10%, while raising the states’ share from 50% to 55%.

This is not just fiscal reform; it is pure federalism, reborn.

The critical question remains: What are Nigerian states doing with this golden opportunity? Are they equipped, ready and willing to translate this fiscal latitude into tangible social and economic benefits for their people? Or will they squander it as they have done with past bailouts and interventions?

The NELFUND Promise: Bridging Education and Economic Inequality
The Nigerian Education Loan Fund (NELFUND), launched in 2024, is a flagship initiative under the “reform” umbrella. Designed to provide interest-free loans to indigent students across federal tertiary institutions, it aims to bridge the financial gap for millions of Nigerians seeking education. The new development levy introduced in the tax reform bills (ranging from 2% to 4% on eligible taxpayers) will partially fund NELFUND and other agencies like TETFund, NITDA and NASENI.

The sustainability and reach of NELFUND depend not just on the federal government’s policy on the commitment of state governments to complement and support the vision.

Some states are stepping up. Others are asleep.

States Rising to the Challenge

Lagos State stands miles ahead of the pack. The Lagos Internal Revenue Service (LIRS) is leveraging fintech solutions to widen the tax net, improve compliance and plug revenue leakages. Governor Babajide Sanwo-Olu has already launched a multi-billion-naira skills development initiative, partially funded through the additional VAT allocation, with special focus on vocational training, public schools and digital education. Lagos is also establishing NELFUND liaison offices in tertiary institutions to simplify access for students.

Oyo State, under Governor Seyi Makinde, has taken a bold stance. A new law mandates the transparent publication of VAT inflow and expenditure every quarter. The state has committed 25% of its new allocation to the education sector, directly aligning with the NELFUND goal of human capital development. Additionally, Oyo has established an inter-ministerial committee to facilitate the disbursement and monitoring of student loans.

Kano State initially resisted the reforms, citing the unfair advantage of consumption-heavy southern states. However, it has since launched aggressive taxpayer education campaigns, e-registration for personal income tax and SME support centers to boost revenue. According to Dr. Auwalu Isa, a fiscal policy expert at Bayero University, “Kano’s shift reflects the realization that development is no longer about federal handouts but internal innovation.”

Rivers State and Delta State, flush with revenue from oil and trade, are now investing in logistics and infrastructure projects funded by VAT allocations. Rivers recently announced the construction of a new industrial park in Eleme, using part of its windfall. Delta has committed a percentage of its new income to health and education sector revitalization.

Southeast Innovation

Enugu State, under Governor Peter Mbah, is pioneering digital tax remittance platforms in partnership with private sector actors. The goal is simple: Eliminate Cash Handling, improve collection efficiency and ensure every kobo is accounted for. The Enugu government has also introduced tax incentives for small businesses, as a way to foster voluntary compliance.

In Anambra State, Governor Charles Soludo is championing tax modernization, introducing blockchain-based auditing tools. He recently remarked: “Tax reforms without state participation is like building a skyscraper on sand.”

Imo and Abia states have also rolled out tax identification systems linked to national databases, enabling better targeting of welfare and education funding.

The Northern Adjustment

The North, particularly states like Gombe, Bauchi and Zamfara, have been the most apprehensive. Lower consumption patterns mean lower VAT returns under the new formula. Yet, Gombe State has partnered with the World Bank to develop digital tax infrastructure and improve Internally Generated Revenue (IGR). Bauchi is introducing community-based revenue generation tied to agricultural markets.

Governor Inuwa Yahaya of Gombe, who also chairs the Northern Governors Forum, recently stated:

“It is now clear to us that we must stand on our own two feet. The era of dependency must end.”

Scholars and Experts Weigh In

“Reforming Nigeria’s tax structure is not just an economic necessity; it is a political revolution. States must now wake up to their responsibilities.”
~ Prof. Uche Uwaleke, President, Association of Capital Market Academics of Nigeria (ACMAN)

“Tax is the price we pay for civilization. States cannot demand development without contributing to its costs.”
~ Dr. Sarah Ekeh, University of Nigeria Nsukka, Faculty of Social Sciences

“This is the best fiscal opportunity Nigeria has had in decades. If states waste it, the blame lies not in Abuja, but in their own complacency.”
~ Waziri Adio, Executive Director, Agora Policy

Are States Prepared?
Despite early signs of progress, many states remain reactive rather than proactive. They lack capacity, innovation and political will. Several governors have yet to present comprehensive plans for utilizing their increased allocations. Others are diverting the funds toward unsustainable political spending and inflated contracts.

The Federal Ministry of Finance has warned that misuse of the new tax inflows will attract federal audits and possible funding restrictions. Already, civil society groups like BudgIT and SERAP are demanding real-time transparency in fund allocation and student loan disbursement.

Challenges That Linger
Low Tax Literacy: Millions of Nigerians still view tax as a punishment rather than a civic duty.

Weak Revenue Collection: Manual systems remain in place in many rural states, with little investment in technology.

Political Interference: Many revenue boards are still run as party patronage slots not as professional institutions.

Regional Disparities: Northern states still trail behind in consumption and digital literacy, putting them at a disadvantage under the new VAT structure.

Key Takeaway: From Abuja to the Grassroots
Tax reforms, NELFUND and increased state allocations represent a rare convergence of opportunity and necessity. This is not Abuja’s fight alone. The success or failure of these initiatives depends on how well the 36 state governments rise to the occasion.

The time for excuses is over. The federal government has thrown the lifeline. What states do with it will determine whether Nigeria leaps forward or collapses under the weight of yet another failed reform.

History will not forgive those who sleep through a revolution.

By George Omagbemi Sylvester
Published by SaharaWeeklyNG.com