The VAT Illusion: Why Lagos Keeps Collecting Naira That Isn’t Hers

By Adamu Lawal Toro

A trader in Bauchi taps her card on a POS machine to buy fabric. The transaction happens in Bauchi, the goods change hands in Bauchi, the money is spent in Bauchi. But when the tax is remitted, it is credited to Lagos. That is not a glitch. That is how Nigeria’s VAT system has worked for years, and it is worth understanding precisely why before deciding who, if anyone, should answer for it.

Moniepoint is as good a place as any to see the distortion at scale, simply because it is everywhere. The fintech, headquartered in Lagos, now powers the largest network of POS terminals in the country, processing transactions in every state from Sokoto to Cross River. But Moniepoint is not unusual in how it remits VAT. It is simply the most visible face of a rule that governs every Lagos-headquartered bank, telco and fintech operating nationwide: GTBank, Access, Zenith, MTN, Airtel, OPay, PalmPay, all of them. Under the old VAT regime, tax collected on a transaction is remitted based on where the company is registered, not where the transaction physically occurred. A purchase in Bauchi becomes, on paper, revenue generated in Lagos, because that is where the company that processed it keeps its books.
This is not new. It is the same fight Rivers State picked with the Federal Inland Revenue Service in 2021, when Governor Nyesom Wike went to court arguing that VAT should be shared by derivation, the state where the economic activity happened, rather than swept into a federal pool and redistributed by a formula that rewards headquarters addresses over actual commerce. Rivers won at the Federal High Court. The case exposed what fiscal federalism advocates had argued for years: that the naira the poorest transacting Nigerian generates in Gombe or Yobe ends up subsidising infrastructure in a state that merely hosts the company’s letterhead.
The numbers make the scale of it plain. FAAC data for the first half of 2026 shows Lagos alone generated ₦1.81 trillion in VAT, more than 52 per cent of Nigeria’s non-import VAT nationwide, with Rivers a distant second at ₦560 billion. No honest person believes Lagos residents alone are responsible for over half the country’s taxable consumption. What they are responsible for is hosting the headquarters of the institutions that process transactions for the rest of the country.
The reform meant to fix this is already law. The Tax Administration Act that President Tinubu signed shifts VAT sharing toward a derivation-based model, splitting allocations 50 per cent equally among states, 30 per cent by derivation, meaning where the transaction actually happened, and 20 per cent by population and consumption. On paper, that should mean a POS transaction in Bauchi finally shows up as Bauchi’s revenue, not Lagos’s. The Northern Governors Forum, ironically, initially resisted the very reform that should correct the imbalance working against their own states, worried about the transition mechanics rather than the destination. That fight has mostly been settled in the law’s favour now. What has not been settled is implementation.
This is where the real accountability question sits, not with Moniepoint or any single fintech, but with whether the derivation formula is actually being applied to POS and electronic transaction data the way the law now requires. Financial technology platforms generate exactly the kind of granular, location-tagged transaction data that should make derivation-based VAT trivial to calculate correctly. A POS terminal knows precisely which local government it sat in when a sale happened. The question Nigerians and state revenue authorities should be asking is whether FIRS, now the Nigeria Revenue Service, is actually pulling that location data from the fintechs and applying it, or whether old habits, crediting the company’s registered address, are still quietly running the calculation months into a reform that was supposed to end the practice.
If NRS is applying the new formula properly, the Bauchi trader’s VAT should already be flowing back to Bauchi, and any residual distortion is a transition lag worth monitoring, not a scandal worth headlines. If it is not being applied, if fintechs and banks are still reporting VAT the old way while the law says otherwise, then the failure belongs to the regulator that has not enforced its own reform, not to a private company following whatever reporting format it has been told to use. Sanctioning Moniepoint for a system-wide accounting convention it did not invent would be scapegoating dressed up as accountability. It would let the actual point of failure, regulatory enforcement, disappear behind a corporate name Nigerians already recognise from their POS receipts.
What deserves scrutiny is simple and answerable. Has the Nigeria Revenue Service published guidance requiring derivation-based VAT reporting from POS operators and fintechs. Are states receiving allocations that reflect where transactions occurred rather than where headquarters sit. And if the answer to either is no, months after the law changed, that is the story, a regulator sitting on a reform it already has the authority to enforce, while states like Bauchi keep subsidising Lagos’s revenue base one card tap at a time.