Atlantic Post

The Tax Reform Bill and Devolution Of Powers: Olisa Agbakoba’s Critical Stand Sparks National Debate

The Nigerian legal luminary and Senior Advocate of Nigeria (SAN), Olisa Agbakoba, has once again ignited a fierce debate over Nigeria’s federalism and revenue system with his bold critique of the controversial Tax Reform Bill. Agbakoba’s powerful statement did not merely target the technicalities of tax distribution but struck at the very core of Nigeria’s governance structure, calling for sweeping reforms that could redefine the nation’s political and economic framework. According to him, the Tax Reform Bill has far-reaching implications beyond revenue allocation, as it challenges the principles of true federalism and exposes the structural inefficiencies that have plagued Nigeria for decades. At a time when the nation is grappling with economic uncertainty and political friction, Agbakoba’s intervention could not be timelier.

In a statement that has reverberated across political and economic circles, Agbakoba minced no words in criticising the Federal Government’s overreach in tax collection and revenue distribution. According to the eminent lawyer, Value Added Tax (VAT), a consumption tax, should not be a matter for the federal authorities. Instead, Agbakoba argued that VAT, like other sales or consumption taxes, ought to be the exclusive preserve of state and local governments. This, he insists, is not only a matter of economic efficiency but also a call to return to the roots of federalism, where power is devolved to states and regions to unleash their full economic potential.

Agbakoba’s statement read in part: “VAT is simply a sales or consumption tax applicable at the state level, certainly not federal. Consumption and sales taxes are generally not concerns of the Central Government. They are local and state government revenue sources. The potential to generate tax revenue at the base level is underestimated. The scramble by states to rely on the Federal Government for revenue support and subsidies is rooted in over-centralisation. This is simply unsustainable in the long term. It is time to free up the centralised tax system to allow for creativity at the local and state government levels.”

His assertions have sparked a firestorm of reactions, with many questioning whether Nigeria’s current revenue allocation model is sustainable. The centralisation of tax collection, particularly VAT, has been a contentious issue in recent years. States such as Lagos and Rivers, which generate a significant portion of the nation’s VAT revenue, have repeatedly demanded a fairer share of the proceeds. Agbakoba’s position not only aligns with these states’ grievances but also raises a broader question about the role of the Federal Government in Nigeria’s economic affairs.

The Federal Government: A ‘Collecting Agency’?

Olisa Agbakoba’s description of the Federal Government as merely a “collecting agency” distributing revenue to states is both provocative and deeply symbolic. It points to a fundamental flaw in Nigeria’s governance structure—a flaw that has persisted since the military-era centralisation of power. For decades, Nigeria’s fiscal federalism has been skewed in favour of the central government, leaving states and local governments dependent on monthly allocations from the Federation Account. This system, according to Agbakoba, stifles creativity, economic growth, and accountability at the subnational level.

The senior advocate’s position is clear: Nigeria’s overreliance on a centralised tax system is unsustainable. By acting as the sole collector and distributor of revenue, the Federal Government has inadvertently crippled the economic potential of states. Agbakoba argued that this over-centralisation discourages states from tapping into their unique resources and developing independent revenue streams. The result is a vicious cycle of dependency, inefficiency, and underdevelopment.

Drawing from his personal experience growing up in Jos, Plateau State, Agbakoba highlighted the untapped economic opportunities across Nigeria’s 36 states. Plateau State, he noted, possesses vast expanses of flat savannah land suitable for mechanised agriculture. Yet, this potential remains unrealised due to the over-concentration of power and resources at the federal level. Agbakoba’s analogy to Spain, the world’s largest producer of olive oil, serves as a sobering reminder of what is possible when regions are empowered to harness their comparative advantages.

He stated: “As a Jos boy, where I grew up, I am very much aware of the massive potential of Plateau State in mechanised agriculture. The absolutely flat savannah lands on the Plateau can grow every type of produce needed to feed Africa, but this opportunity is lost to an over-centralised Federal Revenue Collection process.”

This statement underscores a broader argument: Nigeria’s economic future lies in devolution of power and fiscal decentralisation. By empowering states to generate and manage their own revenue, Nigeria can unlock the vast economic potential hidden within its borders. Agbakoba’s reference to Europe—where countries like Spain have built entire economies around specific resources—is a compelling illustration of the possibilities that lie ahead if Nigeria embraces true federalism.

The Tax Reform Bill: A Double-Edged Sword?

While Agbakoba has positioned the Tax Reform Bill as a potential catalyst for devolution of powers, the bill itself remains shrouded in controversy. Proponents argue that the bill is a necessary step towards improving Nigeria’s tax regime, streamlining revenue collection, and addressing the nation’s fiscal challenges. However, critics like Agbakoba believe that the bill—if not carefully implemented—could further entrench the Federal Government’s dominance over the states.

At the heart of the debate is VAT, a tax that has become a lightning rod for political and economic tensions. Historically, VAT has been a major source of revenue for the Federal Government, which collects and redistributes it to states based on a formula determined by the Revenue Mobilisation, Allocation, and Fiscal Commission (RMAFC). However, states like Lagos, which generate the lion’s share of VAT revenue, have long argued that this formula is unfair and inequitable.

In 2021, the VAT controversy reached a boiling point when the Rivers State Government, led by Governor Nyesom Wike, challenged the Federal Government’s authority to collect VAT. The Rivers State High Court ruled in favour of the state, declaring that the Federal Inland Revenue Service (FIRS) had no constitutional right to collect VAT. The ruling was hailed as a victory for fiscal federalism, but it also sparked a legal and political battle that remains unresolved to this day.

Agbakoba’s critique of the Tax Reform Bill must be understood within this broader context. By calling for the abolition of VAT at the federal level and its transfer to states, Agbakoba is not merely advocating for a change in tax policy; he is championing a fundamental restructuring of Nigeria’s fiscal federalism. His position resonates with the growing calls for devolution of powers, resource control, and greater autonomy for states.

The Politics Of Devolution: A Sensitive Debate

It is impossible to divorce Agbakoba’s critique of the Tax Reform Bill from the larger political debate surrounding devolution of powers in Nigeria. At its core, the call for devolution is a call for restructuring—a term that has become both a rallying cry and a source of contention in Nigerian politics. While proponents of restructuring argue that it is the only path to sustainable development and national unity, opponents view it as a veiled attempt to weaken the central government and exacerbate regional divisions.

Agbakoba’s intervention has once again brought this sensitive debate to the forefront. By challenging the Federal Government’s role as a “collecting agency” and calling for the transfer of VAT to states, Agbakoba has effectively reopened the conversation about Nigeria’s federal structure. His argument is particularly significant at a time when the country is facing mounting economic and political challenges, including rising debt, unemployment, and insecurity.

The resistance to the Tax Reform Bill, as Agbakoba noted, is not merely about the distribution of tax revenue. The underlying issues are far more complex and deeply political. At stake is the very nature of Nigeria’s federalism: Should power remain concentrated at the centre, or should it be devolved to states and regions? This question lies at the heart of Nigeria’s ongoing struggle for economic development, political stability, and national cohesion.

Agbakoba’s statement captures the urgency of this debate: “The resistance to the Bill is not just about the distribution of tax revenue. The underlying issues are more sensitive and political. These issues challenge the very nature of federalism in Nigeria. This is a most opportune time to take up the debate.”

The legal luminary’s call to action is both timely and necessary. As Nigeria grapples with the implications of the Tax Reform Bill, the nation must confront the deeper issues that have hindered its progress for decades. The debate over VAT and fiscal federalism is not just about tax policy; it is about the future of Nigeria’s democracy, economy, and governance system.

Olisa Agbakoba’s critique of the Tax Reform Bill has reignited a national debate on fiscal federalism, governance, and economic development. By calling for the transfer of VAT to states and challenging the Federal Government’s centralised revenue collection system, Agbakoba has underscored the urgent need for devolution of powers. The legal luminary’s intervention raises critical questions about Nigeria’s federal structure and the path to sustainable development. In the next batch, we will explore the historical context of fiscal federalism in Nigeria, the implications of Agbakoba’s recommendations, and the reactions from key stakeholders across the country.

Historical Context and Reactions

The roots of Nigeria’s fiscal federalism can be traced back to the colonial era and the early years of independence. During this period, the regional governments enjoyed considerable autonomy over their resources and revenue. The 1960 and 1963 constitutions, which established Nigeria as a federal republic, provided a framework for fiscal federalism that allowed regions to control their resources and contribute a percentage to the central government. This system not only encouraged healthy competition among the regions but also spurred rapid economic development.

For instance, the Western Region, under the leadership of Chief Obafemi Awolowo, thrived due to its control over cocoa production. The Eastern Region flourished with palm oil as its economic mainstay, while the Northern Region relied heavily on groundnut pyramids and cotton production. Each region harnessed its unique economic strengths, with little interference from the central government. The result was a period of economic prosperity and regional pride, where states were incentivised to develop their industries, infrastructure, and human capital.

However, the military interventions of 1966 marked a turning point in Nigeria’s federalism. The suspension of the 1963 Constitution and the centralisation of power under military rule dismantled the regional autonomy that had previously driven economic growth. The military government adopted a unitary governance model, eroding the fiscal independence of states and consolidating resource control at the federal level. This shift was further reinforced by the discovery of crude oil in the Niger Delta region, which quickly became the cornerstone of Nigeria’s economy.

The oil boom of the 1970s led to the Federal Government assuming control of oil revenue, which was distributed to states through a centralised formula. This development fundamentally altered Nigeria’s revenue structure, making states heavily dependent on allocations from the Federation Account. The principle of derivation, which allowed regions to retain a significant portion of their resources, was progressively diminished. As oil revenue became the dominant source of national income, other economic sectors—such as agriculture, manufacturing, and solid minerals—were neglected.

This historical shift forms the backdrop of Olisa Agbakoba’s argument. By centralising tax revenue collection, Nigeria abandoned the principles of fiscal federalism that had once spurred regional development. Agbakoba’s call for the transfer of VAT to states is, therefore, a call to return to the original ideals of federalism—a system where states are empowered to harness their resources, generate revenue, and drive development.

The Resistance to Centralisation: Case Studies

The debate over VAT and fiscal federalism has played out prominently in states like Lagos, Rivers, and Kano, which are among Nigeria’s top revenue-generating states. These states have consistently protested the inequitable distribution of VAT revenue, arguing that they contribute far more to the national coffers than they receive in return. Lagos State, for example, generates over 50% of Nigeria’s VAT revenue but receives a disproportionately small share under the current formula.

In 2021, Governor Nyesom Wike of Rivers State took a bold step by challenging the Federal Inland Revenue Service (FIRS) in court over the collection of VAT. The Rivers State High Court ruled in favour of the state, declaring that the Federal Government lacked the constitutional authority to collect VAT. The ruling sparked a wave of reactions, with some states aligning with Rivers’ position while others, particularly those dependent on federal allocations, expressed concerns about the implications of decentralised tax collection.

Lagos State quickly followed Rivers’ example, enacting its own VAT law to ensure that revenue generated within the state remained in the state. The move was celebrated as a victory for fiscal federalism, but it also exposed the deep divisions among Nigeria’s states. While revenue-rich states like Lagos and Rivers supported the decentralisation of VAT, many northern states, which rely heavily on federal allocations, opposed the move. The controversy highlighted the economic disparities between Nigeria’s regions and the challenges of implementing fiscal reforms in a politically sensitive environment.

Agbakoba’s recommendations, therefore, touch on a critical fault line in Nigeria’s governance. By advocating for the abolition of VAT at the federal level, he is not only challenging the status quo but also calling for a fundamental restructuring of Nigeria’s fiscal system. His argument resonates with states that feel shortchanged by the current revenue allocation formula but raises concerns for states that depend on federal subsidies to survive.

Reactions from Key Stakeholders

Olisa Agbakoba’s critique of the Tax Reform Bill has elicited strong reactions from various stakeholders, including state governments, economists, legal experts, and political commentators. While some have praised his bold stance as a necessary step toward fiscal federalism, others have expressed reservations about the feasibility and implications of his recommendations.

State Governments’ Perspective:
Unsurprisingly, states like Lagos and Rivers have welcomed Agbakoba’s call for the transfer of VAT to states. Governor Babajide Sanwo-Olu of Lagos State has long argued that states should have the autonomy to collect and manage their VAT revenue. For Lagos, which boasts a thriving economy driven by commerce, manufacturing, and services, the decentralisation of VAT would provide a significant boost to the state’s revenue base.

On the other hand, governors of less economically viable states have expressed concerns about the potential impact of decentralised tax collection. Many northern states, which rely heavily on federal allocations, fear that the abolition of federal VAT would exacerbate regional inequalities and leave them unable to meet their financial obligations. This divide underscores the broader challenges of implementing fiscal reforms in a country as diverse and economically disparate as Nigeria.

Economists’ Perspective:
Prominent economists have weighed in on the debate, with many supporting Agbakoba’s call for fiscal decentralisation. According to a leading economist, Tom Osagie, Nigeria’s centralised revenue system is inefficient and counterproductive. Osagie argues that states must be incentivised to develop their internal revenue-generating capacity rather than relying on federal allocations. He believes that the transfer of VAT to states would encourage healthy competition among states, spur economic diversification, and reduce Nigeria’s overreliance on oil revenue.

However, some economists have cautioned that decentralising VAT could create administrative challenges and lead to multiple taxation. Professor Akpan Ekpo, a former Director-General of the West African Institute for Financial and Economic Management, warns that without proper coordination, decentralised VAT collection could result in overlapping tax jurisdictions and increase the cost of doing business. Ekpo advocates for a phased approach to fiscal decentralisation, with clear guidelines to ensure transparency and efficiency.

Legal Experts’ Perspective:
Legal experts have largely supported Agbakoba’s position, citing constitutional provisions that limit the Federal Government’s power to collect consumption taxes. According to Professor Theophilus Okonkwo, a senior constitutional lawyer, VAT is inherently a state tax and should be treated as such. Okonkwo argues that the Federal Government’s collection of VAT is inconsistent with the principles of federalism and must be addressed through legislative and judicial reforms.

At the same time, some legal practitioners have called for caution, noting that a sudden shift to state-level VAT collection could trigger legal disputes and create uncertainty for businesses. They recommend a comprehensive review of Nigeria’s tax laws to ensure that any reforms are implemented in a manner that promotes equity, efficiency, and economic growth.

The debate over the Tax Reform Bill and the devolution of VAT has brought Nigeria’s fiscal federalism under intense scrutiny. As Olisa Agbakoba’s critique continues to reverberate across the nation, it is clear that the issues at stake go far beyond tax policy. At the heart of the debate is the question of Nigeria’s federal structure and the need for a more equitable and efficient revenue system. In the final batch, we will examine the potential implications of Agbakoba’s recommendations, the challenges of implementing fiscal reforms, and the path forward for Nigeria’s economic and political future.

The Road To Centralisation: Military Era and Beyond

The balance of fiscal federalism began to tilt dramatically following the military intervention in Nigerian politics in 1966. The successive military regimes, driven by a desire to centralize power and maintain control, dismantled the regional autonomy that had characterised the First Republic. The introduction of a unitary system of revenue control saw the Federal Government assume responsibility for the collection and allocation of taxes, particularly those related to natural resources such as oil.

The Petroleum Act of 1969 and subsequent decrees vested ownership and control of oil resources in the Federal Government. While this centralisation was justified as a means of ensuring national unity and stability, it had far-reaching consequences for Nigeria’s economic and political landscape. States became increasingly dependent on allocations from the Federation Account, leading to a culture of fiscal laziness and underdevelopment at the subnational level.

Olisa Agbakoba’s critique of the current tax reform framework resonates with this historical shift. By calling for a return to fiscal federalism, Agbakoba is advocating for a reversal of decades of centralisation that has hindered Nigeria’s economic progress. His arguments echo the sentiments of many stakeholders who believe that Nigeria’s over-centralised system is a relic of the military era and is no longer suitable for a 21st-century democracy.

Reactions from Key Stakeholders

Agbakoba’s intervention has elicited a mixed bag of reactions from political, economic, and civil society stakeholders across Nigeria. While some have applauded his bold stance, others have expressed skepticism about the feasibility of his recommendations.

State Governments: A Renewed Call for Autonomy

State governors, particularly from resource-rich states like Lagos, Rivers, and Delta, have welcomed Agbakoba’s position. For years, these states have been at the forefront of the campaign for fiscal federalism, arguing that the current revenue-sharing formula is unjust and stifles their economic potential.

A prominent Lagos state politician was quoted as saying anonymously:
“Lagos contributes over 50% of Nigeria’s VAT revenue, yet we receive a fraction in return. This is not sustainable. I stand with those calling for a review of the tax system to empower states to generate and manage their own resources.”

Similarly, the same sentiment was echoed by a Rivers State senior public servant who emphasised that fiscal autonomy for states would unlock Nigeria’s economic potential:
“Our states are blessed with natural resources and economic opportunities. The Federal Government must allow us to harness these opportunities to improve the lives of our people.”

The Federal Government: Pushback and Defence

Unsurprisingly, the Federal Government will pushed back against Agbakoba’s critique. Officials from the Federal Ministry of Finance and the Federal Inland Revenue Service (FIRS) had in the recent past defended the centralisation of VAT collection, arguing that it ensures uniformity and prevents tax competition among states.

An FIRS spokesperson responded to Agbakoba’s comments, stating:
“The central collection of VAT promotes efficiency, transparency, and equity. Decentralising VAT collection could lead to confusion, double taxation, and revenue losses. Nigeria’s tax system must remain unified to support national development.”

This position reflects the Federal Government’s reluctance to cede control over a significant source of revenue, especially at a time when the nation faces fiscal pressures, including rising debt and declining oil revenues.

Economists and Policy Experts: A Divided House

Economists and policy experts remain divided on the issue. While some agree with Agbakoba that decentralisation would promote economic growth and accountability, others caution that states may lack the capacity to effectively manage tax collection and revenue generation.

Dr. Segun Gbadebo, a prominent economist, argued:
“Fiscal federalism is a noble goal, but we must approach it cautiously. Many states rely heavily on federal allocations because they lack the institutional capacity to generate revenue independently. Decentralization must be accompanied by capacity-building and reforms at the state level.”

Conversely, Chief John Majekodumi, a leading advocate for restructuring, supported Agbakoba’s position:
“The centralisation of revenue collection has made states lazy and unproductive. We must empower states to compete, innovate, and harness their resources. This is the path to economic prosperity.”

Civil Society and the Public: Growing Support for Reforms

Civil society organisations and the general public have largely rallied behind Agbakoba’s call for reforms. Advocacy groups such as the Public Accountability Advocacy Centre (PAAC) and the Nigerian Economic Revival Group (NERG) have emphasised the need for fiscal federalism to address poverty, unemployment, and underdevelopment.

A representative of PAAC remarked:
“Centralisation has failed Nigeria. States must be empowered to take control of their destinies. Fiscal federalism will promote accountability and reduce corruption at the federal level.”

On social media, Agbakoba’s critique has sparked widespread debate, with many Nigerians expressing frustration over the current revenue-sharing system. The hashtag #FiscalFederalismNow trended on Twitter for days, as citizens called for a restructuring of Nigeria’s tax system.

The Way Forward: A Call for National Dialogue

Agbakoba’s intervention has brought Nigeria to a critical juncture. The debate over the Tax Reform Bill and fiscal federalism cannot be ignored any longer. The way forward lies in a comprehensive national dialogue that brings together key stakeholders, including the Federal Government, state governments, economists, civil society, and the general public.

Agbakoba has called for the establishment of a national summit on fiscal federalism to address these issues:
“This is not just about VAT or tax reform. It is about the future of Nigeria. We need a national conversation on fiscal federalism, devolution of powers, and governance reforms. The time for action is now.”

Such a summit would provide a platform to address the concerns of all parties, build consensus, and chart a course for the implementation of true fiscal federalism. The goal must be to create a system that promotes economic growth, accountability, and national unity.

Conclusion: A Defining Moment for Nigeria

Olisa Agbakoba’s bold critique of the Tax Reform Bill has reignited a long-overdue debate on fiscal federalism and governance in Nigeria. By challenging the Federal Government’s centralisation of revenue collection and advocating for the transfer of VAT to states, Agbakoba has struck at the heart of Nigeria’s structural inefficiencies.

The debate is far from over, but one thing is clear: Nigeria can no longer afford to maintain a system that stifles economic potential, fosters dependency, and breeds inefficiency. The time has come for Nigeria to embrace true federalism—one that empowers states to harness their resources, compete, and drive economic growth.

As Nigeria navigates this defining moment, the voices of reformers like Olisa Agbakoba must not be ignored. The future of the nation depends on bold decisions, collective action, and a commitment to building a system that works for all Nigerians.