The Tax Reform Bill strikes at the core of Nigeria’s federal structure, challenging the principles of devolution of powers. While its implications are often viewed primarily through the lens of revenue generation, the bill carries deeper political and constitutional significance. Resistance to the bill goes beyond the mere distribution of tax revenue; it raises fundamental questions about the nature of federalism in Nigeria. This is a pivotal moment to engage in this debate.
The idea that the Federal Government should function merely as a collecting agency to redistribute revenue to states is deeply flawed. The Federal Government has far more critical constitutional responsibilities to fulfill for the Nigerian people.
Value Added Tax (VAT), at its core, is a consumption tax that is better suited for state administration—not federal. Across the world, sales and consumption taxes are typically managed at local or state levels, as they are natural sources of revenue for subnational governments. The over-centralization of revenue collection in Nigeria has stifled the ability of states to generate independent income, instead fostering a dependency on federal allocations. This approach is unsustainable in the long term and discourages innovation and resourcefulness at the state level.
It is time to decentralize the tax system and empower local and state governments to tap into their unique revenue potentials. For instance, as someone who grew up in Jos, I am acutely aware of Plateau State’s untapped potential in mechanized agriculture. Its expansive savannahs have the capacity to produce food not just for Nigeria but for the entire African continent. However, this opportunity is overshadowed by an over-centralized federal revenue process that limits state-level innovation and investment.
We must learn from global examples. Europe, for instance, thrives economically despite most of its countries having no significant oil resources. The United Kingdom, with its North Sea reserves, is an exception. Countries like Spain, the world’s largest producer of olive oil, generate billions annually by maximizing their agricultural strengths. Nigeria’s states have similar opportunities that remain unrealized due to the over-centralization of revenue collection.
My recommendation is straightforward: abolish VAT at the federal level and transfer its administration to state and local governments. Each state possesses unique resources that, if properly harnessed, can transform its economic fortunes. By unlocking the revenue potential at the grassroots through political devolution, we can foster a more sustainable and equitable fiscal system in Nigeria.
The Tax Reform Bill, if implemented thoughtfully, could be the key to achieving this much-needed shift.
Dr. Olisa Agbakoba, SAN
