August 04, (THEWILL) – The recent move by the Federal Government to boost its sources of revenue through the imposition of windfall tax is welcome. In the first place, this shows that it is thinking outside the box. In the second place, it shows a willingness to muster the political will to involve the banking sector in real developmental issues and imbibe the idea of wealth redistribution that should, with time, begin a new policy paradigm.
Faced with dwindling resources and financial scare over borrowing to the point of saturation and creditor’s fatigue, the government’s resort to this initiative should herald a new dawn of real, practical public-private partnership.
Windfall taxes, as the words imply, are unexpectedly large profits, especially one regarded to be excessive or unfairly obtained. Therefore, fairness and equity demands that the excess, unfairly gained profit should be ploughed back into the system in which that windfall was generated. Thankfully, the bankers who met with President Bola Tinubu after the Senate amended the 2023 Finance Act to accommodate this tax proposal, have agreed to support the tax.
In the amendment bill that it passed, the Senate increased the windfall levy from the proposed 50 per cent to 70 per cent. The Upper House of the National Assembly also extended the tax’s applicability from the end of 2023 to all profits from FX transactions through 2025.
Speaking on behalf of banks, United Bank for Africa Chairman, Mr. Tony Elumelu, said, “We believe in prosperity, in creating jobs and employment for our people, in democratising prosperity and in ensuring that Nigerians have access to the good life. So today, we spoke about the Windfall Tax. We support the government. We believe that where extraordinary income has made a part of, it should go towards helping to alleviate poverty in the country, which is what the government intends to do.
“We support that and we just believe that we should ensure that no one segment suffers, that the government is able to continue to create jobs and that businesses are also able to do well because we need mutual prosperity.”
That mutual prosperity is what is needed in present day Nigeria where the rich should pledge to carry the poor and the government should summon the courage to wield the big stick when there is a breach.
Even so, this otherwise commendable mutual agreement has been criticised by experts on what we consider technical grounds. Moody’s Investors Service and some financial analysts are said to have objected to the deal because they think it would impact the banking sector negatively.
According to them, profits of banks would be severely affected, making them unable to service toxic loans and reduce their liquidity assets. The experts also express fear that banks may transfer the tax load to customers who already face many forms of charges, thereby leading to unhelpful questions.
Doubtless, these fears are genuine but given the duration of the tax and the purpose for its imposition, we beg to disagree.
Firstly, the windfall tax is said to be a one-time tax directed at the considerable foreign exchange gains made by banks in 2023, when banks reaped huge profits after the devaluation of the Naira in that year.
On their part, the bankers assured Tinubu of their compliance with the windfall levy, which, they said, is intended to transmit the administration’s reform agenda to the investment community and democratise prosperity and alleviate poverty.
Secondly, President Bola Tinubu during the meeting with captains of the country’s commercial banks at the State House, Abuja, made the commitment to channel the tax for crucial infrastructure, education, and healthcare projects under his Renewed Hope Agenda.
This presidential promise, we think, should be the real source of worry about the windfall tax. Critical infrastructure that have decayed over the years need to be revived and rehabilitated while essential social amenities and programmes need to be engaged to immediately begin to grow the economy and address the escalating cost of living crisis in the country.
The duty is therefore on the shoulders of both partners in this tax project, the banks paying the tax without undue pressure on their customers and the government deploying the fund realised for capital projects as part of its ongoing reforms to foster economic development.
