Prominent economist Bismarck Rewane has labelled the recently imposed 70% windfall tax on banks as overly punitive and potentially detrimental to investor sentiment.
Speaking on Channels Television on Thursday, Rewane, who is the Managing Director of Financial Derivatives Company Limited, argued that the tax rate could discourage investment in the banking sector.
“Don’t forget that the corporate income tax is about 30%. So, this is a very punitive tax,” Rewane stated. “It discourages investors who say that if I lose money, I don’t get any subsidy, but if I get money, I get penalized.”
Initially proposed at 50% by President Bola Tinubu for banks’ foreign exchange profits, the Nigerian Senate raised the windfall tax to 70% and passed it into law in July.
The tax is set to be in effect from 2023 to 2025. Rewane suggested that the government revert to the original 50% rate, arguing that “70% is too high.”
Among the banks benefiting from foreign exchange gains in 2023 were GTCO, Ecobank, Zenith, UBA, FCMB, Fidelity, Stanbic, and Access, with a combined profit of N1.4 trillion.
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Rewane acknowledged that windfall taxes are a global phenomenon but noted that in other countries, the revenues are often used effectively for social welfare.
“If the taxes collected in the past have been well-utilized and well-managed, then people will pay more,” he said, emphasizing that the purpose of the windfall tax is to address both revenue shortfalls and economic growth challenges.
The economist underscored the importance of windfall tax collection to double government revenues and help Nigeria achieve a $1 trillion economy, up from its current sub-$400 billion level.
Proposal for Project Swaps
Rewane suggested a more innovative approach to utilizing windfall tax revenues, advocating for tax swaps for infrastructure projects. “The Federal Government should encourage companies making excess windfall to swap it for projects, making it a win-win situation,” he proposed.
He cited successful examples of such swaps, including Dangote’s infrastructure projects from Gbagada to Lagos Airport and Tin Can Island, and MTN’s initiatives from Enugu to Onitsha.
“The bank gets the assets, the people get the benefits of the projects, and the government gains political capital,” Rewane explained.
By reallocating tax payments towards infrastructure projects, Rewane believes both the government and private sector can achieve significant social and economic benefits, while also gaining public approval for addressing critical infrastructure needs.
(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)
