By Tochukwu Bliss with agency report, Abuja
Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, on Wednesday led representatives of the banking sector to seek clarification from President Bola Tinubu on the Windfall Levy.
Speaking to State House correspondents after the meeting with the President, Edun said the bankers sought insight into the tax regime, particularly the Windfall Levy, recently passed by the National Assembly.
He said Mr Zacch Adedeji, the Special Adviser to the President on Revenues, said the intention of the Federal Government was to simplify the tax regime, focusing on taxing profits, and leaving companies’ capital to grow.
He said the meeting was conducted in a friendly atmosphere and was knowledge-based, data-driven, and that the President Tinubu, being an accountant and financial expert, actively engaged in the discussion.
According to him, the representatives of the banking sector are expected to share their perspectives on the outcome, including assurance of support for the President’s macroeconomic reforms.
Representatives of the banking sector at the meeting included Mr Tony Elumelu, Chairman of the United Bank for Africa (UBA), and Ladi Balogun, Group Chief Executive Officer (GCEO) of the First City Monument Bank (FCMB).
“The Chairman of FIRS gave some insight, particularly into the fact that under President Bola Tinubu, the idea is to simplify the tax regime, as much as possible.
“The government intends to make the tax regime more efficient and less costly for people to even file their taxes and critically to focus on the wealth that’s created.
“We will not focus on the companies that are not doing so well or focus on their capital. We will leave their capital to grow and make sure that the emphasis is on taxing and levying only the returns, only the profits,” said Edun.
Democratise prosperity
Elumelu said it was important to democratise prosperity for Nigerians and ensure access to a good life for all.
He said that the banking sector would support the Windfall Levy, which he said was aimed at alleviating poverty.
He stressed the importance of prosperity for the majority of Nigerians, where businesses thrived, jobs created, and investors benefit leading to a happier society.
Elumelu was confident that the newly introduced levy would achieve the objective of creating prosperity for all Nigerians.
“We believe in prosperity. We believe in creating jobs and employment for our people.
“We believe in making sure that we democratise prosperity and that Nigerians have access to good life. So, today we spoke about the Windfall Tax. We support the government.
“We believe that where there is extraordinary income, it should go towards helping to alleviate poverty in the country, which is what the government intends to do,” he said.
Similarly, Balogun expressed confidence that the current administration would continue to support all stakeholders in the economy, promoting growth and investment.
He emphasised the importance of the banking sector and investing public aligning with the government’s reform agenda.
The News Agency of Nigeria (NAN) reports that the Windfall Tax was introduced in July under Nigeria’s Finance Act.
The Act promises many benefits, which include redistributing unexpected gains into important public services, infrastructure development, healthcare and education. #Bankers Back Windfall Tax, say it Will Alleviate Poverty.
We believe that where there is extraordinary income, it should go towards helping to alleviate poverty in the country, which is what the government intends to do.
Negative effect
Despite the bank chiefs’ expression of support, recall that global rating agency, Moodys, in a report titled: “Nigeria’s proposed windfall tax on foreign-exchange gains is credit negative for banks,” had expressed concerns over the negative effects of the tax on the financial sector.
It said: “The windfall tax will have a particularly negative effect on banks whose capital adequacy is close to regulatory thresholds.
“The tax follows record profits declared by banks in 2023, largely because of foreign-currency revaluation gains related to the naira’s massive devaluation of 37 per cent in June 2023.
“Eight of the nine Nigerian banks we rate reported more than N3.5trillion in aggregate pretax profits in 2023 versus N1.1trillion in 2022, and we estimate that over a third of the profits were from foreign-currency revaluation and trading gains.
“It is unclear, however, what proportion of the revaluation gains will be taxed, given the differences between trading and revaluation gains.
“Additionally, the 2023 revaluation gains include unrealised gains, which may affect how the tax is applied, particularly as the government has not been clear how the 50 per cent windfall tax will be achieved.”
Discriminatory tax
The Chartered Institute of Bankers of Nigeria (CIBN), on its part, had described the Windfall Tax as discriminatory.
The President/Chairman of Council, CIBN, Prof. Pius Olanrewaju, in a statement, said: “This proposed tax will violate fairness and equity in taxation as banks are the only entity singled out for this payment.
“This is discriminatory. What about other sectors or businesses that have recognised the same foreign exchange gains in their books in 2023?
“In countries where such a Windfall Tax had been imposed, there is always a corresponding incentive to cushion the effect on the affected entities but nothing to that effect has been stated in the proposed bill.
“Imposing taxes on foreign exchange gains may deter foreign investors and negatively impact Nigeria’s investment landscape, especially at a time when banks are required to raise capital, and they may be looking towards foreign investors.
“This action can discourage foreign investors. The implementation of this tax could lead to reduced investment, decreased liquidity, and increased costs and negatively impact Nigeria’s economic growth and development and the tax could lead to reduced market participation, exacerbating currency fluctuations and potentially destabilise the economy.”
