Tinubu, bank chiefs meet over windfall tax

President Bola Tinubu on Wednesday held closed-door talks with representatives of leaders of Nigeria’s commercial banking sector at the State House, Abuja, over the recently imposed Windfall Tax.

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, led the team, including the United Bank for Africa Chairman, Mr. Tony Elumelu, and the Group Chief Executive Officer of the First City Monument Bank, Ladi Balogun.

Edun, who briefed State House correspondents afterwards, said attendees discussed the banking sector’s role in promoting economic growth.

He said the Chairman of the Federal Inland Revenue Service, Mr Zacch Adedeji, explained the government’s plan to simplify the tax regime by taxing only profits and allowing companies’ capital to grow.

In mid-July, President Tinubu introduced a one-time windfall tax aimed at the substantial foreign exchange gains reported by banks in 2023.

He proposed this tax as part of an amendment to the 2023 Finance Act, seeking to generate additional revenue for crucial infrastructure, education, and healthcare projects under his Renewed Hope Agenda.

Windfall tax specifically targets the significant profits banks made due to the naira’s devaluation in 2023.

However, the proposal has not been without controversy. Moody’s Investors Service and other analysts have raised concerns about the potential negative impact on the banking sector.

They argue that the levy could significantly reduce profits available to banks to cover problem loans and maintain regulatory capital, posing a risk to the financial stability of banks already operating close to regulatory thresholds.

Nonetheless, the Senate recently passed the amendment bill, which includes increasing the windfall levy from the initially proposed 50 per cent to 70 per cent. It also extended the tax’s applicability from the end of 2023 to all profits from FX transactions through 2025.

Critics have warned that this retroactive dimension may lead to legal challenges and potentially discourage future investments, with some arguing that the tax burden may eventually be transferred to bank customers.

But Edun said, “As we know, the banking system has enjoyed some of what we’ll call windfall or unearned profits and in the interest of distributing wealth across the Nigerian society, the government has stepped in to take some of that wealth on behalf of Nigerians.

“We know at this time that the banking system is raising money. They’re selling shares, giving people the opportunity to participate in their wealth, and that includes foreign investors.

“So it’s against that background that Mr. Elumelu and Mr. Balogun wanted some clarifications, particularly on the windfall levy that has just been passed by the National Assembly.”

The minister said the FIRS Chairman, Adedeji, gave insight into how President Tinubu hopes to simplify the tax regime to “make it more efficient and less costly for people to even file their taxes.”

He said the reform will “focus on the wealth that is created, not to focus on the companies that maybe are not doing so well, or to focus on their capital, but to leave their capital alone to grow and make sure that the emphasis is on taxing and levying only the returns, only the profits.”

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.

UBA Chief, Elumelu, reasoned that mutual prosperity is vital to sustaining the system. He said where businesses thrive, jobs are created, and foreign and local investors benefit, leading to a prosperous society.

“We believe in prosperity, in creating jobs and employment for our people, in democratising prosperity, and in ensuring that Nigerians have access to a 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,” he said.

The FCMB Chief, Balogun, said he is confident that the Tinubu administration will continue to support all stakeholders by promoting growth and investment.

He emphasised the importance of aligning the banking sector and investment community with the government’s reform agenda.

Balogun said, “The purpose of the meeting was to ensure that this government’s reform agenda is well transmitted to not only the banking sector but also the investment community. We sought to ensure that we were all on the same page. I believe we are in the banks and the government.

“We also sought to ensure that we are also playing our role as a banking system and as an industry to channel back some of the gains we have made into the general economy. Now, we believe that this government and this administration are very much pro-investment and pro-growth, and they demonstrated that by listening to the concerns of the industry.

“We believe that what we are seeing is a government that will continue to support all stakeholders in this economy and promote economic growth. I believe that was the strongest message that came out today.”