Analysts Advise FG to Expend Banks’ Windfall Tax on Real Sector, Support Vulnerable Persons

* Demand transparency in utilisation

Nume Ekeghe

Some economists and financial market analysts have advised the federal government to ensure that revenue from windfall tax on banks from foreign exchange gains should be deployed to support activities in the real sector of the economy to stimulate economic activities as well as to support vulnerable persons in the society.

They also urged the federal government to ensure transparency in the allocation of the anticipated income, stressing the importance of directing funds to vulnerable population.
This was a consensus at the virtual Economist Conference titled “Nigeria’s Windfall Tax – Moving Beyond Concerns to Governance,” organised by Proshare yesterday.

In his contribution, Group Managing Director Cowry Asset Management Limited, Johnson Chukwu said: “For us to have effective use of fiscal policy including tax policies, we need to redefine our overall economic plan. We need to use this to support the vulnerable in society who are suffering from the component of an increase in exchange rate and there is no component of this tax going to them. the government is just looking at what is in it for them and that deviates from economic growth and development.
“Tax policy is a domestic economic policy; you don’t ever copy what happens elsewhere because economic conditions differ from other jurisdictions. If we don’t have a holistic economic development plan, we are going to use tax policies in silos, and as we try to benefit from one sector, the implications of losses or costs on other sectors may be more severe than the benefits we are gaining.  

“The benefits of these earnings would be a cost to them when these loans become bad because you are going to see a major uptick in the non-performing loans of the banks because the debtors of those banks would not be able to pay back because of the shift in the exchange rate.”
Speaking further, he said: “If the primary purpose of the federal government was to maintain economic stability, to make sure the economy continues to operate effectively, what we need to do is to pass that benefit as tax holiday or some level of subsidy to those who have suffered huge exchange rate losses. with that, you will ensure that the real sector continues to grow.”

For his part, a Professor of capital market at the Nasarawa State University, Uche Uwaleke, recommended the expected revenue be allocated to support vulnerable individuals and small businesses, given Nigeria’s significant debt burden and high debt service-to-revenue ratio.
Uwaleke, also re-echoed the need for transparency in the allocation of the estimated N3.5 trillion windfall tax revenue.
 He maintained that the levy should be tied to a particular project same as future borrowing which he noted had caused a trust deficit among the citizens
He added: “People cannot pinpoint what loans are being used for that is what the trust deficit is about. I want to strongly recommend that any money we are raising especially given our huge debt burden and huge debt service-to-revenue ratio any money we are raising must be tied to specific projects.
“So, this windfall levy the government wants to get should be tied to specific projects, around N3.5 trillion is a rough estimate, and should also be tied to a particular project that should go to assisting vulnerable, individuals and small companies.

“The good news is that at the level of our committee, the fiscal committee of the federal government, we are not just recommending concerning taxes and revenues, we are making recommendations concerning spending. It is about fiscal policy which concerns spending and public debt. Our recommendations are comprehensive and by the time they are out and the government begins to implement them it is going to be a game changer.”
Also speaking, a financial analyst, Kalu Aja said: “There is a trust deficit, people do not trust the government to manage money and they have got to manage that trust. “There has to be a framework, there has to be clarity, the economy needs certainty, it needs rules to be followed so we know how to invest and know how our government is thinking about our commonwealth.”