Dr. Olisa Agbakoba has explained how the federal government’s proposed 50% windfall tax will negatively impact bank operations and its customers in Nigeria.
Dr. Agbakoba is the Senior Partner and Head of the Alternative Dispute Resolution (ADR) and Arbitration practice group at Olisa Agbakoba Legal (OAL), with expertise in Maritime and Blue Economy Law, Space Law, Environmental, Social and Governance (ESG) Law, Environmental Justice Law, Human Rights Law, among many others.
In an exclusive interview with Nairametrics, Agbakoba sheds light on how the proposed amendment to the Finance Act is ill-thought-out.
What’s your take on the federal government’s plan to tax banks 50% of profits realized from foreign exchange revaluation in 2023 through the proposed amended Finance Act?
So, I completely understand why the government is passing financial legislation because the government really needs revenue to drive its development agenda and to meet all the various expenses that it faces.
But I think the government ought to also understand that there are parameters that are very important to employ to gain not only the confidence of Nigerians but particularly the financial community.
The financial community is a lifeline and the oxygen of the Nigerian economy, and to create a policy that will be contrary to the interests of the financial community might be very precarious and could even backfire.
So, in that context, I would say that the proposed amendment to the Finance Act is completely ill-thought-out legislation.
There are different types of legislation. This particular legislation is known as penal legislation. You will observe that Section 33 of the intended amendment criminalizes failure to comply.
In Guardian Motors vs. the Attorney-General of the Federation, pursuant to a decree made by General Babangida, the Supreme Court laid out the principles under which legislation can be properly made.
I think this is one legislation that is beyond the scope of the National Assembly to enact. The National Assembly has no power to enact legislation that imposes penal sanctions on commercial transactions.
What does this proposed Finance Act imply for customers of Nigerian banks?
The first thing that will happen is that customers will bear the burden of the so-called windfall legislation.
Again, windfall legislation is generally seen as unacceptable to the commercial community. Even in the UK, where there was a proposal to pass windfall legislation in respect of oil profits that Shell and other oil companies were said to be making, there was an uproar.
When you pass windfall legislation taking 50% of somebody else’s earnings, that person will immediately transfer it to those closest to them.
It is obvious that those closest are Nigerians whose money is actually deposited.
So, the issue here is the realized profits. The law states that realized profits will be liable to windfall tax.
If banks make realized profits on accounts, they are likely to find ways to recover the windfall tax because the magnitude proposed by the federal government, 50%, is so huge that they will seek ways to recover it.
There’s no question about that.
If the purpose is to create wealth that the government can use to fund its services, there’s a likelihood that it could lead to inflation. It could be inflationary. It could exacerbate the very problem that the government thinks it is solving.
So, I would honestly urge the government to do two things: first, withdraw the legislation and consider other easier ways to generate revenue. I’ve discussed this several times.
The government can easily generate a lot of revenue without this unnecessary difficulty. One area where the government can generate revenue is the oil and gas sector. A lot of revenue can be generated simply by taking control of the country’s oil and gas resources.
I hope you are aware that Nigeria’s oil and gas resources have been handed over to the International Oil Companies (IOCs). Even Aliko Dangote is complaining.
Dangote is unable, despite having the world’s largest refinery in Lagos, to obtain crude because it is not in the interest of the IOCs to allow him access to crude.
The IOCs prefer the situation where they export crude and we import refined products. Therefore, it is not in their interest to change that. If the government were to stop this and address all the leakages in the oil and gas sector, they would make more money than what the so-called windfall legislation would bring.
And there are several other ways that the government can generate revenue in the maritime industry.
I have said time and again that a proactive government that understands how to generate revenue for Nigeria can easily generate N100 trillion.
So what is the purpose of this? It is ill-thought-out and I would urge them to really consider the negative impact it would have on the Nigerian economy.
The presidency believes the proposed windfall tax will help his government bring more infrastructural development to Nigeria. What do you think?
How? There are no details. They’re just saying it. How? That’s the question. The question I would ask is how? I mean, in principle, tax legislation will bring money into the government’s coffers, but you have to carefully examine the nature of the tax legislation.
Firstly, I’ve told you that windfall taxes tend to be viewed negatively by those on whom they are imposed. So when you impose a windfall tax on someone, they look for ways to pass it on to someone else. That’s number one. So, banks are likely to pass on the windfall tax, of 50% of their profits, to us as consumers. That’s one issue.
Secondly, assuming the windfall tax brings in N10 trillion, for example, there is nothing to suggest that because you have extra income, you will not have extra expenses higher interest rates or increased inflation.
So it’s not enough for the government to say, “We’re going to get more money from this.” If you get more money but the price of rice doubles, does that make sense?
So, I’m not sure how well thought out this legislation has been. Is it really going to be progressive legislation that benefits Nigerians in all aspects? Or is it just a case of the government saying, “We’re going to get money”? It’s not enough to say, “I’m going to get money.”
You have to look at the impact of that money. Is it going to be beneficial? In my view, this law won’t be beneficial because it will have all kinds of implications and it will probably be challenged on the grounds of unconstitutionality anyway.
