Windfall Tax: Policy is a Win-Win For Social Good, Bismark Rewane Says
- The Managing Director/Chief Executive Officer of Financial Derivates Company, Bismarck Rewane, has outlined the benefits of the windfall tax
- Rewane disclosed that the taxes are designed to capture the profits from unexpected economic events such as the naira devaluation
- He said the Nigerians and the government will mutually benefit from the proposed windfall tax as it would be used to fund infrastructure
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Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.
Renowned Economist and Managing Director/Chief Executive Officer of Financial Derivatives Company Limited (FDC), Bismarck Rewane, has thrown his weight behind the Windfall Tax on financial institutions by the Federal Government, describing the policy as a win-win situation, and one aimed at fostering social good and entrenching equitable distribution of resources for Nigerians.
Windfall taxes are designed to capture extraordinary profits from unexpected economic events. In Nigeria's case, these profits have primarily resulted from the recent naira devaluation, significantly benefiting banks. Therefore, a nuanced understanding of this concept is critical to the overall conversations around the policy and its implementation.
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Windfall tax to fund infrastructure
He stated this during an on-air interview on the topic: ‘Understanding the Workings of the Windfall Tax Policy in Nigeria’, on ‘Business Nigeria’, a business and economy-focused programme on TVC, on Wednesday, August 28, 2024.
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Rewane said that the Windfall Tax “would develop the concept of a joint venture where the government has part of it, and the private taxpayer has part of it. So, in all this model, everybody is in what I call a ‘win-win’ situation”.
The FDC CEO referenced his presentation, ‘Windfall Tax: Incentive or Penalty?’, noting that as citizens, the government wants you to have a say in how the tax is spent and administered.
Rewane pointed out that traditionally, government activities are funded by taxes and other forms of revenue, including levies, rates, and others, and “this factor in companies or sectors making extraordinary income. The higher the tax revenue, the greater the ability of the government to fund its goals and its activities for social good”.
Windfall tax to generate revenue for development
He states that four elements constitute a nation’s GDP: government expenditures, investments, consumer income or aggregate consumption, and net exports. In the same way, he said, taxes are subject to four principles. First, they must generate revenue. Second, they must be easy to administer, neutral, and equitable.
Rewane argued that the Windfall Tax policy buttresses the Robin Hood philosophy of the rich paying more than the poor or the socio-economically vulnerable. “Assets provide an impetus for growth. The assets belong to the government. But it is funded by the taxpayers' profits. But the most interesting alternative is to have the asset belong to the taxpayer”, he said.
Rewane pointed out that the windfall tax is not a Nigeria-specific tax policy, but one many other nations have adopted. He cited the examples of countries like the United Kingdom, which had a 35% windfall tax on oil and gas companies in 2022, and Portugal, which had a 13% windfall tax on energy companies and food retailers to reduce inflation and boost renewable energy investment. The Czech Republic used 60% of its Windfall Tax to subsidise energy costs and support social assistance programmes. In comparison, Germany channelled 90% of its tax with proceeds to help people by putting a break on energy tariffs.
Rewane asks Nigerians to understand
Rewane explains that Nigeria's tax-to-GDP ratio is currently 9.4 per cent, lower than that of Ghana (12.3 per cent) and South Africa (26 per cent). This discrepancy is partly due to a need for more confidence in the government's ability to deploy tax revenues effectively. He argues that if taxpayers believe their money is well-spent on public goods and services, they are more likely to comply with tax policies.
According to Rewane, the discussion around windfall taxes falls within the broader context of Nigeria's economic goals. The government aims to achieve a one trillion-dollar economy by 2028, with an average growth rate of 5 to 6 per cent. To reach these targets, balancing revenue generation with investment and consumption is essential, ensuring that all elements of the economy work together to drive growth.
Rewane urged for more understanding on the part of the citizens and organised private sector, saying that the government, by its mandate, has a significant role to play in the economic development of the country and is not oblivious to the fact that some people are making extraordinary gains and that these gains need to be distributed evenly for common social good.
“Our concern here should be: How can we make this more efficient so it becomes a win-win? The government wins, the people win, and the taxpayer, being the public entity that made the primary profit, also wins”, he said.
Rewane asks FG to be accountable.
A critical aspect of Rewane's argument is the importance of trust between the government and taxpayers. For any tax policy to be effective, there must be a perception that the revenue collected is being used efficiently and transparently. This is especially true in Nigeria, where public scepticism about government spending is high.
The revered economist also spoke on the responsibilities and expectations of institutions to taxes, saying, “We have a moral and social responsibility to pay our taxes, but that does not include exploitation or extortion. We don’t want that to happen. The greatest incentive for people to pay taxes is that they can see that their taxes have turned into material benefits for them. They can see the roads, they can feel the power supply, they can see the water, and they can see it’s for social good. So, that's the litmus test for getting people to pay tax”.
Otedola Backs Tinubu’s Proposed Windfall Tax on FX Earnings
Legit.ng earlier reported that the chairman of Geregu Power Plc, Femi Otedola, has backed the Nigerian government's proposed 70% windfall tax on Forex gains by banks.
The Nigerian billionaire, also the chairman of FBN Holdings, criticised the banking industry for its estimated $50 million bill on private jet maintenance and higher bill on jet purchases.
The Nigerian Senate amended the Finance Act to impose a 70% windfall tax on banks’ FX profits.
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Source: Legit.ng
