The introduction of a windfall Tax in Nigeria, particularly on banks’ foreign exchange (FX) gains, as proposed by President Bola Ahmed Tinubu, offers a unique opportunity to address the pressing needs of the country without placing additional tax burdens on ordinary citizens. This tax is a one-time levy on extraordinary profits resulting from economic shifts, primarily the naira’s depreciation. It is designed to redistribute wealth to support critical sectors like infrastructure, healthcare, and education. These taxes are not peculiar to Nigeria. It has been in effect in many countries to redress economic imbalances and fund public services whenever there are economic windfalls.
For example, the then British government applied them on utility companies towards the late 1990s to Finance employment programs and bring down unemployment. Within the European Union, countries like Italy and Spain have also implemented windfall taxes against energy companies to help cushion the economic effects brought about by high energy prices due to global crises. Countries like the Czech Republic have also used such taxes. All these set the fact that it can be an efficient way to divert extraordinary profit towards national development.
Banking profits are targeted for development.
Hence, actions by Nigeria in this regard are within these international practices. They are a reflection of the broader effort to see that financial windfalls, particularly those coming as an effect of currency revaluation, contribute to the public good. In the case of Nigeria, the proposed windfall tax is aimed at the banking sector, which in 2022 alone reported a profit after tax that came to an aggregate amount of ₦1.07 trillion, according to data obtained from the Nigerian Exchange. These earnings, though excellent for shareholders, also hold within them huge concentrations of wealth in an industry that, for the most part, has done well when other sectors of the Economy have performed poorly.
This can be argued to form the rationale for the windfall tax: tapping into these super profits and redirecting them toward addressing some of the pressing development needs facing the country. The Infrastructure gap in Nigeria is huge. Estimations show that the nation needs between $100 billion and $150 billion yearly for the coming three decades to close the gap. In these areas, there is a deficit in such key areas as transport, power, and digital infrastructures. Poor infrastructure makes the cost of doing business high and has spillover effects on the economy, scaring both domestic and foreign investment.
Infrastructure and healthcare revamp can be funded through this.
It can thus be taken that the accruable Revenue from the windfall tax may be utilized in executing very critical infrastructure projects. Such is the case with the rehabilitation of the road networks in Nigeria, largely in a state of disrepair, which is suggested to have the effect of reducing transportation costs and road accidents, thereby boosting economic productivity. The same goes for investments in power infrastructure, which may greatly improve the chronic Electricity shortages stifling industrial growth and economic development. The World Bank projects that Nigeria loses about $29 billion annually due to supply from unreliable electricity sources. It can also put part of such revenue into mitigating this.
Also, the health system in Nigeria needs revamping. The nation, according to WHO, has one of the worst maternal and infant mortality rates in the world. That is an indication that all is not well with the healthcare system in the country. Its infrastructure is very poor, and many facilities lack basic amenities and have few medical personnel. A windfall tax on banks could provide the funds needed for new hospital constructions in rural and relatively underserved areas and upgrading existing facilities to improve access to quality healthcare services for millions of Nigerians. Another area of focus could be the Brain Drain in the health sector: many doctors and nurses leave Nigeria for better opportunities abroad. It can help retain more of its talents within the country and guarantee a more robust healthcare system by using windfall tax revenues to improve salaries, working conditions, and benefits for healthcare workers.
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Finally, as the bedrock of the growth of every nation is education, so many irregularities have been soaked into the system in Nigeria. It has the highest number of out-of-school children in the world, and it has an estimated population of over 9 million children not attending school. The infrastructural situation in most schools is very deplorable, with overcrowded classrooms and a general shortage of facilities being the order of the day rather than the exception. The revenues can finance new schools in rural and other underserved areas of Construction and the renovation of current ones. Moreover, Teacher Education and upgrading of compensation may enable a state to attract and retain eligible teachers so that the education quality can be improved in the country at large. However, a fraction of the tax can be ploughed back to enlarge access to higher education.