Professor of Economic History at Obafemi Awolowo University, Ile Ife, Adetunji Ogunyemiin this interview with Remi Feyisipospoke on the amendment of the Finance Act 2020 by the National Assembly to accommodate windfall levy on banks’ profits from foreign exchange transactions. The lawyer and public finance expert said the policy was perfectly fine and asked banks to see it as a contribution to national development. Excerpts:

The windfall levy has caused some debate in politics, with the government justifying it as the right thing to do to achieve balance in key sectors of the economy. How justified is this levy on banks’ foreign exchange profits?

Nigeria is currently in great financial and economic trouble. It is within the power of the Government of the Federation, exercising its exclusive jurisdiction under the First Schedule Part I of the Constitution of the Federal Republic of Nigeria, to make such laws and direct such policies and actions to ensure peace, good order and good governance in Nigeria. Therefore, if Nigeria is in great trouble and some Nigerians, be they individuals, agencies or corporate organisations, who have been feeding fat on the system, especially when that feeding fat is not directly a function of their own productive energies, then it is incumbent upon the Federal Government to ensure a balance of duties and responsibilities within the system so that a sector of the economy that is short of resources can benefit from the part that is surplus in resources through what is called economic stabilization. So, as far as I am concerned, it is perfectly right to amend the Finance Act 2020 to enable the collection of this one-time levy on the windfall that the banks in the financial system have benefited from foreign exchange transactions in the past year. I think it is perfectly right and it is part of the government’s role to stabilise the economy and redistribute wealth.

Part of the argument of those who oppose the policy is that allowing the windfall levy on banks may create uncertainty about the future, as the government may come up with another windfall levy in some other sectors. Is this fear justified?

A paralyzed situation needs shock therapy to bring it back to normal. In 1929 to 1932, decisions were taken in the United States under Herbert Hoover to stabilize the economy by ensuring that the government deliberately pumped huge expenditure into the economy financed through a public-private partnership arrangement. Nigeria is now in a similar situation as the United States under Hoover. So it is not out of place to ask that banks which have generated unplanned, spontaneous, unpredictable, sudden income, donate a portion of their profits to the system. This levy is in fact on their windfall which is not part of their projections in their respective budgets. So there is nothing malicious in this levy. After all, the levy is not for the benefit of individuals. It is for the benefit of the public and it is all right.

Of course, the Chartered Institute of Bankers of Nigeria (CIBN) has risen to the banks’ defense, saying that asking them to pay a windfall levy amounts to double taxation because banks have already paid Companies Income Tax. What do you think of this argument?

I totally disagree with this position of CIBN. What about the progressive deductions that the banks have been making on ATM withdrawals by both depositors and borrowers? Banks are charging N20 per transaction and sometimes N50. Many of these deductions are actually illegal and the CBN should have asked them to return the money to their customers. These deductions run into billions of naira. But it seems that the CBN did not want to rock the boat and allowed the banks to earn some revenue for their stabilization so that they would have something to use for that purpose when there was a request for recapitalization. So the banks cannot approve and reject at the same time. They cannot charge their customers unlimited fees and expect the government not to come up with a decision to stabilize the system. The windfall levy is a patriotic appeal to the banks to contribute to the system. The banks should not see it as a tax. After all, it is a one-time levy. Anyway, why are the banks trying to evade their responsibility to contribute to the system? Their wealth comes from the Commonwealth of Nigeria. Isn’t that so? If your wealth comes from the Commonwealth of a country and that country is in dire need and it asks you to pay a levy on the profits that come from your unforeseen income, I don’t think it is out of place for them to heed such a call to help the country.

Are there any special benefits associated with a windfall tax?

The benefits are numerous. Firstly, to the extent that government does not pump the revenue from this windfall levy on banks into the general budget, then there is no problem. But if government pumps the revenue into the general budget and uses it to finance recurrent expenditure, then that is unacceptable. But if government pumps the money from the windfall tax specifically into certain projects, for example the Sokoto-Badagry expressway, the coastal road, the Port Harcourt-Maiduguri railway line, etc., then that is absolutely correct. It can also be used for industrial development through the Bank of Industry or specifically into some agricultural projects such as dam development, and so on. These are the specific areas where the money can be channelled. But I would advise that government use the revenue to finance critical projects such as the Lagos-Calabar coastal road, the Sokoto-Badagry expressway, the Port Harcourt-Maiduguri railway line, the extension of the standard gauge from Ibadan to Abuja and then on to Kaduna. These are the critical projects that will have a trickle-down effect on the economy, pull it out of the doldrums and stimulate productive enterprise in companies.

“The windfall levy is a patriotic call to the banks to contribute to the system. The banks should not see it as a tax. After all, it is a one-time levy.”

The three tiers of government have been smiling to the banks every month because of the huge revenue collected for the Federation by the Federal Inland Revenue Service (FIRS). Shouldn’t the focus shift to the other two tiers of government that are getting more money since the removal of petrol subsidy by President Bola Tinubu?

That is what we call financial injustice in the system. In fact, many governors in Nigeria, perhaps out of political correctness, have not said much on the issue of workers in conflict with the Federal Government over the issue of minimum wage, nor have they supported the Federal Government to at least do some defense within the realm so that citizens do not become unnecessarily agitated and subsequently start unrest. But the truth is that the respective state governments of the federation are now earning at least 40 percent more than what they were earning before. It behooves them to come forward and explain to Nigerians why some A, B and C policies have been implemented to their advantage by the Federal Government. For example, the removal of subsidy on petrol has helped previously indebted states like Osun State to successfully and significantly come out of debt and pay workers. But do they give the Federal Government credit? The answer is no. The states have given credit to themselves as if they came up with the fat allocations they are now getting. While we know that it is a direct result of the FAAC getting more money through the removal of subsidies and efficient revenue collection by FIRS. This is why the states are now financially strong to execute their capital projects. Some of these states are even using a kind of subtle blackmail to give a dog a bad name to hang it. Otherwise, if your income has increased as a result of government policies, why can’t the states explain to their citizens and spend the money to make things better for the citizens in their respective states? They have put all the burden on the Federal Government. It is a shame.

Also read: Windfall tax: FG considers prison sentence for bank executives who fail to pay

Do you think the recent Supreme Court ruling that allocations should be paid directly into local government accounts will also help ease tensions and promote development at the local level?

I support the vision, position and policy of the Federal Government on this and for the Attorney General of the Federation to approach the Supreme Court for interpretation of the Constitution and to make declaratory orders. This is perfectly fine. This is actually how you run a country. Remember that the local government councils in Nigeria are 768 and not 774. This is enshrined in Article 3, sub-article 6 of the 1999 Constitution as amended. There are six area councils in Abuja and if you add this number up, you get 774. But the area councils in Abuja are not local government councils. The Supreme Court ruled on this in 2002 in the case of Attorney General of the Federation versus Attorney General of Abia State and 35 others. But let us not go into that. The truth is that the 768 local government councils in Nigeria are now directly benefiting from their allocations under Article 162 of the Constitution. The Supreme Court’s judgment is only half the battle won. The other half of the battle that needs to be won is to ensure that local government elections are not conducted by Independent Electoral Commissions (SIECs). There should be an amendment to the Electoral Act for that purpose so that the same elections are conducted by INEC so that there is a level playing field. The SIECs are in fact not independent of the governors who appoint their officials. But it is good that local governments are getting their allocations directly from FAAC from this month, July.