The 70% windfall tax on Nigerian banks has stirred debate in the financial sector, raising concerns about its impact on profitability and growth.
While some see it as necessary for funding education and health, others warn it could harm the banking industry, already affecting share prices.
The Nigerian banking sector, known for its resilience and profitability, has thrived through high-interest rates, fee income, and cost management.
However, the newly introduced windfall tax poses a financial burden that could impact these institutions’ profitability dynamics.
Opinions on the windfall tax are divided. Forensic accountant Lawrence Metuh supports it, asserting that banks have a responsibility to contribute to societal welfare. He argues the tax could fund infrastructure projects and agricultural inputs like fertilizers or food imports, ultimately helping to lower food prices.
Professor Tayo Bello, a development economist at Adeleke University, believes the 70% windfall tax on Nigerian banks could generate substantial government revenue, particularly when banks report extraordinary profits. He suggests these funds could be directed toward critical areas like infrastructure, healthcare, and education, reducing inequality and improving citizens’ quality of life by addressing the country’s pressing development needs.
Zakari Mohammed, a financial economist at Auchi Polytechnic, noted that a well-executed windfall tax could boost public trust, as many Nigerians see banks as prioritizing profits over public interest during economic hardships. He noted
A key concern is the windfall tax’s potential to significantly reduce banks’ net income. Moses Igbrude, President of the Independent Shareholders’ Association of Nigeria, highlights that imposing additional taxes on profits above a threshold limits banks’ retained earnings, possibly reducing shareholder returns. This decline in profitability may lower stock values, erode investor confidence, and decrease capital inflows into the sector.
Dr. Felix Echekoba, a financial economist at Nnamdi Azikiwe University, emphasized that the windfall tax could reduce banks’ ability to reinvest profits. Retained earnings typically fund expansion, technological upgrades, and product development. Diverting profits to the tax would limit capital for growth, branch expansion, and technology adoption, potentially undermining banks’ competitiveness in the evolving financial landscape.
He added that the 70% windfall tax could prompt banks to adjust pricing strategies, potentially raising fees or interest rates on loans and services to offset losses.
Dr. Muda Yusuf, CEO of the Center for the Promotion of Private Enterprise, argued that the 70% windfall tax places significant pressure on banks’ resources, especially amid recapitalization struggles. Even tier 1 banks face difficulties mobilizing funds. While the CBN initially proposed a 50% tax, the National Assembly raised it to 70%, which Dr. Yusuf deems excessive. He contends that the 50% proposal would have been more manageable and the 70% tax is unfair.
Dr. Emeka Okengwu, Chief Executive at AntHill Concepts Limited, noted that taxation is a double-edged sword, cautioning that excessive taxes can drive businesses out.
He added that although the windfall tax targets extraordinary profits of Nigerian banks, it poses significant risks to their profitability and growth.