A very great explanation on why the Nigerian government is imposing the 70% windfall tax on FX-related bank profits. Zacch Adedeji, the chairman of the tax agency, Federal Inland Revenue Service (FIRS), noted that the Nigerian manufacturing sector lost N1.7 trillion in 2023 as a result of changes in FX policies, and most of those companies collapsed.
But as that happened, another part of the economy – specifically banking – benefited from the FX policy changes. So, to balance the indices, the government has decided to retroactively tax the banks on the FX-related windfalls. It posited that this will help attract global investors:
“If that is not done, that is when the real investor will run away from Nigeria because this is a way to balance the economy indices and this is what shows that we actually know what we are doing, and we have a plan for where we are going. As a responsible government that we are, this is what we should do. I don’t think there is anything that will make investors lose confidence in what we are doing.”
Tekedia Mini-MBA edition 15 (Sept 9 – Dec 7, 2024) has started registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
From his statement, it is very clear that Nigeria did not model the implications of the FX policy on manufacturing, banking and the broad economy. Had that been done, possibly, this excess bank taxes would have even been introduced when the policy was announced. More so, they would have been prepared for the policy fallout within the manufacturing sector.
Lesson: We must learn from this, and do modeling before any major policy implementation.
---
Register for Tekedia Mini-MBA (Sept 9 – Dec 7, 2024), and join Prof Ndubuisi Ekekwe and our global faculty; click here.
The reasoning from the taxman is suboptimal and an afterthought, it does not carry high dose of intelligent thinking. If the manufacturing sector lost N1.7 trillion, did the banks make N1.7 trillion or more from Fx? If yes, will the government collect N1.7 trillion from windfall and send it to manufacturing to revive the collapsed ones and stabilize the dying ones? That would be more impactful and easily understood. Instead, you were being told about N6.2 trillion extra budget, with over N3 trillion allocated for ‘Renewed hope infrastructure project’. Not many people are sane in this country.
They implemented or pronounced a policy that they never thought through its wider implications, and when it’s time to course correct the original gaffe, rather than demonstrating good judgment and efficiency, they went ahead to misbehave further. Ignorance will always precede arrogance, then add witchcraft to the mix, you now fully understand why we are where we are.
The people telling you about a promising future are still being haunted by a bad past, so the confusion will linger. Fly above them or get bugged in their chaos.