President Bola Tinubu has petitioned the Senate for a substantial budget increase of N6.2 trillion. This request, if approved, will elevate the 2024 appropriation act from N28.7 trillion to a staggering N34.9 trillion.
This move, which seemingly underlines the administration’s urgent need to address the nation’s critical infrastructure gaps and mounting recurrent expenditures, has come under criticism.
On Wednesday, Senate President Godswill Akpabio read Tinubu’s letter to the upper legislative chamber. According to the president’s request, N3.2 trillion is earmarked for infrastructure projects, while N3 trillion is intended for recurrent expenses. These funds, it said, are crucial for the “Renewed Hope Infrastructure Projects” and the seamless functioning of the federal government.
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“Pursuant to section 58 (2) of the constitution of the federal republic of Nigeria as amended, I forward herewith the above-named bills for consideration and passage by the senate. The appropriation act amendment bill seeks to amend the principal act to provide the sum of N3,200,000,000,000 for Renewed Hope Infrastructure Projects and other critical infrastructure projects to be undertaken across the country and the sum of N3,000,000,000,000 to meet further recurrent expenditure requirements necessary for the proper operation of the federal government. They shall be funded by accruing to the federal government of Nigeria,” Tinubu said in his letter.
Taxing Times: The Finance Act Amendment
To fund the budget expansion, Tinubu’s administration is targeting the financial sector with proposed amendments to the Finance Act of 2023. The president seeks to implement a one-time windfall tax on the substantial foreign exchange gains reported by banks.
It could be recalled that the Central Bank of Nigeria (CBN) prohibited banks from using the proceeds of the FX windfall for their recapitalization. The CBN has outlined various avenues for banks to raise fresh equity capital, including private placements, rights issues, offers for subscriptions, and strategic mergers and acquisitions.
The federal government said it intends to use the tax fund to bankroll essential capital infrastructure, education, healthcare, and public welfare initiatives—key elements of the “Renewed Hope Agenda.”
“Furthermore, the proposed amendments to the Finance Acts 2023 are required to implement a one-time windfall tax on the foreign exchange gains realized by banks in their 2023 financial statements to fund capital infrastructure development, education, and healthcare as well as welfare initiatives, all of which are components of the Renewed Hope Agenda,” Tinubu said.
The FX Windfall
Nigerian banks have enjoyed remarkable profits driven by foreign exchange revaluation gains. In 2023, the top seven local banks reported combined profits of N2.48 trillion, with an additional N882.9 billion in the first quarter of 2024, according to Nairalytics.
With oil revenue dwindling, the federal government is understood to have shifted attention to the banks’ FX gains. The government’s earlier move to borrow from the pension was met with stiff opposition.
Tinubu Contrasting His Tax Reform Initiative
Tinubu’s approach, however, reveals a paradox. The administration is simultaneously attempting to tax its way out of the economic crisis while introducing tax reforms designed to alleviate multiple taxation burdens on businesses. This dual strategy raises questions about the coherence and efficacy of the government’s economic policies.
Economic experts say the push to boost tax revenues, particularly through windfall taxes on banks, seems at odds with ongoing tax reform efforts aimed at reducing the tax burden on businesses. The tax reforms are expected to foster a conducive business environment and stimulate economic growth.