Renowned economist Bismarck Rewane, the Managing Director and CEO of Financial Derivatives Company Limited (FDC), has expressed strong support for the Federal Government’s Windfall Tax on financial institutions. Rewane believes the policy is a strategic tool to promote social equity and ensure a more equitable distribution of resources across Nigeria. He describes the tax as a win-win solution that aligns both government and taxpayer interests for the greater social good.
Windfall taxes are designed to capture extraordinary profits that arise from unexpected economic events. In Nigeria’s case, these profits have largely resulted from the recent naira devaluation, which has significantly benefited banks. Bismarck Rewane emphasizes that a nuanced understanding of this concept is crucial for the discussions surrounding the policy and its implementation.
During an on-air interview on the topic “Understanding the Workings of the Windfall Tax Policy in Nigeria” on “Business Nigeria,” a business and economy-focused programme on TVC, Bismarck Rewane explained, “The Windfall Tax would involve a joint venture where the government and private taxpayers both have stakes. This model creates what I call a ‘win-win’ situation.”
Drawing from his presentation titled “Windfall Tax: Incentive or Penalty?”, Rewane noted that citizens should have a say in how the tax is spent and administered. “Instead of paying cash tax, we could provide something tangible like infrastructure, which would be a visible social benefit and an asset for everyone,” he said. “This way, we achieve economic capital while fulfilling social responsibility.”
Rewane further explained that government activities are traditionally funded by taxes, levies, rates, and other forms of revenue, and that windfall taxes target companies or sectors earning extraordinary incomes. “The higher the tax revenue, the greater the government’s ability to fund its activities for social good,” he added.
He outlined four elements that constitute a nation’s GDP: government expenditure, investments, consumer income or aggregate consumption, and net exports. Similarly, taxes must meet four principles: they must generate revenue, be easy to administer, remain neutral, and be equitable.
Rewane argued that the Windfall Tax policy supports the “Robin Hood” philosophy, where the rich pay more than the poor or socio-economically vulnerable. “The assets provide growth incentives. The assets belong to the government but are funded by taxpayer profits. Alternatively, the asset could belong to the taxpayer,” he explained.
Highlighting that windfall taxes are not unique to Nigeria, Rewane cited examples from other countries. The United Kingdom imposed a 35% windfall tax on oil and gas companies in 2022, while Portugal implemented a 13% tax on energy companies and food retailers to curb inflation and boost renewable energy investments. The Czech Republic used 60% of its windfall tax to subsidize energy costs and support social programs, while Germany allocated 90% of its tax proceeds to control energy tariffs.
Rewane also pointed out that Nigeria’s tax-to-GDP ratio is currently 9.4%, lower than Ghana’s 12.3% and South Africa’s 26%. He attributed this discrepancy to a lack of confidence in the government’s effective use of tax revenues. He suggested that if taxpayers believed their money was being well-spent on public goods and services, compliance with tax policies would improve.
He stressed that the discussion around windfall taxes should be viewed within the broader context of Nigeria’s economic goals. The government aims to achieve a one trillion-dollar economy by 2028, with an average growth rate of 5 to 6 percent. To achieve these targets, it is crucial to balance revenue generation with investment and consumption, ensuring that all economic elements work together to drive growth.
Rewane called for greater understanding from citizens and the organized private sector, highlighting the government’s role in economic development and the need to ensure that extraordinary gains are distributed evenly for the common social good. “Our concern should be: How can we make this more efficient so it becomes a win-win? The government wins, the people win, and the taxpayer also wins,” he said.
A critical aspect of Bismarck Rewane’s argument is the importance of trust between the government and taxpayers. He emphasized that for any tax policy to be effective, there must be a perception that the revenue collected is being used efficiently and transparently. This is especially pertinent in Nigeria, where public skepticism about government spending is high.
He concluded by discussing the responsibilities of institutions regarding taxes: “We have a moral and social responsibility to pay our taxes, but this does not include exploitation or extortion. The greatest incentive for people to pay taxes is seeing that their contributions have translated into tangible benefits. They see the roads, feel the power supply, witness the water supply – it’s all for social good. That’s the litmus test for getting people to pay taxes.”
Seunmanuel Faleye is a brand and communications strategist. He is a covert writer and an overt creative head. He publishes Apple’s Bite International Magazine.