In a society where a few live in luxury while many struggle in poverty, it’s not surprising that feelings of envy, jealousy, and even resentment arise among the less fortunate towards those who are well-off.
This is particularly true when it comes to banks, which serve as intermediaries, receiving deposits from those with surplus funds and lending them to those in need—for a fee. However, it seems that these deposit money banks are growing wealthier while their customers are becoming poorer, making them easy targets for criticism.
A notable critic is Mr. Femi Otedola, Chairman of Geregu Power Plc, who recently expressed concern that around five banks, likely from the top-tier category, have allegedly spent over $500 million on private jets for their executives. Although Mr. Otedola who is the highest individual shareholder of FirstBank has made a case that he does not own a private jet, but leased based on his need, the banks, on the other hand, argue that these jets are necessary for their executives to save time, avoiding the delays and inconveniences of commercial flights. They also point out that these jets are often part of leasing pools, generating income for the banks when not in use by their executives. Therefore, owning or leasing jets may boil down to the preferred individual strategies of the banks.
An analysis of the tension in the financial services sector suggests that the issue of banks making substantial profits while others in society struggle financially is multifaceted. Banks are profit-oriented institutions, primarily focused on delivering returns to their shareholders. During economic downturns, they often become more cautious, reducing lending and taking on less risk, which can worsen economic hardships. This behavior can widen the wealth gap, as bank profits do not typically benefit the broader population, contributing to income inequality.
Yemi Cardoso, CBN Governor
To address the challenges posed by the banks’ significant profits, stricter regulations and policies may be necessary. This could be why an excessive profit or windfall tax has been introduced through the amendment of the Finance Act 2023, which imposes a levy on banks’ Foreign Exchange (FX) gains. The tax rate on these gains has been increased from 50 to 70 percent.
This move comes in response to the significant FX income banks generated following the naira’s devaluation after the current administration took office.
The new policy has faced initial criticism, particularly from banks that have described it as double taxation. KPMG Nigeria, a tax and audit advisory firm, criticized the 50% windfall tax on banks’ foreign exchange revaluation gains recorded in 2023, warning it could lead to legal challenges, as Nigeria’s tax policy does not support retroactive taxation.
Similarly, PwC Nigeria raised concerns that the unpredictability of the windfall tax on already reported 2023 profits might deter investment. Prominent lawyer Dr. Olisa Agbakoba also criticized the proposed amendment to the Finance Act, arguing it was poorly conceived and outside the National Assembly’s authority. He added that the policy’s burden would likely fall on the banks’ customers.
While banks, audit firms and lawyers are opposing the tax. Mr. Femi Otedola, the largest shareholder in First Bank of Nigeria (FBN), has voiced his support, arguing that revenue from windfall taxes could be directed towards essential public services like healthcare, education, and infrastructure, benefiting all citizens and reducing social inequality.
Tony Elumelu, Chairman of United Bank for Africa (UBA), and Ladi Balogun, CEO of First City Monument Bank (FCMB), also expressed support after meeting with President Bola Tinubu and his economic team, saying that extraordinary income should help alleviate poverty, aligning with the government’s intentions.
The Association of National Accountants of Nigeria (ANAN) and the Chartered Institute of Taxation of Nigeria (CITN) have also endorsed the FX windfall tax on banks. The position was espoused by CITN Chairman, Chief Samuel Agbeluyi.
Despite being swiftly enacted into law, critics argue that effective implementation will be challenging due to the issues they have identified.
In hindsight, proactive Corporate Social Responsibility (CSR) efforts by the banks might have mitigated this situation. Banks have previously engaged in commendable public good projects, such as the renovation of the National Arts Theatre and contributions to the CACOVID initiative during the pandemic, which provided medical care and palliatives to Nigerians.
Based on my experience from other jurisdictions on the anticipated FX gains tax, and during the public presentation of my book, ‘Leading From The Streets: Media Interventions By A Public Intellectual 1999-2019” three months ago, I highlighted the large profits banks were declaring while other sectors and most Nigerians were struggling. I suggested that banks could positively impact society by reconsidering some fees and charges, such as waiving fees for alerts and statement printing, as a small but significant sacrifice for the greater good.
“We should recognize the commendable efforts of Corporate Nigeria during the COVID-19 pandemic. Under the leadership of the Central Bank of Nigeria (CBN), banks and major corporations, through the Special Purpose Vehicle (SPV), CACOVID, provided much-needed support to Nigerians, earning widespread praise and reinforcing public confidence in the corporate sector’s resilience.”
I expressed the view above on May 8, about three months before the proposal to amend the Finance Act 2023 on July 17, which was passed by the Senate on July 23. If bank owners and managers had followed my advice to lessen the burden on their customers, it’s possible the FX gains tax, which is now causing them significant concern, might not have been imposed.
Doing good to members of a society can earn an organization or sector the goodwill of the people in the society where they operate. I believe that is the spirit driving Tony Elumelu’s Africapitalism philosophy which is being driven through his Tony Elumelu Foundation, TEF, outreach to Africans with ten million dollars ($10m) funding for mentoring and seeding young entrepreneurs. One wonders why a similar concept to help the critical mass of Nigerians in one way or the other was not copied by the financial services sector or the Bankers Committee.
Take for instance the Dangote Group, which has made concerted efforts to support the most vulnerable in our society by offering them succor through food supply outreach nationwide.
I am aware that the anticipated revenue from the FX tax is intended to partially fund the 2024 national budget deficit of N9.18 trillion, with N6.2 trillion expected to come from the windfall bank tax to help reduce the deficit. This supplementary budget, intended for infrastructure, education, and other critical areas was passed by the National Assembly alongside the amendment of the Finance Act 2023, which imposed a 70% tax on FX gains—now part of the Finance Act 2024— along with penalties for non-compliance, including three years of imprisonment and a 10% fine.
However, many economists believe that taxing capital gains is inefficient. The dilemma is that without taxing capital gains, people might shift taxable income into this category. This creates a complex situation: if our banks are overly taxed, they might lose their competitive edge internationally, especially as they expand across Africa and generate foreign exchange for the country. This makes the tax a tricky issue.
In “Das Kapital,” Karl Marx explores the consequences of the rich and the poor coexisting in society without balance. He argues that society is divided into two main classes: the bourgeoisie (the rich) and the proletariat (the poor). Marx believed the bourgeoisie exploit the proletariat by paying them less than the value of their labor, generating profits for themselves. In modern Nigeria, given the large profits banks are reporting, they could be seen as the bourgeoisie, extracting value from the Nigerian banking public, who resembles the proletariat. This concentration of wealth among banks supports Marx’s view that capitalism leads to wealth concentration in the hands of a few, while the majority remain poor and powerless, potentially leading to unrest.
We saw a glimpse of such unrest during the naira redenomination exercise introduced by the CBN in 2019, which caused a severe naira shortage. Bank managers hoarded the currency in their vaults, selling it at a premium. Public anger was also directed at POS operators who charged high fees for naira withdrawals.
My aim was to apply Marx’s concepts of exploitation, surplus value, and class struggle to Nigeria’s current situation, where the CBN has had to intervene to prevent public anger against banks, bankers, and related services like POS operators.
Overall, Marx’s ideas about the exploitation of the proletariat by the bourgeoisie are relevant to Nigeria’s banking system, where banks appear to be profiting significantly while much of the population remains economically marginalized. The naira redenomination exercise and the resulting public anger towards bankers and POS operators highlight the tensions between these classes. The CBN might be trying to diffuse this tension through the profit tax on banks, which is now causing discomfort for financial institutions, especially deposit money banks.
The banks’ difficulties are compounded by the timing of this policy, which coincides with a new CBN recapitalization requirement. Banks must now increase their capital base to N500 billion for an international licence and N200 billion for a national licence, prompting them to scramble to raise funds from the Nigerian public, who are currently facing high inflation nearing 40%.