Nigeria’s 70% windfall bank tax: Rewarding effort, taxing Luck 

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In 2023, Nigeria’s President Bola Tinubu introduced major economic reforms, including removing fuel subsidies and liberalizing the forex market.

These reforms, while intended to strengthen the economy, had varying effects across sectors. Banks, benefiting from the forex market liberalization, saw significant windfall profits due to the revaluation of foreign exchange holdings.

In contrast, sectors like agriculture and manufacturing faced higher inflation and increased borrowing costs.

To restore economic balance, the Nigerian government plans to introduce a windfall tax on banks. This tax aims to capture profits arising from policy shifts, not from innovation or productivity gains. A windfall tax is a levy imposed on sectors that disproportionately benefit from external factors, such as policy changes. Similar taxes have been applied globally, including recent examples in Europe’s energy sector.

By taxing realized gains—those that have been actually earned rather than paper profits—the government seeks to address fiscal deficits while ensuring fair contribution from the financial sector.

The windfall tax on banks is seen as a practical solution to alleviate economic pressures, fund social programs, and promote fiscal responsibility during this period of economic transition.

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