The Nigerian government plan to borrow unclaimed dividend, dormant bank accounts balances has left the financial space unsettled, says Greenwich Merchant Bank group in a report.
Godwin Emefiele, CBN Governor

Nigeria’s Plan to Borrow Dormant Accounts, Unclaimed Dividend Unsettle Banks

The Nigerian government plan to borrow unclaimed dividend, dormant bank accounts balances has left the financial space unsettled, says Greenwich Merchant Bank group in a report.

Analysts at Greenwich express view that the plan poses a challenge for the banking industry, together with the stiffer regulatory actions and lower yielding environment that has impaired growth in the industry.

Specific provision in the Finance Act 2020 allows government to borrow from with unclaimed dividends.

Meanwhile, total unclaimed dividend is currently estimated at NGN168.44 billion, and funds from dormant account projected at a significant balance (based on bank deposits pegged at about NGN50 trillion)

The firm believes that this will provide some level relief for the fiscal authorities in the face of the country’s projected deficit of NGN5.71 trillion and its huge debt obligations which stands at NGN32.22 trillion, as of Q3:2020.

Similarly, analysts ask Federal Government to reconsider 35% duty demanded on importation of used cars to ease pressure on the masses.

Speaking to the 2020 Finance Act, Greenwich seek adjustment to high duty on used cars at least till automobile industry scale up production.

According to analysts, scaling up production in the industry would narrow demand gap and this is expected to reduce importation of used cars.

In its commentary, Greenwich said the concept of the finance bill has been most prominent and increasingly recognised to consolidate macro-economic effects.

The firm note that though much progress has not been recorded in that regard.

It said the 2020 finance bill seeks to provide more tax incentives to smaller businesses to mitigate the effect of a rather stringent operating environment, worsened by the covid-19 pandemic.

There are stand-out policies like the reduction on import duty and levies on motor vehicles.

2020 Finance Act also provides cutback on minimum taxes, and further tax reliefs granted to companies that donated Covid-19 relief funds.

Greenwich said this should augur well for the business terrain, however, others like the FG’s intent to borrow from unclaimed dividend and dormant bank account balances has left the financial space unsettled.

 “We believe this poses a challenge for the banking industry, together with the stiffer regulatory actions and lower yielding environment that has impaired growth in the industry.

“Hence, we expect more pressure on the banks’ balance sheets, as they utilize their available resources and leverage on their distinctive competencies to shore up their bottom-lines and maintain capital requirements.

“In addition, we envisage credit expended to the real sector will slow, with more credence given to big-ticket players in the sector”, Greenwich said.

Unclaimed dividends is estimated at NGN168.44 billion, and funds from dormant account projected at a significant balance (based on bank deposits pegged at c. NGN50trn).

With the provision in the Finance Act, analysts believe this will provide some level relief for the fiscal authorities in the face of the country’s projected deficit of NGN5.71trn and its huge debt obligations.

According to Debt Management Office, total public debts stand at NGN32.22 trillion, as of third quarter of fiscal year 2020.

Analysts said: “While we await more clarity along these lines, there is a need to secure more sustainable avenues to shore up the limp stature of revenue and dampen social tensions in the economy”.

On December 31, 2020, President Muhammadu Buhari signed into law the 2020 Finance bill, alongside the 2021 Appropriation Bill.

The Finance Act which came into effect on January 1, 2021 provided an executive backing to loads of amendments made on some salient laws that govern the business and economic sphere.

However, the Act 2020 amended certain provisions in the Capital Gains Tax Act, Companies Income Tax Act, Customs and Excise Tariff, Value Added Tax Act, Companies and Allied Matters Act, Stamp Duties Act, among others.

Notwithstanding the flurry of adjustments, a key provision is the exemption of minimum wage earners (at NGN30,000) or less from Personal Income Tax. 

Also, a Crisis Intervention Fund was also set up by the Act to house NGN500 billion or any amount authorized by the National Assembly.

The Finance Act 2020 provides that; in a bid to meet any crisis-related expenditure, the Crisis Intervention Fund will be deployed and will have a sub-fund called an Unclaimed Funds Trust Fund.

Hence, unclaimed dividends of any listed company quoted on the Nigerian Stock Exchange (NSE) and any unutilized sum left in dormant accounts with Deposit Money Banks for 6 years and more will be transferred to the Unclaimed Funds Trust Fund.

It specifically provides that unclaimed dividend or monies in dormant accounts would be a special debt owed by the FG and repayable with yields on call.

Explaining further, analysts said another important adjustment made is that the compensation for loss of office up to NGN10 million will not be chargeable gains and subject to tax.

Excess amount above NGN10 million is however expected to be taxed.

Furthermore, the minimum tax for companies was slashed to 0.25% of gross turnover from 0.5% less franked investment income for tax returns prepared and filed for the accounting period starting 1st January 2020 through 31st December 2021.

SMEs in the primary agricultural production business are also expected to enjoy a 4-year tax free period, which could be extended by an additional two years, according to the Act.

Under “Customs and Excise Tariff (Consolidation) Act”, telecommunication services provided in Nigeria should be subject to excise duties.

Meanwhile duty on tractors has been slashed from 35% to 5%, motor vehicles for transport of more than 10 persons (35% to 10%), levy on motor vehicles for transport of persons (Cars) (30% to 5%) and duty on those for transport of goods (35% to 10%) were all lowered.

Read Also: Understanding Key Changes in Nigeria’s Finance Act 2020

Nigeria’s Plan to Borrow Dormant Accounts, Unclaimed Dividend Unsettle Banks