President Muhammadu Buhari signed 2021 N13.588 trillion Appropriation and 2020 Finance Bills into law, saying the government deliberately chose to pursue an expansionary fiscal policy to accelerate the economic recovery process, promote social inclusion, and strengthen economic resilience.
He said that the government was intensifying domestic revenue mobilisation efforts so that adequate resources can be realised to fund the budget.
“Revenue-generating agencies, and indeed all ministries, departments, and government-owned enterprises, must work very hard to achieve their revenue targets, control their cost-to-revenue ratios, as well as ensure prompt and full remittances,’’ he said.
The amended 2020 Finance Act appears to be integral to the government’s expansionary revenue generation initiative to fund the 2021 budget.
Provisions of the new law are in line with the government’s agenda to improve the ease of doing business, promote investments and other key sectors of the economy.
Although the Act has other major amendments like exemption of low income earners on minimum wage or less from income tax and exemption of small businesses with less than N25million turnover from paying Tertiary Education Tax, the provision on unclaimed dividends and dormant bank accounts appears to have generated the most interest.
The new law provides that unclaimed dividends in a listed company and unuitilised amounts in a dormant bank account outstanding for six years or more should be transferred to a trust fund as a special debt to the federal government to be managed by the Debt Management Office (DMO).
The government expects to generate about N895billion from that particular provision of the act to fund part of the 2021 budget deficit.
While some analysts see the idea of generating revenue through unclaimed dividends and dormant bank accounts as creative and laudable, others urged caution so as not to deny innocent Nigerians of their property.
Garba Abubakar, Registrar of the Corporate Affairs Commission, CAC, expressed support for government’s plan to borrow the dividends to fund the 2021 budget deficit.
Mr Abubakar believes that such funds would be safer for the owners if borrowed by the Federal Government.
‘’It is better for government to borrow the money, especially for infrastructural development that will also benefit the people.
“So long as the funds are in the hands of the government, the owners are safe and free to come forward anytime to collect what belongs to them.
“But if the unclaimed dividends are reverted to the companies, there is every likelihood that the owners may lose out,’’ he said.
A financial expert, Okechukwu Unegbu, advised the Federal Government to observe due process in its plan to use unclaimed dividends and dormant bank accounts to finance budget deficit.
Mr Unegbu, a past President of Chattered Institute of Bankers of Nigeria, CIBN, said that the idea could deny the owners of their right of ownership.
He suggested that government should use the option of investment outlets to invest such dividends in bonds and make them profitable.
“Government should not acquire them without due process. The law provides that if after 12 years the dividend remains unclaimed it should be reverted back to the company that issued the shares,’’ he said.
He suggested the use of security to acquire dormant bank balances instead of using a trust fund, adding that the banks were to blame for leaving some accounts dormant instead of contacting next of kin of their owners.
The Socio-Economic Rights and Accountability Project, SERAP, asked government to drop the plan, describing it as illegal.
In a letter to the Federal Government, SERAP said that borrowing the funds would hurt vulnerable Nigerians and ultimately lead to unsustainable levels of public debt
The group argued that the right to property extended to all forms of property, including unclaimed dividends and funds in dormant accounts.
The government, however, explain that the funds shall be available to the shareholder or account holder at any time, together with yield.
According to the Securities and Exchange Commission, SEC, the proposal by the Federal Government to set up unclaimed dividends and balances trust fund is not a bad one.
Head, Securities and Investments Services Department, Abdulkadir Abbas, said this while making clarifications at a public hearing on the Act.
He, however, said that SEC should be allowed to continue to constructively manage the issue of unclaimed dividends for the development of the nation’s capital market.
“We are not against the proposal to set up unclaimed dividends and balances trust fund. Our concerns are with respect to the governance structure of the proposed fund and that is why we are asking for reconsideration.
“We are advocating modifications of the provisions with regards to management and governance of the trust fund to avoid possible harm to the capital market which is still struggling to survive,’’ he said.
Nigerians largely agree that government needs to seek creative ways to generate revenue and reduce its dependence on foreign debt.
Most, however, urge government to deploy such funds more efficiently to bridge the infrastructure deficit in the country and enhance economic growth.
Victor Ndakauba, Deputy Managing Director, Afrinvest, an Investment Banking Firm, advised government to consider the challenge of the “investment climate’’ in deploying the funds.
He called for a more effective collaboration with the private sector to build infrastructure that would help grow the business environment, while advising the government to step back from undertaking projects.
“Though the financial reforms may have a positive effect on the Nigerian economy, the challenges of investment climate and fiscal rules are elements for consideration.
“Government should act more from a regulatory perspective and allow the private sector to take the equity risk and leverage on that to drive efficiency,’’ he advised.
As government begin to implement the 2021 budget, with the 2020 Finance Act as an important component, Nigerians expect that the positive impact of revenue generated would be visible on economic growth.