Some financial experts have urged the Federal Government to reconsider the imposition of a 70% foreign exchange (forex) windfall levy on banks.
They urged President Bola Tinubu to withhold assent to the Finance Act (Amendment) Bill 2024 as passed by the National Assembly, which increased the windfall levy on banks’ foreign exchange revaluation gains from 50% as proposed by the President to 70%.
President Tinubu had last week submitted a supplementary budget proposal to the National Assembly. The Bill seeks to increase the 2024 budget by N6.2 trillion from N28.7 trillion to N34.9 trillion.
As part of the funding plan for the N6.2 trillion supplementary budget, the government sought an amendment to the 2023 Finance Act to include a 50%, one-off tax on forex revaluation gains by banks during the 2023 business year.
The levy on forex revaluation gains, otherwise known as a windfall, will be used to finance “Renewed Hope” infrastructure projects, education, and healthcare among others.
The National Assembly, on Tuesday, in passing the Bill, increased the forex windfall levy to 70%, with retroactive application from January 1, 2023.
“Any bank that fails to pay the windfall profit levy to the Service (Federal Inland Revenue Service), has not executed the deferred payment agreement as at the time of commencement of the regime, shall be liable to pay the windfall levy withheld or not remitted in addition to a fine of 10% of the levy withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria, minimum discount rate,” the amended Bill stated.
Stakeholders were unanimous that the forex windfall levy might be counterproductive in light of the critical contributions of the banks to the ongoing economic reforms and the current banking recapitalisation exercise.
They called on President Tinubu to again demonstrate his listening ear by withholding assent to the Bill to allow further consultation and dialogue.
Latest data from the Central Bank of Nigeria (CBN) indicated that banks’ credit to the private sector (CPS) rose by 65.9% or N29.52 trillion to N74.31 trillion in May 2024 compared with N44.79 trillion recorded in the comparable period of 2023.
The growth in lending and support to the private sector underlined the resilient balance sheet of banks and banks’ response to the apex bank’s push for increased lending to bolster economic activities.
The Chartered Institute of Bankers of Nigeria (CIBN), the umbrella body for bankers, stated that the implementation of the levy could lead to reduced investment, decreased liquidity, and increased costs and negatively impact Nigeria’s economic growth and development.
The President of CIBN, Professor Pius Olanrewaju noted that the forex windfall tax could exacerbate currency volatility due to reduced market participation, with the potential to destabilise the economy.
He stated that the forex windfall tax could amount to double taxation as banks have paid 30% income tax when they filed 2024 tax returns.
“Will this not amount to double taxation? Or the tax already paid be deducted from this new imposition? This proposed tax will violate fairness and equity in taxation as banks are the only entities singled out for this payment. This is discriminatory.
What about other sectors or businesses that have recognised the same foreign exchange gains in their books in 2023? In countries where such windfall tax has been imposed, there is always a corresponding incentive to cushion the effect on the affected entities but nothing to that effect has been stated in the proposed bill,” he stated.
Olanrewaju cautioned that imposing taxes on forex gains may deter foreign investors and negatively impact Nigeria’s investment landscape, especially at a time when banks are required to raise capital and may be looking toward foreign investors.
“The CIBN recognises the need for improving government revenue which is one of the reasons for proposing levy on forex gains of banks. As an institute, we advocate careful consideration and thorough analysis before imposing taxes on forex gains by banks.
We would, therefore, propose stakeholders’ consultations comprising the Ministry of Finance, the Central Bank of Nigeria, the banks, and other relevant stakeholders where all the parties would do a holistic review of the implications of the proposed levy on the banks.
The proposed imposition of a levy on realised forex gains of banks may not be the best way to address the forex position of banks at this time,” CIBN stated.
President of the Association of Corporate & Marketing Communication Professionals of Banks (ACAMB), Rasheed Bolarinwa, said banks have shown enormous support for the government’s economic agenda and should not be burdened with a new levy that obviously would be counterproductive at this time.
He underlined the need for further extensive consultation on the levy, urging the president to withhold assent to the bill.
He noted that, with the ongoing recapitalisation, which is also aimed at supporting the government’s $1 trillion economic agenda, banks need more monetary and fiscal incentives now.
“We shouldn’t kill the goose that lays the golden eggs. Government should have a rethink. We think further consultation is needed in this case. We know the President has a listening ear, as demonstrated on many occasions, and we expect banks should be given a fair hearing on this,” Bolarinwa, who leads the umbrella body for spokespersons for all banks, said.
