Following the passage of the Finance Act (Amendment) Bill 2024 by the National Assembly on Tuesday, where the levy on forex revaluation gains, otherwise known as windfall, was increased to 70 per cent, stakeholders have called on President Tinubu to withhold his assent to the levy.
President Tinubu recently 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 percent, one-off tax on forex revaluation gains by banks during the 2023 business year. The levy will be used to finance ‘Renewed Hope’ infrastructure projects, education, and healthcare, among others.
However, stakeholders in the Nigerian financial sector urged the Federal Government to reconsider the imposition of a 70 percent foreign exchange (forex) windfall levy, noting the counterproductive effect in light of the critical contributions of the banks to the ongoing economic reforms and the current banking recapitalization exercise.
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.
In a statement signed by its president, Professor Pius Olanrewaju, CIBN noted that the forex windfall tax could exacerbate currency volatility due to reduced market participation, with the potential to destabilise the economy.
President, Association of Corporate & Marketing Communication Professionals of Banks (ACAMB), Rasheed Bolarinwa, also observed 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, while also noting that, with the ongoing recapitalization, which is also aimed at supporting the government’s $1 trillion economic agenda, banks need more monetary and fiscal incentives now.
CIBN stated that the forex windfall tax could amount to double taxation as banks have paid 30 per cent income tax when they filed their 2024 tax while cautioning 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 they may be looking towards foreign investors.
Mr. Olatunde Amolegbe, the MD/CEO of Arthur Steven Asset Management Limited, and a past president of the Chartered Institute of Stockbrokers, said the forex windfall levy could be counterproductive and have a negative effect on the ongoing banking recapitalization, which was intended to boost the government’s $1 trillion economic agenda.
According to him, imposing such a levy in the middle of ongoing banking recapitalization may send the wrong signals to investors and impinge on the ability of banks to raise much-needed capital.
“We also have to be very mindful of the impact on the liquidity ratio of these banks, many of which are finding things tough due to the tight monetary stance of the CBN. There is a need for caution here. In business, as in life, timing is everything. It will appear we are moving one step forward and two steps backwards,” he said.
Managing Director, HighCap Securities, Mr. David Adonri, said the forex windfall levy amounts to the expropriation of shareholders’ wealth.
It defeats the purpose of making banks strong enough to support the envisaged $1 trillion economy, an objective that is compelling banks to recapitalize, Adonri said.
According to him, it was unfair to deny shareholders, who would have borne the brunt in the event of losses, direct benefits from forex gains on the one hand, and for the government to seek to appropriate such on the other hand.
KPMG stated in a commentary that, while it may be understandable why the government has opted for the windfall tax on realised forex profits, the government needs further consultation to secure the necessary buy-in of the banks.
Experts at KPMG noted that there are many issues that the proposed implementation of the windfall levy will trigger, therefore calling for careful examination of these issues before the enabling law is enacted.
According to KPMG, it is always important that any proposed change in tax law or policy be subjected to a period of technical consultation. This will provide the government with the opportunity to obtain feedback from all stakeholders and timely address unintended consequences.
Experts at Afrinvest West Africa said while the government is constitutionally empowered to impose taxes, including on windfall gains, to strengthen fiscal accounts, the timing of the policy’s announcement is problematic.
They added that there is a need for clarification on the windfall tax adjustments to be made for banks that have already remitted income tax for 2023. “Given the five-month window for compliance, the federal government should provide a clearer template that would take into consideration some of the nuances around implementing the tax.”
Also, international ratings agency Moody’s Investor has said the windfall tax on banks in Nigeria as proposed by the federal government is expected to yield 0.3 per cent of the government’s tax revenue to GDP, adding that this will negatively impact banks and their ability to lend.
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