The executives of seven Deposit Money Banks are currently lobbying President Bola Tinubu over the 70 per cent mandatory windfall tax payment on profits generated by the banks from foreign exchange transactions, The TheNigerian reports
The bank chiefs, who are also discussing with government officials, are advocating a review or reduction in the windfall tax charged on the realised foreign exchange gains of the banks occasioned by the devaluation of the naira last year.
This comes as the newly released 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy Paper revealed that the banks are yet to remit a single naira to the government despite its announcement four months ago.
In mid-July, President Tinubu introduced a one-time windfall tax aimed at the substantial foreign exchange gains reported by banks in 2023.
He proposed this tax as part of an amendment to the 2023 Finance Act, seeking to generate additional revenue for crucial infrastructure, education, and healthcare projects under his Renewed Hope Agenda.
A windfall tax is a higher tax levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions.
The tax specifically targets the significant profits banks made due to the naira’s devaluation in 2023 and a move to raise tax revenue’s share of the gross domestic product to 18 per cent from 11 per cent within three years. The amount was scheduled to be used to finance the 2024 supplementary budget.
Although Tinubu, in the bill sent to the National Assembly, proposed a 50 per cent payment, the Senate, after the third reading increased the levy charge to 70 per cent due to the disdain of the banking sector. Tinubu is yet to grant presidential assent to the bill.
Also, an analysis of the bank’s financial statement had projected that the government would collect over N425bn from seven banks, but a top government official close to the development informed The TheNigerian that the government is expected to rake in N1tn from the remittance.
The source, who spoke on the condition of anonymity, due to non-authorisation to speak to media on the issue, stressed that lobbying has been going on for months, with President Tinubu not giving a definite response on the issue and leaving those involved uncertain about the government’s stance and direction.
This was even after a closed-door meeting with a team, including the Chairman of the United Bank for Africa Chairman, Mr Tony Elumelu, and the Group Chief Executive Officer of First City Monument Bank, Ladi Balogun, on July 31, 2024.
The official noted that the affected banks are not willing to pay the approved amount, hence the extended discussions.
The source said, “Bank chiefs have been going to the Presidency to lobby the President and other top officials to reduce the tax.
“Banks were shocked when the National Assembly raised the tax to 70 per cent to the Federal Government, and 30 per cent to banks. So, the banks are not willing to pay 70 per cent of the forex gain tax to FG. Remember it is a one-off tax. This was the reason the Finance Act had to be amended.”
Recall that last September, the Central Bank of Nigeria forbade banks from using their foreign exchange revaluation gains for dividend payment purposes, stating that such income should be set aside as rainy-day savings that would help lenders mitigate future foreign exchange risks.
In another circular issued on March 15, 2024, the CBN reiterated that the revaluation gains should not be used to pay dividends or operating expenses.
It stated, “Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movement in the FX rate.
“In this regard, banks shall not utilize any such revaluation gains to pay dividends or meet operating expenses.
The source further affirmed that the government utilized the circular as a strategic measure to prevent any obstacles in implementing new policies, thereby making it easier to impose taxes on the banks and ensure compliance.
“Remember, it was the policy on the exchange rate that made the banks make this humongous profit. CBN in its circular last year had warned the banks against spending the forex gain.
“Don’t also forget that this policy of the government affected some sectors badly, especially the manufacturers.
“So, all over the world, whenever government policy affects a sector, the government must look for a means to channel funds from the benefitting sector to the losing sector. The government had to arrange some palliative measures for manufacturers.”
When asked about the likely outcome of the issue, the official said, “I believe very soon, the matter should be resolved, and banks would be asked to pay the money. The percentage is what I don’t know yet.”
Reacting to the issue, an international rating company, Moodys, in a report titled ‘Nigeria’s proposed windfall tax on foreign-exchange gains is credit negative for banks’, said, “The windfall tax will have a particularly negative effect on banks whose capital adequacy is close to regulatory thresholds. The tax follows record profits declared by banks in 2023, largely because of foreign-currency revaluation gains related to the naira’s massive devaluation of 37 per cent in June 2023.
“Eight of the nine Nigerian banks we rate reported more than N3.5tn in aggregate pretax profits in 2023 versus N1.1tn in 2022, and we estimate that over a third of the profits were from foreign-currency revaluation and trading gains.
“It is unclear, however, what proportion of the revaluation gains will be taxed, given the differences between trading and revaluation gains. Additionally, the 2023 revaluation gains include unrealised gains, which may affect how the tax is applied, particularly as the government has not been clear how the 50 per cent windfall tax will be achieved.”
According to the rating company, given that banks have already been subject to the standard 30 per cent corporate income tax rate for 2023, in a less aggressive scenario a surplus tax of 20 per cent on the FX gains would equate to the total 50 per cent windfall tax.
Moodys said the windfall tax may yield revenue of as much as 0.3 per cent of 2024 GDP to the government.
“Although this is not negligible given the government’s small tax intake of around nine per cent of GDP in 2023, it remains marginal and only a temporary revenue measure,” it stated.
The President/Chairman of Council, CIBN, Prof Pius Olanrewaju, also described the policy as discriminatory.
“This proposed tax will violate fairness and equity in taxation as banks are the only entity 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.
“Imposing taxes on foreign exchange 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.”
Meanwhile, the MTEF has revealed that the government has yet to begin implementation of the windfall tax.
The details of the report obtained by our correspondent showed that the government is yet to receive a single naira from the banks.
In its estimates, a figure of N6.28tn was listed as Additional Revenue (Windfall tax, Exchange rate differential).
Our correspondent further observed that the amount was listed as additional revenue to fund the 2024 budget but not listed for subsequent years.
The report read, “As of Aug 2024, the Federal Government achieved 73.8 per cent (that is, N12.74tn) of its targeted retained revenue of N17.25tn. The deviation is primarily attributable to the windfall tax, which has yet to be realised.”
The MTEF document further noted that the government didn’t meet its expected targets but showed promise in both revenue collection and expenditure management.
It stated, “The FY 2024 Budget Implementation review reveals promising progress in both revenue collection and expenditure management. Despite minor lags against prorated targets, the overall trajectory shows that fiscal efforts are on track, with key non-oil revenue streams performing better than anticipated.
“This improved revenue performance can be attributed to the significant reform initiatives introduced by the current administration, including enhanced tax enforcement and streamlining of public financial management systems.
“These reforms are steadily strengthening the government’s ability to mobilize resources, laying the foundation for sustained fiscal stability and growth.
“The FGN share of oil revenues was N4.09bn (75 per cent performance), while non-oil tax revenues totalled N3.81tn (a performance of 160.1 per cent). CIT and VAT collections were N1.71tn and N530.41bn, representing 74.5 per cent and 55.1 per cent above their respective targets. Customs collections recorded N969.89 billion out of N1.02tn (95 per cent of the target). Other revenues amounted to N4.83tn, of which Independent revenue was N2.30tn.”
It added that oil production shortfalls remained the most significant setback to the government’s revenue. However, higher tax revenues covered the oil revenue loss.
