Some financial experts have urged the Federal Government to reconsider the imposition of a 70 per cent foreign exchange (forex) windfall levy on banks.
They specifically called on President Bola Tinubu to withhold his assent to the Finance Act (Amendment) Bill 2024, which the National Assembly passed.
The Bill increased the windfall levy on banks’ foreign exchange revaluation gains from the President’s proposed 50 per cent to 70 per cent.
Last week, President Tinubu submitted a supplementary budget proposal to the National Assembly. The proposal seeks to increase the 2024 budget by N6.2 trillion, raising it from N28.7 trillion to N34.9 trillion.
To fund this supplementary budget, the government proposed an amendment to the 2023 Finance Act to include a 50 per cent one-off tax on forex revaluation gains by banks for the 2023 business year.
The forex revaluation levy, also known as a windfall tax, is intended to finance various initiatives under the Renewed Hope programme including infrastructure projects, education, and healthcare.
However, the National Assembly, in passing the Bill on Tuesday, increased the forex windfall levy to 70 per cent, with retroactive application from January 1, 2023.
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.
The Chartered Institute of Bankers of Nigeria (CIBN), the umbrella body for bankers, stated that implementing 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 per cent 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 of 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 fair hearing on this,” Bolarinwa, who leads the umbrella body for spokespersons for all banks,” he said.
A former President of the Chartered Institute of Stockbrokers (CIBN), Mr. Olatunde Amolegbe, said the forex windfall levy could be counterproductive and hurt the ongoing banking recapitalisation, 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 recapitalisation may send 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 two steps backward,” Amolegbe, Managing Director of Arthur Steven Asset Management, said.