The Bank Directors Association of Nigeria (BDAN) has expressed strong concerns over the recent imposition of a 70% tax on banks’ foreign exchange (FX) gains, labeling the measure as excessively burdensome and ill-timed.
The association, in a statement signed by its Chairman, Mustafa Chike-Obi, called on the National Assembly to reconsider the amendment to the Finance Act 2023 and to engage in meaningful dialogue with stakeholders in the banking sector.
In the statement, BDAN stated, “We, the Bank Directors Association of Nigeria (BDAN), wish to formally address the recent imposition of a 70% levy on the profits realized from foreign exchange transactions by banks for the financial years 2023 to 2025. We acknowledge and respect the intentions of the government in implementing this decision; however, we feel it is essential to express our concerns regarding the magnitude of the levy, its timing, and the ambiguities surrounding its implementation.”
BDAN emphasized that while the tax might be intended as a response to the current economic climate, the association considers the 70% rate to be disproportionately high.
“While the imposition of this windfall tax appears to be a response to the current economic climate, we suggest that a 70% tax rate is excessively burdensome and ill-timed, in particular, considering the ongoing bank recapitalization efforts. Such a high levy has the potential to stifle growth and innovation within the banking sector, ultimately affecting the quality of services we provide for our customers and the broader economy,” the statement read.
The association also raised concerns about the lack of consultation with stakeholders before the enactment of this significant amendment to the Finance Act 2023.
“Moreover, we believe that it is vital for all stakeholders in the banking sector to have been consulted prior to the enactment of such significant changes in the Finance Act 2023. Open dialogue and negotiation are essential to ensure that policies are both equitable and effective,” BDAN stated.
Another significant issue highlighted by BDAN is the ambiguity in the language of the amendment, which raises several critical questions.
“A primary concern lies in the ambiguities of the language in this amendment, which leave critical questions unanswered, such as whether the windfall tax will be implemented as a total tax charge on banks, incorporating other taxes already levied such as Company Income Tax, Tertiary Education Tax, National Information Development Levy (NITDL), etc.”
The association also requested clarification on what constitutes “FX transactions” to be taxed and how banks that incur losses during this period would be treated.
“We also request clarification on what constitutes ‘FX transactions’ to be taxed and the treatment of banks that may incur losses rather than gains during this period. We urge the government to provide clear guidelines on this matter to avoid further uncertainty.”
BDAN pointed out that Nigerian banks are already among the most heavily taxed in the world, partly due to the Asset Management Corporation of Nigeria (AMCON) levy imposed on their total assets.
The association recommended that future tax policies consider a consolidation of all taxes and fees imposed on banks.
“Additionally, it’s important to highlight that Nigerian banks are amongst the most heavily taxed in the world due to the burden of the AMCON levy which is imposed on the total assets of banks. We therefore recommend that a consolidation of all taxes and fees imposed on banks be thoroughly considered in the future.”
In closing, BDAN urged the National Assembly to revise the amendment and engage with the banking sector to develop a more balanced approach.
“In view of these concerns, we respectfully urge the National Assembly to revise this amendment and engage in constructive discussions with stakeholders in the banking sector. By collaborating, we can develop a framework that effectively balances the need for revenue generation with the imperative of fostering a thriving banking environment that supports sustainable economic growth.”
Finally, BDAN commended the Central Bank of Nigeria for its recent efforts to stabilize the banking sector, expressing its commitment to working with regulators, government entities, and other stakeholders to find mutually beneficial solutions.
“We commend the Central Bank of Nigeria for their recent efforts in stabilizing the banking sector. We remain committed to supporting and collaborating with regulators, government entities, and other stakeholders to find solutions that benefit all parties involved,” the statement concluded.