The Chartered Institute of Directors Nigeria (CIoD) has asked the Federal Government to reconsider the bank windfall tax on profits generated from foreign exchange transactions.
In a statement signed by Bamidele Alimi, director-general/CEO, CIoD, the group said the policy is against the overriding philosophy of Nigeria’s tax policy, which is grounded in the principles of equity, efficiency, and simplicity, aiming to create a fair and transparent system that supports economic growth and development.
“As the bastion of corporate governance in Nigeria, we noted with concern the impact of the recent Federal Government policy, imposing a 70 percent windfall tax on profits generated from foreign exchange transactions by banks from 2023 to 2025.
“While we recognize the urge to rejig the economy on record time and the importance of this tax policy in fostering economic stability, we believe that the windfall tax is ill-timed, excessively high, and not fit for purpose given current economic realities,” CloD said.
The directors said the Nigerian tax policy is geared towards creating an enabling environment for businesses to thrive, promoting investment and fostering economic diversification, urging the government to apply caution.
“While this Bank Windfall Tax may have been implemented successfully in some advanced countries, it is not enough reason for a wholesome application in Nigeria at the moment, because it negates the overriding philosophy of Nigeria’s Tax Policy.
“Having to remit windfall tax for the 2023 financial year when audited reports have been submitted and dividends allocated to shareholders is ill-timed.
“The financial year of banks ends in December 2023. Expectedly, banks are to submit their Audited Reports to the Central Bank of Nigeria (CBN) and other stakeholders by 31st of March 2024 and publish not later than 21 days after submission.”
The group noted that all the banks must have moved on from their 2023 financials and allocated dividends to shareholders to avoid sanctions.
It said that to have banks remit the 2023 windfall tax on foreign exchange transactions, after all these activities, is nothing but retroactive.
The group noted that banks are currently engaged in recapitalisation to meet the Central Bank of Nigeria’s (CBN) minimum capital requirements, stressing that the imposition of such a high tax could divert essential funds away from these efforts, hampering banks’ ability to strengthen their capital bases.
“This is particularly concerning given the strict definitions of paid-up share capital, which leaves banks with limited options for raising necessary funds. A high windfall tax could lead to a decline in share prices, further complicating their financial stability,” it said.
The group further said that the high windfall tax can reduce the lending capacity of banks, as excessive tax burden on banks could lead to a reduction in available capital for lending, thereby slowing down economic activities.
“This could have a ripple effect on various sectors of the economy, ultimately stalling growth and development.”
The directors said high windfall tax has the potential to inhibit the financial inclusion drive, as banks, like any business, may pass on the additional costs incurred from the windfall tax to their customers.
“We urge the government to reconsider the policy, to find a balance that ensures both revenue generation and the continued growth and stability of the banking sector,” CIoD said.
