Seven Nigerian banks are lobbying President Bola Tinubu for a reduction in the windfall tax on foreign exchange profits, with concerns over its impact on capital adequacy and the economy.
Executives from seven major Nigerian banks are currently lobbying President Bola Tinubu and government officials to review the 70% windfall tax on profits generated from foreign exchange transactions.
This tax was introduced as part of the government’s efforts to raise additional revenue following the naira’s devaluation in 2023.
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The tax, which targets substantial profits from foreign exchange revaluation gains, was proposed by Tinubu in mid-July as part of the 2023 Finance Act amendment.
The measure aims to generate funds for key infrastructure, education, and healthcare projects under his Renewed Hope Agenda. However, despite being announced four months ago, the government has yet to receive any payments from the affected banks.
The banking chiefs, including prominent figures like Tony Elumelu of UBA and Ladi Balogun of FCMB, are particularly concerned about the 70% levy, which was increased from an initial 50% by the National Assembly after the third reading of the bill.
This increase has left banks unwilling to comply with the full tax amount, with some executives citing its disproportionate burden on the sector.
According to a government source, discussions with President Tinubu and his team have been ongoing for several months, but the president has yet to make a definitive decision, leaving the situation in limbo.
“The banks were shocked when the National Assembly raised the tax to 70%, and they are not willing to pay that amount,” the source said.
The windfall tax applies specifically to the significant foreign exchange gains banks made due to the naira’s devaluation in 2023, which saw the currency lose 37% of its value in June of that year.
The government had estimated that the seven banks would contribute over N425 billion in tax revenue, with some sources suggesting that the amount could reach N1 trillion.
Despite the lack of payments, the government remains determined to collect the tax. A report from Moody’s, an international ratings agency, indicated that the tax would have a negative impact on banks with capital adequacy ratios close to regulatory thresholds.
The agency warned that while the tax could yield significant revenue for the government, it may also discourage foreign investment in Nigeria’s banking sector.
Banking experts, including Prof. Pius Olanrewaju of the Chartered Institute of Bankers of Nigeria, have criticized the windfall tax, arguing that it unfairly targets the banking sector without similar levies on other industries that also benefitted from the foreign exchange market conditions.
Olanrewaju also expressed concerns that the tax could deter foreign investment at a time when banks are being urged to raise capital.
As of the latest reports, the Nigerian government has yet to receive any windfall tax payments. The Medium Term Expenditure Framework (MTEF) report, which outlines the government’s fiscal strategy, confirmed that the anticipated revenue from the windfall tax has not been realized, posing a challenge to the country’s budget targets.
In the meantime, the Central Bank of Nigeria (CBN) has warned banks against using foreign exchange revaluation gains for dividend payments or operational expenses.
This policy aims to ensure that the banks retain these gains as reserves to mitigate future exchange rate risks.
Despite these hurdles, the government remains optimistic that the situation will be resolved soon, and that banks will eventually comply with the windfall tax payments, though the exact percentage remains uncertain.
