Senate increases windfall levy on Banks’ forex gains to 70%

The Nigerian Senate on Tuesday approved the amendment bill of the 2023 Finance Act, increasing the windfall levy on banks’ foreign exchange revaluation gains from the proposed 50% to 70%.

The amendment, presented by the Chairman of the Senate Committee on Finance, Sen. Sani Musa, was passed after extensive deliberation.

Sen. Aminu Waziri Tambuwal raised concerns about the retroactive nature of the amendment, leading to a change in the commencement date of the amended act from January 1, 2023, to the start of the new foreign exchange policy.

The policy, introduced by the Central Bank of Nigeria (CBN) on June 14, 2023, unifies all segments of the foreign exchange market.

The Senate also extended the timeline for the application of the windfall levy. Initially set to end in 2023, the levy will now apply to all profits from foreign exchange transactions from the beginning of the new forex policy through the 2025 financial year.

In addition, the Senate approved the amendment bill of the 2024 appropriation act, adding N6.2 trillion to the 2024 budget for recurrent expenditure. This includes payments for the new N70,000 minimum wage and infrastructure projects under the Renewed Hope initiative.

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President Bola Tinubu had previously requested the Senate to amend the 2023 Finance Act to introduce a one-time windfall tax on the foreign exchange revaluation profits of banks for the 2023 financial year.

The amendment specifies that banks failing to remit the required amount will face a 10% penalty and interest at the CBN’s minimum discount rate, with key officials potentially facing imprisonment.

The proposal has sparked debate about its timing and legality. KPMG Nigeria criticized the 50% windfall tax on banks’ forex revaluation gains, warning it could lead to legal disputes and emphasizing that Nigeria’s tax policy does not support retroactive taxes. PwC Nigeria expressed concerns that the unpredictability of the windfall tax on already reported profits for 2023 could discourage investments.

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Prominent lawyer Dr. Olisa Agbakoba called the proposed amendment ill-conceived and beyond the scope of the National Assembly, suggesting the burden would ultimately fall on the banks’ customers.