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The Federal Government is set to collect over N425bn from seven banks as a one-time windfall tax on their foreign currency revaluation gains for the 2023 financial year.

On Wednesday, the Senate approved President Bola Tinubu’s request to amend the Finance Act to impose a one-time windfall tax on banks’ foreign exchange profits in 2023.

A windfall tax is a higher tax levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions.

Findings by The PUNCH from the annual reports of the financial institutions filed with the Nigerian Exchange Limited showed that the seven banks recorded about N851bn in foreign currency gains at the end of the review year.

The banks include Guaranty Trust Holding Company, United Bank for Africa, Access Holdings, FCMB Group, FBNHoldings, Zenith Bank, and Fidelity Bank Plc.

In its 2023 results, GTCO recorded a foreign exchange revaluation gain of N441.79bn, higher than N57.94bn as of the end of 2022. This marked a 662 per cent increase year-on-year.

UBA reported a forex revaluation gain of N26.58bn, also an increase from N5.74bn in the previous year.  Access Holdings’ total net foreign exchange gain stood at N17.25bn at the end of December 2023, lower than N34.50bn in 2022.

The FCMB Group reported N83.96bn in foreign exchange gains, a northward movement from the N4.29bn in 2022. Throwing more light on the FX gain, FCMB said, “Foreign currency revaluation gain represents gains realised from the revaluation of foreign currency-denominated assets and liabilities held in the non-trading books.

“The Central Bank of Nigeria adopted a more liberal foreign exchange management system in 2023, which resulted in a significant movement in the naira exchange rate against the US dollar from N461.1/US$ in December 2022 to N951.79/US$ (Nigerian Autonomous Foreign Exchange Rate Fixing) in December 2023.

“The impact of this foreign currency revaluation of net foreign currency-denominated assets and liabilities held in the non-trading books is represented as foreign exchange gains for the year ended 31 December 2023.”

FBN Holdings in its annual report recorded N8.77bn as foreign exchange trading gain, lower than N23.33bn in the previous year.

Zenith Bank in its books posted a foreign currency revaluation gain valued at N228.98bn, indicating an 808.58 per cent increase from N25.20bn in the previous year, while that of Fidelity Bank stood at N44.09bn higher than N2.68bn at the end of 2022.

In a letter seeking the amendment of the Finance Act 2023, Tinubu sought to impose and charge windfall tax on banks to provide for the administration of the tax and matters related thereto.

According to the government, the amendment seeks to provide for a one-off tax of 50 per cent on the realised foreign exchange profits of the banks.

The Federal Inland Revenue Service will assess and collect the amount due, though the banks have the option to settle the windfall tax in instalments with approval from the FIRS.

Where a bank has not executed an instalment plan or paid the additional tax due, such bank will be guilty of an offence and shall, on conviction, be liable to pay the tax due plus a penalty of 10 per cent per annum and interest at the prevailing Central Bank of Nigeria’s minimum rediscount rate.

The principal officers of such defaulting banks may also face imprisonment for not more than three years, the new amendment seeks.

The tax will help “fund capital infrastructural development, education and healthcare access as well as public welfare initiatives all of which are essential components of the Renewed Hope Agenda,” Tinubu had stated in the letter to the Senate, read on the floor of the upper parliament on Wednesday by the Senate President, Godswill Akpabio.

The bill was given an expeditious treatment passing both the first and second readings. Thereafter the bill was forwarded to the Senate Committee on Finance and asked to revert in one week.

Reactions have trailed the decision of the Federal Government to impose a windfall tax on the banks.

In a flash note, KPMG Partner and Head, Tax, Regulatory and People, Wale Ajayi, raised concerns about the impact of the move on the banks.

He said, “Nigeria’s tax policy frowns at retroactive application of tax laws. It is, therefore, surprising, that the government has chosen to implement this windfall tax retroactively. Moreover, many of these banks have submitted their tax returns for the 2023 financial year and have settled the resultant liability.

“The impact of this retroactive application may raise constitutional concerns as it may violate the principle of legitimate expectations. It will, therefore, not be surprising if the implementation leads to legal disputes and challenges. Retroactive tax laws can discourage investment as potential investors may perceive the Nigerian tax system as unpredictable.

“The uncertainty will make it challenging for businesses to anticipate their tax obligations and may be suspicious that the tax will be repeated in future. Today, it is the banking sector. Who says that it cannot be extended to other sectors tomorrow?

“The proposed law imposes a 50 per cent tax on realised forex gains of banks. However, in their 2024 tax returns, these banks would have paid 30 per cent income tax on such profits. The question, therefore, is whether such banks would only pay an additional 20 per cent on such profits. This needs to be clarified to avoid unnecessary disputes and double taxation; otherwise, the same income would be taxed twice.”

Speaking with The PUNCH, the President of the Association of Senior Staff of Banks, Insurance and Financial Institutions, Olusoji Oluwole, said, “We find this as another knee-jerk approach towards reviving the economy. Banks have already filed their tax returns, approved audited accounts, and closed their books for the year.”

Oluwole noted that it was also worrisome that banks were made the target of this action despite not being the only institutions with such revaluation gains.

“Meanwhile, we are bothered at the impact this action could have on investors in banks at a time when banks are expected to be raising fresh capital. Same fears apply to new investors who may fear such impositions on their businesses by the government,” he mentioned

“We trust that there will be a wider and more objective consultation with the industry leaders and economic experts in arriving at a more reasonable and beneficial decision,” Oluwole added.

On his part, the President of the National Union of Banks, Insurance, and Financial Institutions Employees, Anthony Abakpa, said, “If the Federal Government imposes the windfall tax, businesses will not flow and that is the reality. And the proposed windfall tax on FX gains on banks will make people run away.”

Afrinvest in its weekly economic report posited that the timing of the policy’s announcement was problematic, “as its abruptness naturally creates a sense of uncertainty and unpredictability among investors and industry practitioners. In summary, lingering concerns about uncertainty around the sector could present some headwinds amid the ongoing recapitalisation exercise.”

It stated that there is a need for clarification on the windfall tax adjustments to be made for banks that already remitted income tax for 2023.

“Given the five-month window for compliance, the Federal Government should provide a clearer template that would take into consideration some of the nuances around implementing the tax,” it stated.