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Bank Directors Express Concern Over 70% Windfall Tax Amid Recapitalization Drive

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Bank Directors Decry 70% Windfall Tax as Excessive, Ill-Timed Amid  Recapitalisation Efforts - Arise News
The Bank Directors Association of Nigeria (BDAN) has voiced its apprehension regarding the recent imposition of a 70% windfall tax on profits derived from foreign exchange transactions by banks.
 The tax, slated to be effective from 2023 to 2025, has sparked unease within the banking industry, with concerns raised about its timing and potential impact on the ongoing efforts towards recapitalization.
In a statement released by Mustafa Chike-Obi, the Chairman of BDAN, the association called upon the federal government to reconsider the implementation of the tax, citing it as “excessively burdensome and ill-timed.”
While acknowledging the government’s objectives behind the levy, BDAN emphasized that the high tax rate could impede growth and innovation in the banking sector, consequently affecting the quality of financial services provided to customers and the overall economy.
Chike-Obi emphasized the necessity for enhanced consultation and dialogue between the government and stakeholders in the banking sector before enacting such significant policy changes.
The BDAN highlighted the potential adverse effects of the 70% tax on profits from foreign exchange transactions, especially in light of the ongoing initiatives aimed at recapitalizing banks.
“We, the Bank Directors Association of Nigeria (LTD/GTE), wish to formally address the recent introduction of a 70% levy on profits derived from foreign exchange transactions by banks for the financial years 2023 to 2025. While we acknowledge and appreciate the government’s intentions in making this decision, we believe it is crucial to express our reservations concerning the magnitude of the levy, its timing, and the uncertainties surrounding its enforcement,” Chike-Obi stated.

“While the imposition of this windfall tax appears to be a response to the current economic climate, we suggest that a 70 per cent tax rate is excessively burdensome and ill-timed, particularly considering the ongoing bank recapitalisation 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 to our customers and the broader economy.

“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.

“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.

“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.”

The statement further noted that Nigerian banks are already among the most heavily taxed globally, citing the existing AMCON levy imposed on total bank assets. BDAN urged the government to consider consolidating all taxes and levies on banks in the future to alleviate the sector’s tax burden.

“It would also be critical to reassure the banking community that future levies and taxes will not be arbitrarily imposed.”

Speaking further, Chike-Obi who is the Chairman of Fidelity Bank added: “In view of these concerns, we respectfully urge the National Assembly to revisit 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.”

The association further commended the Central Bank of Nigeria for recent efforts in stabilising the banking sector, stated that they remain committed to supporting and collaborating with regulators, government entities, and other stakeholders to find solutions that benefit all parties involved.

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