Bank Directors Say 70 Per Cent Windfall Tax Burdensome, Ill-Timed

Bank Directors Association of Nigeria (BDAN) has urged the federal government to reconsider the recently imposed 70 percent windfall tax on profits from foreign exchange transactions by banks.

This tax, set to be enforced from 2023 to 2025, has raised significant concerns within the banking sector, particularly regarding its timing and potential impact on ongoing recapitalization efforts.

In a statement signed by Mustafa Chike-Obi, chairman, BDAN, the association acknowledged the government’s intentions but described the tax as “excessively burdensome and ill-timed.”

BDAN emphasized that the high tax rate could hinder growth and innovation within the banking industry, ultimately affecting the quality of financial services available to customers and the broader economy.

Chike-Obi stressed the importance of greater consultation and dialogue between the government and banking sector stakeholders before implementing such significant changes.

The statement reads: “We, the Bank Directors Association of Nigeria (LTD/GTE), wish to formally address the recent imposition of a 70 percent levy on profits realized from foreign exchange transactions by banks for the financial years 2023 to 2025.

“We acknowledge and respect the government’s intentions in implementing this decision; however, we believe it is crucial to express our concerns regarding the magnitude of the levy, its timing, and the ambiguities surrounding its implementation.

“While the imposition of this windfall tax seems to be a response to the current economic climate, we suggest that a 70 percent tax rate is excessively burdensome and ill-timed, particularly considering the ongoing bank recapitalization 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 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.”

BDAN also expressed concern over ambiguities in the amendment’s language, 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, and the National Information Technology Development Levy (NITDL), among others.

“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 added.

The association 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 is also crucial to reassure the banking community that future levies and taxes will not be arbitrarily imposed.”

Chike-Obi, who is also 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 also commended the Central Bank of Nigeria for recent efforts in stabilizing the banking sector, stating that they remain committed to supporting and collaborating with regulators, government entities, and other stakeholders to find solutions that benefit all parties involved.