By Kolawole Ojebisi
The Nigerian Exchange Limited has revealed that six banks paid about N205.59bn as windfall tax in the 2024 financial year.
NEL stressed that its revelation was based on the audited reports filed by the banks with its management.
It further stated that banks have started to comply with the new regulation while noting that the development indicates that attempts to lobby the government to reduce the tax failed.
A windfall tax is a higher tax levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions rather than the company’s efforts.
According to NEL, the banks that have reported payments include Zenith Bank, United Bank for Africa, Fidelity Bank, Wema Bank, Stanbic IBTC Holdings, and Guaranty Trust Holding Company. The last two are the parent companies of Stanbic IBTC Bank and Guaranty Trust Bank, respectively.
The audited reports revealed that of the six financial institutions, Zenith Bank paid the highest windfall tax of N63.31bn, followed by UBA, which paid N57.91bn.
UBA indicated that the N57.91bn that the group paid was for two years, 2023 and 2024, and provided a breakdown of the payment, saying, “Following a series of engagements, provision of information, and reconciliation meetings with the Federal Internal Revenue Service, a provisional Windfall Levy of N57.91bn was estimated to be payable by the bank for the 2023 and 2024 financial years, broken down as follows: FY2023: N24.819bn and FY2024: N33.092bn.”
GTCO paid N51.25bn as a windfall tax; Stanbic IBTC Holdings paid N17.18bn, and Fidelity Bank paid N13.33bn in the 2024 financial year.
“The Act imposes a 70 per cent levy in retrospect for the 2023 financial period, 2024, and 2025 on foreign exchange gains from the impact of foreign exchange on financial instruments as a result of currency floating by the apex bank (CBN). The sum of N5.71bn of the N13.33bn relates to gains realised in the 2023 financial year,” said Fidelity Bank in its audited report.
Wema Bank paid N2.62bn as windfall levy in the 2024 financial year. The bank indicated in its annual report that this was about three per cent of its profit before tax, which was N102.52bn.
In July 2024, the National Assembly passed a bill that was assented to by President Bola Tinubu in August 2024. By the Finance (Amendment) Act 2023, the windfall tax imposes and charges a windfall levy on money deposited in banks in Nigeria.
The tax specifically targets the significant profits banks made due to the naira’s devaluation in mid-2023 and a move to raise the tax revenue’s share of the gross domestic product to 18 per cent from 11 per cent within three years.
The 2023 fiscal year was marked by a major devaluation of the naira against other foreign currencies, implying that Nigerian money deposit banks that held FX assets on their books reported significant unrealised FX gains on transactions in foreign currencies upon translation to naira and realised FX gains upon disposal of assets (e.g., cash, stocks, bonds, etc.) or settlement of transactions in foreign currencies.
As per Section 29 A of the law, “There shall be levied and paid to the benefit of the Federal Government of Nigeria a levy of 70 per cent on the realised profits from all foreign exchange transactions of banks within the 2023 to 2025 financial years.”
An analysis of the banks’ financial statements had projected that the government would collect over N425bn from seven banks.
Recall that the international rating company Moody’s had raised concerns about the windfall tax.
In a report titled ‘Nigeria’s Proposed Windfall Tax on Foreign Exchange Gains is Credit Negative for banks.
Moody’s stated, “The windfall tax will have a particularly negative effect on banks whose capital adequacy is close to regulatory thresholds. The tax follows record profits declared by banks in 2023, largely because of foreign-currency revaluation gains related to the naira’s massive devaluation of 37 per cent in June 2023.”
Commenting on the commencement of the windfall tax payment, the National Coordinator of the Independent Shareholders Association of Nigeria, Moses Igbrude, slammed the government for wanting to enjoy the benefits of the revaluation gains without cushioning the effects for the sectors that suffered FX losses due to the same naira devaluation.
“What is the work of the government, and how does it fund this work? Through taxes, but introducing various taxes just because the government needs money is not very good, especially when it is not providing the corresponding responsibility and duties needed for the banks to do their jobs, e.g, security, water, power, and other infrastructures lacking in the society. Each branch of a bank runs like a local government.
“Taxing banks because they make money as a result of government policy on devaluation of the naira and tagging it as windfall is not proper. Which of those companies that the FG policy of devaluation affected which resulting in FX losses in their books, is the FG going to compensate them? It should be both ways,” he said.
