Nigerian bank directors rally against ‘ill-timed’ 70% windfall tax

Business a.m.

The Bank Directors Association of Nigeria (BDAN) has voiced strong opposition to the government’s proposed 70 percent windfall tax on profits generated from foreign exchange transactions by banks, branding the measure as “excessively burdensome and ill-timed”.

In a statement issued after its board meeting recently, BDAN acknowledged the government’s underlying rationale for proposing the windfall tax, but it expressed deep reservations about the levy’s overall magnitude, timing, and unclear enforcement guidelines.

The association conveyed its concerns about the potentially negative impact of the proposed tax on banks’ financial health and on the wider economy, urging the government to consider alternative policy options that could achieve the same objectives without the negative consequences of such an extreme tax hike.

BDAN underscored its belief that the proposed windfall tax could constrain the growth and innovative potential of the banking industry, thereby limiting the quality of financial services provided to customers and negatively impacting the broader economy.

The association thus stressed the importance of meaningful collaboration between the government and key stakeholders within the banking sector, advocating for a more deliberative approach that takes into account the potential consequences of the tax .

The statement, signed by Mustafa Chike-Obi, chairman of the board of directors of the association, said,  “While the imposition of this windfall tax appears to be a response to the current economic climate, we suggest that a 70% 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.”

BDAN pointed out that Nigerian banks are already subject to one of the highest tax rates globally, particularly when taking into account the Asset Management Corporation of Nigeria (AMCON) levy, which applies to all bank assets.

The association recommended that the government consolidate all existing taxes and levies imposed on banks in the future, to alleviate the sector’s overall tax burden. BDAN stated that such a consolidated approach to taxation would foster a more stable and predictable business environment for the banking sector.

The association further urged the National Assembly to reevaluate the proposed windfall tax amendment and to engage in productive dialogue with key stakeholders in the banking sector, to facilitate the development of a more equitable and practical solution.

“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,” it stated.

In addition, BDAN commended the Central Bank of Nigeria for its recent efforts in stabilising the banking sector and emphasised its continued support for and collaboration with regulators, government entities, and other stakeholders to find solutions that benefit all parties involved.

The association maintained that it remains committed to working closely with these parties to develop viable solutions that serve the best interests of all parties involved.