Finance Act Amendment: National Assembly Impose 70% Windfall Tax on Banks

The National Assembly has enacted a bill that modifies the Finance Act of 2023 to introduce a windfall tax applicable to banks. According to the Act, “A levy of 70% shall be imposed on the profits realized from all foreign exchange transactions conducted by banks during the financial years 2023 to 2025, benefiting the Federal Government of Nigeria.”

Furthermore, the Act stipulates that the Federal Inland Revenue Service (FIRS) is responsible for evaluating the realized profits, collecting, accounting for, and enforcing the payment of the tax as outlined in Section 30, in accordance with the authority granted by the FIRS Establishment Act of 2007.

The FIRS is permitted to establish deferred payment agreements with banks that have been assessed, provided these agreements are finalized by 31st December 2024. Section 2(31) of the Bill indicates that “Any bank that neglects to remit the windfall tax to the Service and has not entered into a deferred payment agreement by 31st December 2024 shall be deemed to have committed an offence and, upon conviction, will be liable to pay the tax owed, along with a penalty of 10 percent of the unpaid tax per annum, interest at the current Central Bank of Nigeria Minimum Rediscount Rate, and potential imprisonment of its principal officers for a maximum of three months.”

Additionally, the Bill clarifies that the provisions of Section 30 will take effect from 1st January 2023. The implementation of this 70% windfall tax on banks’ foreign exchange profits may lead to a decrease in their net earnings and could deter trading activities, thereby affecting the overall profitability of the sector. To alleviate these potential consequences, the government should prioritize transparent execution, including the proposed reallocation of funds to the manufacturing sector.