In a significant move, the Nigerian Senate has passed an amendment to the 2023 Finance Act, increasing the windfall levy on banks’ foreign exchange revaluation gains from 50% to 70%. This decision, which deviates from President Bola Tinubu’s initial proposal, was driven by the Senate Committee on Finance, chaired by Senator Sani Musa.
The Senate also adjusted the commencement date of the amended act to align with the start of the new foreign exchange policy, following objections from Senator Aminu Waziri Tambuwal regarding the retroactive nature of the original proposal. This means the levy will apply from the initiation of the new forex policy, which began on June 14, 2023, and extend to the 2025 financial year.
Additionally, the Senate passed an amendment to the 2024 appropriation act, adding N6.2 trillion to the 2024 budget. This increase is aimed at covering recurrent expenditures, including the payment of the new N70,000 minimum wage and infrastructure projects across Nigeria.
President Bola Tinubu had initially proposed the windfall tax to target foreign exchange revaluation profits of banks for the 2023 financial year. The amendment stipulates severe penalties for non-compliance, including a 10% penalty on the withheld tax and interest at the Central Bank of Nigeria’s (CBN) minimum discount rate, with potential imprisonment for key officials.
Reactions
The proposal has sparked significant debate, particularly around its timing and legality. Tax advisory firms like KPMG Nigeria have criticized the 50% levy, warning it could lead to legal disputes due to its retroactive application. PwC Nigeria also expressed concerns that the unpredictability of the windfall tax could deter future investments.
Prominent lawyer Dr. Olisa Agbakoba described the policy as poorly conceived, arguing that its implementation would unfairly burden bank customers. He suggested that the National Assembly might be overstepping its bounds with this amendment.
The Central Bank of Nigeria’s introduction of a unified foreign exchange policy has been a critical backdrop to these developments, aiming to streamline the forex market and improve economic stability.
As these amendments take effect, the banking sector and its customers will need to navigate the implications of the increased levy and the broader economic impact of these legislative changes.
