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The Nigerian government is set to introduce a windfall tax on banks’ foreign currency revaluation gains, aiming to use the proceeds to support its spending plans. This move targets the significant income banks earned last year from the revaluation of their foreign currency-denominated assets, following a sharp decline in the value of the naira.
President Bola Tinubu has written to the Senate, requesting support for legislation that will tax these substantial gains. “The proposed amendments to the Finance Act Amendment Bill 2023 are required to impose a one-time windfall tax on the foreign exchange gains realized by banks in their 2023 financial statements,” Tinubu stated in his letter, which was read by Senate President Godswill Akpabio on Wednesday.
The revenue from this tax will fund capital infrastructural development, education, healthcare access, and public welfare initiatives, all of which are critical components of the Renewed Hope Agenda.
This initiative follows an analysis that revealed Nigeria’s five biggest lenders—FBN Holdings, UBA, GTCO, Access Holdings, and Zenith Bank—earned N1.3 trillion in foreign exchange revaluation gains in the first half of 2023, a 17-fold increase compared to the same period in 2022.
Nigerian banks have been benefiting from the country’s economic challenges, including high inflation rates and two significant naira devaluations under President Tinubu’s administration. These factors have caused the value of assets held in foreign currencies to soar, allowing banks to profit substantially. Meanwhile, businesses, especially those reliant on imports, have struggled, with some multinationals ceasing their Nigerian operations.
The windfall tax is part of President Tinubu’s broader plan to increase the tax revenue’s share of the gross domestic product (GDP) from 11 percent to 18 percent within three years. Nigeria, which has one of the lowest tax revenues in the world, aims to boost collections by 57 percent this year.
Senator Aliero Mohammed, representing Kebbi Central Senatorial District, highlighted the substantial profits banks are making, noting, “Banks are making huge profits. That’s why everyone wants to set up a bank—because of the enormous profits. A bank can declare close to N500 billion. There is no other business in this country that can yield such returns.”
Last year, the Central Bank of Nigeria (CBN) prohibited banks from using foreign exchange revaluation gains for dividend payments, requiring that these earnings be set aside to mitigate future foreign exchange risks.
However, some senators have expressed reservations about the windfall tax. Senator Seriake Dickson of Bayelsa West criticized the lack of consultation and expert input, stating, “There is no such tax known to the laws of this country as we speak. If I have my way, I would suggest stepping down the second bill regarding the taxation of banks’ profits. We cannot grow our economy by continually taxing our people, whether corporate entities or individuals.”
The windfall tax would not be unprecedented. Several European countries, including France, Hungary, Italy, Spain, and Sweden, imposed windfall taxes on banks last year, with some rates as high as 60 percent. In Africa, South Africa used windfall tax receipts in 2022 to pay down debt and repair public sector infrastructure. The Nigerian government hopes that similar measures will help reduce public debt as a share of GDP from 71.4 percent in 2022/2023 to 69 percent by 2024/2025.
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