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Banks taxed 50% FX gains in proposed 2023 Finance Act amendment

NIGERIAN banks would be taxed 50 per cent of their recorded gains in “foreign exchange (FX) revaluation” in 2023, a proposal by the federal government has shown.

Forex revaluation gains occur when there is an increase in the value of a bank’s assets and liabilities denominated in foreign currency due to a change in the exchange rate between the foreign and the local currencies.

This is contained in the proposed amendments to the 2023 Finance Act sent by President Bola Tinubu to the National Assembly for approval on Wednesday, July 17.

Revenues from the proposed FX revaluation termed windfall tax as stated in the letter from the President to the Senate are to be deployed to “Renewed Hope” infrastructure, education, and healthcare projects.

The President’s letter said the Federal Inland Revenue Service (FIRS) shall collect the tax on foreign exchange gains.

It stated, “There shall be levied and paid to the benefit of the Federal Government of Nigeria a tax of 50 per cent on the realised profits from all foreign exchange transactions of banks within the 2023 financial year.

“The Federal Inland Revenue Service – (a) shall assess the realised profits, collect, account and enforce payment of tax payable under section 30 by the powers of the Service under the Federal Inland Revenue Service (Establishment) Act 2007;” it added.

The amendment further disclosed that the failure of banks to remit the recommended sum to the appropriate authority would upon conviction pay the tax withheld and 10 per cent of the withheld tax coupled with interest at the Central Bank of Nigeria (CBN) minimum discount rate or risk imprisonment of key principal officials.

Notably, in the proposed amendment, the President is seeking the Senate’s approval to amend certain provisions of the 2023 Finance Act to collect tax on foreign exchange gains recorded by commercial banks in Nigeria in the full year 2023 according to their financial statement.

In the letter, the President explained that the funds generated from this tax would be used to support capital infrastructure development, education, healthcare access, and public welfare initiatives.

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It would be noted that changes in the forex market led to significant losses for businesses in the industrial and consumer goods sectors because of volatile exchange rate problems.



On the other hand, the banking sector experienced substantial gains as a result of foreign exchange revaluation.

Meanwhile, in a lead debate about the proposed amendment in the Senate, the senator representing Bayelsa West, Seriake Dickson, opposed the bill, arguing that the economy is currently depressed to allow for more taxation.




     

     

    “Let’s step down the taxation of banks for wider consultation. We cannot run our government by continuous taxation. We should be cautious because we are managing a depressed economy, even the banks are still battling with recapitalisation”, he said.

    The chairman Senate Committee on Finance, Sani Musa, argued that the bank’s profits had tripled on foreign exchange gains, despite high interest rates.

    “If it is a one-off thing, for banks to contribute to infrastructural development, it is a welcome development”, he said.

    Notably, the Finance Act amendment Bill was referred to the Senate Committee on Finance, while the increase in the 2024 Appropriation Act earlier reported by the ICIR was referred to the Senate Committee on Appropriation. Both Committees are expected to report back in a week.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

    Join the ICIR WhatsApp channel for in-depth reports on the economy, politics and governance, and investigative reports.

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