BDAN says Otedola, Elumelu support for windfall tax not industry’s view 

Onome Amuge

The Bank Directors Association of Nigeria (BDAN) has distanced itself from the views of certain bank chairmen who publicly expressed support for the proposed foreign exchange windfall tax following a meeting with the federal government recently at the State House in Abuja.

BDAN, which represents all directors and chairmen of banks in the country, stated that the opinions of these individuals are their personal views and do not represent the official position of the entire banking community.

Amidst the ongoing debate surrounding the proposed foreign exchange windfall tax, Mustafa Chike-Obi, chairman of BDAN, who also chairs the board of Fidelity Bank, took to his X account to provide clarity on the association’s position. 

He assured the public that BDAN’s official stance on the controversial tax issue would be communicated after its scheduled board meeting on August 12th, 2024.

“I have read the personal views of some bank chairmen on the windfall tax issue. Those views do not represent the banking community. BDAN will communicate its views after our board meeting on the 12th, on this and other very important issues concerning our community,” Chike-Obi stated.

Not long ago, some bank chairmen in Nigeria publicly expressed support for a recent amendment to the Finance Bill, which introduced a retroactive 50 percent levy (later increased to 70 percent by the National Assembly) on foreign exchange gains reported by banks in their 2023 annual financial statements. This levy, which was introduced without prior consultation with the banking sector, sparked controversy and debate, with many industry experts and banking stakeholders voicing concerns over the potential negative impacts on the economy and the banking industry.

Femi Otedola, prominent businessman and chairman of FBN Holdings, parent company of First Bank Nigeria Limited, publicly backed the amendment to the Finance Bill proposed by the Bola Tinubu administration.

Known for his influential status in the Nigerian financial and capital markets, Otedola’s endorsement lent significant weight to the proposed policy, sparking further debate within the banking industry. Not content with simply voicing his support, Otedola further criticised bank officials for excessive spending habits, specifically targeting the purchase and upkeep of private jets as an example of their wasteful practices.

According to Otedola, “Nigerian banks are spending an estimated $50 million annually just on maintaining private jets, with over $500 million spent on purchasing nine private jets by four banks.

“This level of extravagance significantly erodes public trust in our financial institutions and diverts crucial resources away from vital areas such as operational efficiency, technological innovation, and customer service.”

Joining Otedola in his support for the retrospective tax on FX gains was Tony Elumelu, chairman of United Bank for Africa (UBA). Elumelu, who is widely respected in the financial industry, voiced his approval of the amendment, citing its potential to alleviate poverty and promote shared prosperity across Nigeria.

Elumelu stressed the importance of fostering shared prosperity across Nigeria, advocating that businesses and investors should play a more active role in lifting people out of poverty.

“We believe that extraordinary income should go towards helping to alleviate poverty in the country, which is what the government intends to do,” he stated.

The UBA chairman’s advocacy for a democratisation of prosperity was coupled with his calls for a balanced approach to taxation. He also emphasised the need to avoid placing an excessive burden on any one sector, arguing that businesses should be able to flourish while still contributing to the wider public welfare.

The Finance Act (Amendment) Bill of 2024, passed by the House of Representatives on July 23rd, stipulates that the Federal Inland Revenue Service (FIRS) will assess the realised profits, collect, and enforce payment of tax due under Section 30, as stated in subsection 31(a) of the bill. This is in line with the powers conferred upon the FIRS in the Federal Inland Revenue Service (Establishment) Act of 2007.

In addition to the provisions outlined in subsection 31(a) of the Finance Act (Amendment) Bill, section 31(b) empowers the FIRS to enter into a deferred payment agreement with assessed banks, allowing the affected banks to spread out their tax payments over a period of time, provided that such an agreement is finalised before December 31, 2024.

Furthermore, subsection 30 of the Finance Act (Amendment) Bill was amended to extend the implementation period to the 2025 financial year. This subsection states that a 70 percent levy will be imposed and paid to the federal government on realised profits from all foreign exchange transactions of banks for the financial years 2023 to 2025.

To ensure compliance with the Finance Act (Amendment) Bill, subsection 31(d) specifies that non-compliance with the provisions of the Act would result in additional liabilities for banks. The penalties for non-compliance include an additional 10 percent of the tax withheld or not remitted per annum, interest at the prevailing Central Bank of Nigeria minimum rediscount rate, and potential imprisonment of the principal officers for up to three years.

While windfall taxes in the oil sector are typically a result of external factors, such as an unexpected increase in global oil prices, the Nigerian FX windfall tax has its roots in an internal government policy decision. The move to harmonise the exchange markets, resulting in a devaluation of the domestic currency, led to a restatement of corporate comprehensive incomes for the previous fiscal year, effectively creating a retroactive tax on foreign exchange gains.

According to Proshare Research, a Lagos-based financial intelligence company, Nigerian banks would need to pay tax arrears on their liabilities for the 2023 financial year if the Finance Act (Amendment) Bill were to be implemented.

Proshare, in its analysis titled “The Pains of A Windfall Tax: Appraising the NASS’s Financial Act Amendment”, explained that the retrospective tax on FX gains would require banks to restate their accounts by December 31, 2024, in order to reflect the new tax liability.

Proshare Research provides a definition of Windfall taxes as one-off taxes imposed on corporations during special circumstances, such as significant increases in commodity prices, that result in supernormal profits. The research further noted that global best practices typically redistribute these gains from producer surpluses to consumer surpluses, promoting a more equitable distribution of wealth.

Proshare further noted that using windfall tax gains to fund budget deficits, as proposed by the Nigerian government, is an unconventional approach. It added that the move may be misconstrued as economic banditry or fiscal shakedown in some circles.

The Proshare analysis concluded, “Windfall taxes are generally seen as socioeconomic balancing acts rather than avenues for revenue-mongering; while Nigeria struggles with fiscal challenges, the government must avoid punishing corporations for windfall gains that are outcomes of its policies.

A husband dipping his fingers into his wife’s purse to buy himself a treat discourages the wife from declaring her full earnings or bringing her money home. The same is true of corporations, governments, and windfall taxes.”