The Chartered Institute of Directors Nigeria (CIoD) has described the bank windfall tax as ill-timed, excessively high, and not fit for purpose given current economic realities.
The Chartered Institute, in its assessment of the policy, said, it noted with concern the impact of the recent Federal Government policy, imposing a 70% windfall tax on profits generated from foreign exchange transactions by banks from 2023 to 2025.
Bamidele Alimi, director general/CEO, Chartered Institute of Directors Nigeria (CIoD), in a statement available to Techeconomy, said while they recognise the urge to rejig the economy on record time and the importance of this tax policy in fostering economic stability, “we believe that the windfall tax is ill-timed, excessively high, and not fit for purpose given current economic realities”.
Alimi said the policy is against the overriding philosophy of Nigeria’s Tax Policy, which is grounded in the principles of equity, efficiency, and simplicity, aiming to create a fair and transparent system that supports economic growth and development.
“The Nigerian Tax Policy is geared towards creating an enabling environment for businesses to thrive, promoting investment, and fostering economic diversification.
“While this Bank Windfall Tax may have been implemented successfully in some advanced countries, it is not enough reason for a wholesome application in Nigeria at the moment, because it negates the overriding philosophy of Nigeria’s Tax Policy.
Having to remit windfall tax for the 2023 financial year when audited reports have been submitted and dividends allocated to shareholders is ill-timed. The financial year of banks ends in December 2023.
“Expectedly, banks are to submit their Audited Reports to the Central Bank of Nigeria (CBN) and other stakeholders by 31st of March 2024 and publish not later than 21 days after submission.
“This implies that all the banks must have done this to avoid sanctions and dividends allocated to shareholders.
“To have them remit the 2023 windfall tax on foreign exchange transactions, after all these activities, is nothing but retroactive.
“Also, banks are currently engaged in recapitalisation to meet the Central Bank of Nigeria’s (CBN) minimum capital requirements.
“The imposition of such a high tax could divert essential funds away from these efforts, hampering banks’ ability to strengthen their capital bases.
“This is particularly concerning given the strict definitions of paid-up share capital, which leaves banks with limited options for raising necessary funds”.
According to CIoD, a high windfall tax could lead to a decline in share prices, further complicating their financial stability.
“Another significant concern with the high windfall tax is its potential to reduce the lending capacity of banks.
“Financial institutions play an important role in providing loans to individuals and businesses, driving economic growth and development”.
The Chartered Institute of Directors Nigeria also argued that excessive tax burden on banks could lead to a reduction in available capital for lending, thereby slowing down economic activities.
“This could have a ripple effect on various sectors of the economy, ultimately stalling growth and development.
“High windfall tax has the potential to inhibit the financial inclusion drive. Banks, like any business, may pass on the additional costs incurred from the windfall tax to their customers.
“This could result in higher fees for banking services, such as loan processing, account maintenance, and transactions. Increased banking costs may disproportionately affect small and medium-sized enterprises (SMEs) and individual customers, potentially leading to financial exclusion for some segments of the population.
“Moreover, the introduction of a high windfall tax may negatively affect Nigeria’s appeal to foreign investors in the banking sector and make them competitively disadvantaged.
“This could lead to reduced Foreign Direct Investment, (FDI), limiting the sector’s growth potential and access to international expertise. Consequently, this may lead to an uneven playing field within the financial services industry.
“This could disadvantage banks compared to other financial institutions not subject to the tax, potentially leading to market distortions and unfair competition.
“Finally, the high windfall tax could also negatively impact shareholder returns. Shareholders expect dividends and returns on their investments, which are largely dependent on the profitability of banks.
“A significant portion of the profits being diverted to taxes could lead to reduced dividends and lower returns on investments. This might discourage investment in the banking sector, leading to reduced capital inflows”.
>>>Continue Reading…click: Windfall Tax: CIoD Enumerates 8 Cautious Steps to ‘Balanced Policy’
