The federal government wants to tax banks 50% of profit made from foreign exchange revaluation in 2023.
This plan is in the new Finance Act for 2023 that the President sent to the National Assembly for approval.
The money from this tax, called a “windfall tax,” will be used for “Renewed Hope” projects, like building infrastructures, improving education, and healthcare.
The Federal Inland Revenue Service (FIRS) will collect this tax. They will get 50% of the profit banks make from foreign exchange deals in the 2023 financial year.
The document says, “There shall be levied and paid to the benefit of the Federal Government of Nigeria a tax of 50% 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 in accordance with the powers of the Service under the Federal Inland Revenue Service (Establishment) Act 2007;”
If banks don’t pay this tax, they will be fined and could face jail time for their top officials. They will have to pay the tax plus 10% of the tax as a penalty, along with interest.
Backstory
- Earlier, President Bola Tinubu asked the senate for permission to change some rules of the 2023 finance act. This was to tax foreign exchange gains made by banks in Nigeria for 2023.
- In his letter, the President said that this tax money would help build infrastructure, improve education, healthcare, and public services.
- Major banks in Nigeria made N3.37 trillion from foreign exchange revaluation gains in 2023 and early 2024, according to Nairalytics data.
What you should know
- The CBN unified the foreign exchange markets in June to make the rates more equal. This was part of financial sector reforms.
- This change caused big losses for industrial and consumer goods businesses but banks made big profits. By December 2023, the value of the naira had dropped nearly 100%.
- All levels of government benefited from the FX revaluation gains, which made up around 20% of federal funds by the end of 2023, up from 1.32% earlier that year. Meanwhile, private sector businesses, especially in manufacturing and industry, faced big losses.