The Bank Directors Association of Nigeria (BDAN) has raised concerns over the recently imposed 70% windfall tax on profits generated from foreign exchange transactions by banks. The tax, which will be in effect from 2023 to 2025, has been described as excessively burdensome and ill-timed, particularly given the ongoing recapitalisation efforts within the banking sector. BDAN’s chairman, Mustafa Chike-Obi, emphasized the need for greater consultation and dialogue between the government and stakeholders before implementing such significant changes. The association fears that the high tax rate could stifle growth and innovation, ultimately affecting the quality of financial services available to customers and the broader economy.
Impact on Banking Sector
The imposition of the 70% windfall tax has raised significant concerns within the banking sector. BDAN has highlighted that the high tax rate could hinder the growth and innovation of banks, which are already facing challenges due to ongoing recapitalisation efforts. The tax is expected to have a substantial impact on the profitability of banks, potentially leading to reduced investments in new technologies and services.
The timing of the tax is particularly problematic, as banks are currently focused on strengthening their capital base to meet regulatory requirements. The additional financial burden imposed by the windfall tax could divert resources away from these critical recapitalisation efforts, undermining the stability and resilience of the banking sector.
BDAN has called for greater consultation and dialogue between the government and stakeholders in the banking sector to ensure that policies are both equitable and effective. The association believes that open dialogue and negotiation are essential to address the concerns of the banking industry and to develop solutions that support the sector’s growth and development.
Challenges and Ambiguities
The implementation of the windfall tax has also raised several ambiguities and challenges. One of the primary concerns is the lack of clarity regarding the definition of “foreign exchange transactions” that will be subject to the tax. BDAN has requested clear guidelines from the government to avoid further uncertainty and to ensure that banks can comply with the new regulations.
Another challenge is the potential impact of the tax on banks that may incur losses rather than gains during the specified period. BDAN has urged the government to provide clarification on how the tax will be applied in such cases and to consider the unique circumstances of each bank. The association has also highlighted the need for a comprehensive review of the tax’s implementation to address any unintended consequences and to ensure that it does not disproportionately affect certain banks.
Furthermore, BDAN has pointed out that Nigerian banks are already among the most heavily taxed globally, citing the existing Asset Management Corporation of Nigeria (AMCON) levy imposed on total bank assets. The additional burden of the windfall tax could exacerbate the financial strain on banks, potentially leading to reduced lending and investment in the broader economy.
Call for Reconsideration
In light of these concerns, BDAN has called on the federal government to reconsider the imposition of the 70% windfall tax. The association acknowledges the government’s intentions behind the tax but believes that a more balanced approach is needed to support the banking sector’s growth and development. BDAN has suggested that the government explore alternative measures to achieve its fiscal objectives without imposing an excessive burden on banks.
The association has also emphasized the importance of stakeholder engagement and collaboration in the policy-making process. By involving banks and other stakeholders in the development of new regulations, the government can ensure that policies are well-informed, equitable, and effective. BDAN remains committed to working with the government to find solutions that support the banking sector and contribute to the overall stability and growth of the Nigerian economy.
