Bank primary officials who refuse to comply with the one-time windfall tax on banks’ foreign currency earnings in 2023 may face imprisonment, according to a proposal by the Federal Government.
Additionally, it suggested interest at the current minimum re-discount rate set by the Central Bank of Nigeria, as well as a penalty equal to 10% of the levy withheld or not remitted annually.
This was highlighted on Monday in the National Assembly at a meeting between the Federal Inland Revenue Service Chairman, Zack Adediji, and the Minister of Finance, Wale Edun, about the amendment of the Finance Bill, 2024, with the finance committees of both houses.
On Wednesday of last week, the Senate swiftly approved President Bola Tinubu’s request to change the Finance Act in order to impose a one-time windfall.
A windfall tax is a higher tax levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions. The president said the money would be part of the revenue used to fund the additional N6.2tn added to the 2024 budget.
The bill that has passed the second reading states, “The Federal Inland Revenue shall assess the realised profits, collect, account for, and enforce payment of levy payable under section 30 in accordance with the powers of the Service under the Federal Inland Revenue Service (Establishment) Act 2007; “and in the exercise of its functions in 32(a) above, may enter into a deferred payment agreement with the assessed banks, provided that such deferred payment agreement is executed on or before December 31, 2024.
“Any bank that fails to pay the windfall profit levy to the service and has not executed a deferred payment agreement before December 31, 2024, commits an offense and shall, upon conviction, be liable to pay the windfall profit levy withheld or not remitted in addition to a penalty of 10 percent of the levy withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria minimum rediscount rate and imprisonment of its principal officers for a period of not more than three years.”
“Financial year means either the year commencing from January 1, 2023, to December 31, 2023, or any period within the financial year not aligned with the calendar year comprising twelve calendar months of the bank’s financial activity,” it added.
Speaking to the bill at the meeting, Edun said the “bank windfall” profit levy, though small, still constitutes an important contribution to government finances at a time when revenues have substantially increased despite minimising taxes.
In his explanation, the FIRS chairman explained that the windfall tax was not a new tax imposed on banks but rather a deduction from the already-made profit.
Adedeji said, “These are the gains that you have without any contribution from you, without any value addition, which has had an adverse effect on others. And who are these others? If you look at the report of all manufacturing entities and the last one and a half years, you will discover that a lot of the registers recorded huge laws coming from exchange transactions.
“The other flip of this law is recorded in banks. Anywhere in the world, your duty as the government is to redistribute the wealth to sustain the progress and prosperity of the Nation.
“So the loss suffered by manufacturing as a result of these foreign gains, which is being recorded in the bank, is what the government seeks to redistribute. And that is why we have this levy, which is done everywhere.
“We have it in energy, banking, and health care when you have this kind of situation, like the one we have in Nigeria. So we seek your permission and your understanding in balancing this economic inequality that has arisen due to the circumstances in which we find ourselves.”
Speaking on the sharing formula, the FIRS chairman proposed that it be distributed 50/50 between banks and the government. He said, “These gains that are realised, the levy proposal today is 50, the bank is 50, and the government is 50.
“And then, based on your consultation and other parts, you see that we are here. And then, as my boss has said, this is just a consultation. The final bill rests on what comes out of this interactive section, and then eventually the bill that we have, as you all know, is just to implement what you put in.”
Raising the issue of penalty as stated in the bill, Senator Isah Jibrin (APC, Kogi East) asked that the bill be more explicit. He said, “My area of worry is concerning the penalty; we need to be very explicit on it.
“On the issue of penalty, here it is stated, 10 percent of the tax withheld or not remitted per annum, an interest rate, and the prevailing Central Bank of Nigeria MRR. So, what are we going to do? 10 percent is like coming from nowhere, so I would suggest that we align the MRR.”
“Then at what point does the issue of the officials imprisonment come in? At what point do we now say, okay, enough is enough and the officials should be arrested after default; is it after a month, a year, two years, or three years.”
Responding to this, Edun said it was unlikely that banks would not defy, but noted there were penalties for those who defy. The finance minister said, “And to be fair to the banks, there is no reason to assume that’s what they trying to do. Let us give the benefit of the doubt to one another
“In terms of deferred payment, that’s why technically the chairman of the FIRS will deal with how he is looking to arrange and allow the past payments in terms of the penalties.
“Well, there has to be something that will serve as a deterrent. The penalties have to be there. And at the end of the day, the invasion of tax and charges like this are criminal offense.
“For under-reporting of profits by the bank, I think there’s enough technical ability to look at what the bank’s audited accounts say and track the level of foreign exchange and the profits therefrom.”
Adedeji also allayed fears regarding possible cases of under-reporting by banks. He noted that the CBN, in a memo in September 2023 and March this year, had in a separate circular directed commercial banks in the country not to touch or spend the profits they made from foreign exchange transactions.
