FINANCE AMENDMENT BILL 2024
FINANCE AMENDMENT BILL 2024
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This is an Act that amends the Finance Bill 2023 by inserting Sections 30-33 after Section 29 of the Finance Act 2023. This Act imposes a one-time windfall tax of 50% on the realized profit from all foreign exchange transactions of banks within the 2023 financial year.
It also provides for the administration of the tax and any matters arising thereto. The bill is cited as the Finance (Amendment) Bill 2024
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DEFINITION OF WINDFALL TAX
Windfall tax is defined as a levy imposed by a government on companies that have benefited from something they were not responsible for - in other words, a windfall.
By this definition, the event the companies have benefited from is a historical event and hence the tax applies to that event and is applied retrogressively.
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BRIEF HISTORY OF WINDFALL TAX
It should be noted that Nigeria is not the first to impose windfall tax as several other countries have done such in the past.
Citing the United Kingdom as an example,
In 1981 , a one-off windfall tax of 2.5% on banks’ non-interest-bearing current account deposits which generated about ￡400m in extra revenue.
In 1982 , Treasury officials came to the same conclusion when oil prices soared, and imposed a special tax, raising ￡2.4bn. North Sea oil firms argued at the time that extra taxes would limit investment, but the industry flourished.
In 1997, windfall tax was imposed on privatized utilities
In 2009, windfall tax on bank bonuses to capture a portion of the bonuses paid out to bank executives who had received government bailout funds.
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In 2020 a windfall tax on companies that prospered during Covid.
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Windfall tax has not only been applied in the UK but across Europe and in the US as well.
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Profits do go somewhere, and a windfall tax takes them from one group of households (in this case, the banks) and redistributes them to other sectors of the society.?
?According to Premium Times analysis of Nigeria’s five biggest lenders’ half-year financials, it was revealed those banks alone earned N1.3 trillion in foreign exchange revaluation gains, 17 times bigger than that of the corresponding period of 2022.
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The government has specified the goal of the revenue that will be generated from this tax to be used to fund capital infrastructural development relating to healthcare, education, and public welfare initiatives.
If historical precedent is correct, then the benefit from this windfall tax far outweighs any perceived disadvantages as long as it is clearly stated what the windfall will be used for and there is proper accountability, the sky is not all grey.
OTHER POINTS TO NOTE
1. The financial year? is January 1 2023 to December 31st, 2023 or any period comprising 12 calendar months of the bank activity that does not align with January 1st to December 31st, 2023
2.?Bank refers to any bank licensed to carry out foreign exchange transactions under the Banks and Financial Institutions Act 2020 and all other relevant Nigerian laws.
3. Penalties for Non-compliance: Banks failing to comply face fines, interest, and imprisonment of principal officers for not more than 3 years.
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