Tax and Advisory Service firm, PricewaterhouseCoopers, has raised concerns over the potential adverse effects of the federal government’s proposed legislation to tax already reported profits of banks in 2023.
In its response to the amendment of the finance act and the introduction of a one-time windfall tax on commercial banks’ foreign exchange revaluation gains, titled “The Windfall Tax Conundrum: navigating the fiscal impact on Nigerian banks,” PwC highlighted significant implications for future investments into the country.
According to PwC, the proposed windfall tax on Nigerian banks poses considerable challenges and implications for the banking sector and the broader economy, particularly concerning both foreign and local investors.
The firm cautioned that taxing profits that have already been realized and reported risks creating an unpredictable fiscal environment, potentially deterring future investment and unsettling financial markets.
“The government risks being perceived as unpredictable by taxing profits already realized and reported, which could deter future investment and destabilize the financial markets,” PwC stated.
Furthermore, PwC elaborated that the practical implementation of the windfall tax may introduce legal and perceptual challenges regarding equity, fairness, and constitutionality. It emphasized that such legislation could inject uncertainty into the fiscal environment, potentially dissuading investors and complicating the operational strategies of banks.
PwC also pointed out the disparity in tax rates between the conventional 30% for company income and the proposed 50% windfall tax on banks, noting potential confusion for banks in allocating expenses across different revenue streams.
“This disparity could lead to contradictions where banks apply principles different from those used in allocating profits to tax-exempt income,” PwC explained.
Recently, President Bola Tinubu sought Senate approval to amend specific provisions of the 2023 Finance Act to impose a 50% tax on foreign exchange gains reported by commercial banks for the entire year 2023 based on their financial statements. In his letter to the Senate, the President indicated that revenues generated from this tax would fund capital infrastructure development, education, healthcare access, and public welfare initiatives.
The proposal has sparked public discussions, with KPMG also expressing reservations, citing potential legal disputes arising from the legislation. KPMG argued that such a tax could lead to constitutional issues and legal challenges, considering Nigeria’s anti-retroactive tax policy and the principle of legitimate expectations, especially since many banks have already settled their tax liabilities for the 2023 financial year.
In conclusion, PwC’s assessment underscores the complexities and risks associated with the proposed windfall tax on banks, emphasizing the importance of maintaining a stable and predictable fiscal environment to foster sustainable economic growth and attract investments in Nigeria.
