Tinubu seeks amendment of Finance Act to impose ‘one-time windfall tax’ on banks’ FX gains

President Bola Tinubu has asked the national assembly to amend the 2023 Finance Act to impose a one-time windfall tax on banks’ foreign exchange (FX) gains.

Tinubu requested the amendment in a letter read by Senate President Godswill Akpabio on the floor of the upper legislative chamber on Wednesday.

A windfall tax is a higher tax imposed by the government on sectors or businesses that have benefited disproportionately due to favourable market conditions.

On July 6, 2023, the president signed the Finance Act (Effective Date Variation) Order, 2023 – which took effect September 1, 2023.

Tinubu said the amendment will allow a one-time windfall tax on the foreign exchange gains realised by banks in their 2023 financial year.

“Furthermore, the proposed amendments to the Finance Acts 2023 are required to a one-time windfall tax on the foreign exchange gains realised by banks in their 2023 financial statements to fund capital infrastructure development, education, and healthcare as well as welfare initiatives all which are components of the Renewed Hope Agenda,” Tinubu said.

On June 14, the CBN officially unified the multiple FX rate systems, collapsing all FX windows into the investors’ and exporters’ (I&E) window.

The policy resulted in a significant depreciation of the local currency and an increase in the dollar rate.

On September 12, 2023, the Central Bank of Nigeria (CBN) directed banks to stop utilising gains from the revaluation of the naira to pay dividends or finance operations.

CBN said a review of the FX regime change showed the banks are in a position to profit from the policy because of its potential to significantly increase the naira value of banks’ foreign currency (FCY) assets and liabilities.

In March, the CBN once again directed banks not to use gains from foreign currency revaluation to pay dividends and expenses.

A revaluation of a currency occurs when the value of a legal tender is increased relative to another currency in a fixed exchange rate regime.

In its 2023 financial statement, First City Monument Bank (FCMB) said it overshot the company’s full-year 2023 profit target due to the FX reforms, after recording N84.2 billion foreign exchange gains last year.