Professional services firm, KPMG, says there may be legal disputes from the Federal Government’s proposed 50 percent tax on banks’ foreign exchange gains, warning that the windfall tax is retroactive, which is not in line with Nigeria’s tax system.
The Senate had, on Friday, approved President Bola Tinubu’s request to amend the Finance Act to impose a one-time windfall tax on banks’ foreign exchange profits in 2023.
The president had said the money would be used to fund the additional N6.2 trillion added to the 2024 budget.
But KPMG said in a report seen by BusinessDay on Friday that it is alien to Nigeria to impose retroactive taxes on corporate organisations.
“Nigeria’s tax policy frowns at retroactive application of tax laws. It is, therefore, surprising, that the government has chosen to implement these windfall taxes retroactively. Moreover, many of these banks have submitted their tax returns for the 2023 financial years and have settled the resultant liability.”
The tax advisory firm noted that the retroactive application could raise constitutional concerns as it may violate the principle of legitimate expectations. It said it won’t be surprising if the implementation leads to legal disputes and challenges.
KPMG further said that this could discourage foreign investments and put Nigeria in bad light. KPMG noted that the timing is not suitable, given commercial banks’ increased efforts to raise funds to meet the Central Bank of Nigeria (CBN) new capital requirements.
The tax advisory firm described the windfall tax as a tacit double taxation as banks have already paid 30 percent of their overall profits, including those from foreign exchange transactions as Company Income Tax (CIT).
It wondered whether banks would be asked to pay 20 percent of their 30 percent company tax or pay fresh 50 percent tax on foreign exchange gains.
KPMG also wondered why banks alone were singled out for the tax as there were other businesses which also made forex gains in 2023.
