FG Collecting Taxes on Already Declared Profit Could Impede Future Investment – PwC

PricewaterhouseCoopers (PwC), a tax and advisory services organisation, has warned that the federal government’s most recent bill, which would tax banks’ already-reported earnings in 2023, may discourage foreign investment in the future.

This was said by the company in a response titled “The Windfall Tax Conundrum: navigating the Fiscal Impact on Nigerian Banks” to the proposed revision to the Finance Act and the introduction of a one-time windfall tax on the foreign exchange revaluation gains of commercial banks in 2023.

The company pointed out that there would be several difficulties and consequences for both foreign and domestic investors in the banking industry as well as the overall economy if Nigerian banks were to be subject to the proposed windfall tax.

“By taxing profits already realised and reported, the government risks being perceived as unpredictable, which could deter future investment and destabilise the financial markets,” the statement reads.

The business went on to explain that there may be legal and perception issues concerning the concepts of equality, fairness, and constitutionality if the windfall tax is put into practice.

It made note of the fact that by creating uncertainty in the financial system, the proposed regulation may potentially discourage investors.

Also, the company observed that banks are confused about how to allocate costs among various revenue streams due to the disparity in tax rates between the standard 30% tax on company income and the 50% tax on windfalls proposed for banks.

It clarified that in this case, banks might apply a different principle for allocating profits to tax-exempt income than they did previously, which could lead to a contradiction.

What to note

According to a report last week, President Bola Tinubu is requesting permission from the Senate to change a few sections of the 2023 Finance Act.

The proposed amendment seeks to tax foreign exchange gains that Nigerian commercial banks report for the full year 2023 at a rate of fifty percent, depending on the institutions’ financial statements.

The President stated in a letter to the Senate that public welfare, education, healthcare access, and capital infrastructure development will all receive funding from this levy. 

Members of the public have discussed and commented on the plan. Notably, KPMG criticized the law, claiming that it would result in legal conflicts.

The company based its decision on the nation’s tax laws, which it claims have anti-retroactive effects.

It added that applying such a tax could trigger a constitutional crisis because it goes against the idea of justifiable expectations, especially because the majority of banks have already paid their taxes for the 2023 fiscal year.