Global tax and advisory services provider KPMG Nigeria has expressed disapproval of the bank’s 50% windfall tax on its foreign exchange revaluation profits made in 2023, claiming that it may give rise to legal challenges.
The company made this claim in response to the federal government’s recent tax on banks, claiming that the Charge may have been brought on by the government’s ongoing income problems.
The firm claims that because retroactive taxation is against Nigeria’s tax policy and most banks have already paid their taxes for the 2023 fiscal year, it could trigger a constitutional crisis because it violates the idea of reasonable expectations. Â
The report said, “Nigeria’s tax policy discourages the retroactive implementation of tax laws. Therefore, it is unexpected that the government decided to impose these windfall taxes in the past. Moreover, a large number of these institutions have settled the resulting debt after submitting their tax returns for the fiscal year 2023.”
“The implications of this retroactive application may raise constitutional difficulties since it violates the principle of legitimate expectations. It is therefore not surprising that the implementation will result in legal issues and challenges.”
KPMG stated that because of the unpredictable nature of the nation’s tax regulations, retroactive taxes like this one may deter international investment. Â
Call for stakeholder consultation
Additionally, the report recommended appropriate technical consultation with interested parties regarding the tax’s impact prior to the bill’s enactment, adding that such input is required to avoid unforeseen outcomes.
The company also criticized the timing, pointing out that commercial banks are approaching the capital markets to raise money to meet the Central Bank of Nigeria’s (CBN) new capital requirements, and the projected use of 50% of the projected N6.2 trillion funds to be generated from the tax for recurrent expenditure.
It is significant to note that a number of large commercial banks, including Fidelity, Access Banks, and GTCO, have contacted the capital market to raise money to satisfy the CBN’s increased capital criteria. In the next eighteen months, banks are expected to require the raising of N4 trillion in new capital.
The study described the windfall tax as a distraction that banks do not now need and urged the Ministry of Finance to communicate with the CBN on banks’ ability to satisfy the proposed capital requirements.
Double taxation in tacit
The windfall tax was referred to by the tax and advising firm as an implicit double taxation because banks had already paid company income tax (CIT) on thirty percent of their total profits, including those from foreign exchange trades. It wanted to know if the banks would have to pay an additional 50% on foreign currency gains or 20% on top of their current 30% corporate tax.Â
It also mentioned that to mitigate the effects of retroactive taxes, those jurisdictions should offer some kind of tax relief. It bemoaned the lack of one in the finance bill amendment.
Bill runs counter to Nigeria’s tax policy’s equity and fairness
The research also raised concerns about why banks were the only ones targeted by this tax, speculating that they were probably not the only ones to gain from foreign exchange revaluation profits.
It stated that any company with foreign exchange assets would have benefited if such transactions had been completed in 2023.
It also pointed out that the National Tax Policy’s foundational principles of justice and fairness are violated by singling out banks. Â
In order to avoid a situation where things continue as normal, KPMG also pointed out that adequate monitoring and assessment are necessary to guarantee that the policy’s goals are met.
