President Tinubu has requested the Senate to amend the 2023 Finance Act to impose a one-time windfall tax on the foreign exchange (FX) gains realized by banks in their 2023 financial statements.
In a letter to the Senate, President Tinubu explained that the revenue generated from this tax would support capital infrastructure development, education, healthcare access, and public welfare initiatives. These projects are integral components of the administration’s renewed hope agenda.
The letter reads, “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.”
Key Information
The proposed amendment to the 2023 Finance Act aims to tax foreign exchange gains by banks, arising from substantial gains recorded by Nigerian banks due to FX revaluation. Nigeria’s leading commercial banks reported significant FX revaluation gains following the unification of the foreign exchange market. Data from Nairalytics indicates that for the full year 2023 and the first quarter of 2024, major commercial banks listed on the NGX recorded FX revaluation gains totaling N3.37 trillion.
Consequently, the Central Bank of Nigeria (CBN) declared that FX revaluation gains should serve as a buffer to mitigate significant movements in the FX rate and should not be allocated for paying dividends or operating expenses.
Impact of Forex Market Unification
As part of financial sector reforms, the CBN announced in June the unification of the foreign exchange markets to reduce the disparity between the official market rate and the parallel market rate. The changes in the forex market resulted in significant losses for businesses in the industrial and consumer goods sectors, while the banking sector saw considerable gains. By the end of December 2023, the naira had lost almost 100% of its value.
A review of the financial statements of leading Nigerian companies in 2023 revealed a cumulative foreign exchange revaluation loss of N1.7 trillion, with MTN Nigeria suffering the most at N740 billion. The telecommunications giant was followed by consumer goods companies such as Nestle Plc and Dangote Sugar Plc, with N195 billion and N172 billion FX losses, respectively.
On the other hand, the three tiers of government have benefited from the FX revaluation gains, now comprising around 20% of federal allocations shared by the three tiers of government, up from 1.32% earlier in 2023.
