The firm stated this in its reaction to the proposed amendment of the finance act and introduction of a one-time windfall tax on commercial banks’ foreign exchange revaluation gains in 2023 titled, “The Windfall Tax Conundrum: navigating the fiscal impact on Nigerian banks”
It noted that the proposed windfall tax on Nigerian banks brings a lot of challenges and implications to the banking sector and general economy investment-wise for both foreign and local investors.
According to PwC, “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 firm further elaborated that the practical implementation of the windfall tax might present legal and perceptual challenges concerning the principles of equity, fairness, and constitutionality.
It pointed out that the proposed legislation could also deter investors by introducing uncertainty into the fiscal environment.
It said the difference in tax rates between the conventional 30 per cent for company income and 50 per cent for the proposed windfall tax on banks poses confusion to banks on the distribution of expenses from different revenue streams.
It explained that such a scenario could result in a contradiction where banks use a different principle than the one, they previously applied in allocating profits to tax-exempt income.
In its own reaction, KPMG faulted the legislation stating it could lead to legal disputes. The firm hinged its opinion on the dictates of the country’s tax policy which it states is anti-retroactive in nature.
It explained that since most banks have already settled their tax liabilities for the 2023 financial year, imposing such a tax could lead to a constitutional crisis as it contradicts the principle of legitimate expectations.
Also reacting, a fiscal governance expert and Lead Director Centre for Social Justice ( CSJ), Barr. Eze Onyekpere said amending the Finance Act to tax foreign exchange gain windfalls will only apply to the future and it cannot be retroactive. “It cannot be used to get revenue from already accrued gains,” he said, adding, “It is not desirable and it is improper to extend taxation to an exchange rate gain when FGN will not lift a finger to compensate companies for exchange rate losses.”
Last week, President Bola Tinubu sent a letter to the Senate seeking amendment of specific provisions of the 2023 Finance Act.
The proposed amendment aims to impose a 50 per cent tax on foreign exchange gains reported by commercial banks in Nigeria for the entire year 2023, based on their financial statements.
In the letter, the President explained that the revenue generated from this tax would be allocated to capital infrastructure development, education, healthcare access, and public welfare initiatives.