UBA, Fidelity, Wema, 3 other banks pay N205.6 billion as windfall tax in 2024

• Six banks paid N205.6 billion as windfall tax in the 2024 financial year
• Zenith Bank paid the highest windfall tax of N63.31 billion, followed by UBA with N57.91 billion for the 2023 and 2024 financial year
• The windfall tax is a 70 per cent levy on profits made from foreign exchange transactions conducted by banks between 2023 and 2025 due to the impact of the currency floating

Six banks have paid about N205.59 billion as windfall tax in the 2024 financial year.

The windfall tax is a 70 per cent levy introduced in the Finance (Amendment) Act 2023 on profits generated from foreign exchange (FX) transactions conducted by Deposit Money Banks (DMBs) between 2023 and 2025 due to the impact of the currency floating by the Central Bank of Nigeria (CBN).

The tax was initially pegged at 50 per cent, but the National Assembly increased it to 70 per cent during deliberations on the bill in July 2024.

The audited reports filed with the Nigerian Exchange Limited (NGX) showed that banks have already started complying with the new regulation, indicating that attempts to lobby the government to reduce the tax failed.

The banks that have reported payments include Zenith Bank, United Bank for Africa (UBA), Fidelity Bank, Wema Bank, Stanbic IBTC Holdings (the parent company of Stanbic IBTC Bank), and Guaranty Trust Holding Company (the parent company of Guaranty Trust Bank).

Zenith Bank paid the highest windfall tax in 2024

According to the audited reports of the six financial institutions, Zenith Bank paid the highest windfall tax of N63.31 billion.

UBA followed with a windfall tax of N57.91 billion for the 2023 and 2024 financial years – N24.819 billion for 2023 and N33.092 billion for 2024.

GTCO’s financial report for 2024 showed that it paid N51.25 billion as a windfall tax; Stanbic IBTC Holdings paid N17.18 billion, and Fidelity Bank paid N13.33 billion in the 2024 financial year.

Wema Bank paid N2.62 billion as windfall levy in the 2024 financial year, indicating in its annual report that this was about three per cent of its profit before tax, which was N102.52 billion.

Windfall tax targets businesses’ gains from naira devaluation

The windfall tax targets the increased profits banks made due to the naira’s devaluation in mid-2023 and a move to raise the tax revenue’s share of the gross domestic product (GDP) to 18 per cent from 11 per cent within three years.

The tax is levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions rather than the company’s efforts.

The 2023 fiscal year saw a major devaluation of the naira against other foreign currencies, which implies that DMBs in Nigeria that held FX assets on their books reported significant unrealised FX gains on transactions in foreign currencies upon translation to naira and realised FX gains upon disposal of assets (e.g., cash, stocks, bonds, etc.) or settlement of transactions in foreign currencies.

According to an analysis of banks’ financial statements, it was projected that the government would collect over N425 billion from seven banks, but The Punch reports that a top government official close to the development said the government is expected to rake in N1 trillion from the levy.

The source stated that the remaining banks might have to pay an outstanding N600 billion as a windfall tax.

Stakeholders raised concerns about the windfall tax

The government’s introduction of the windfall tax raised concerns among stakeholders, citing the negative effect of the levy on banks.

International rating company Moody’s, in a report titled ‘Nigeria’s Proposed Windfall Tax on Foreign Exchange Gains is Credit Negative for Banks,’ said the levy threatens banks’ capital adequacy.

Moody’s stated, “The windfall tax will have a particularly negative effect on banks whose capital adequacy is close to regulatory thresholds.

“The tax follows record profits declared by banks in 2023, largely because of foreign-currency revaluation gains related to the naira’s massive devaluation of 37 per cent in June 2023.”

Also, the National Coordinator of the Independent Shareholders Association of Nigeria, Moses Igbrude, said the government wants to enjoy the benefits of the revaluation gains without cushioning the effects for the sectors that suffered FX losses due to the same naira devaluation.

Igbrude said, “What is the work of the government, and how does it fund this work? Through taxes, but introducing various taxes just because the government needs money is not very good, especially when it is not providing the corresponding responsibility and duties needed for the banks to do their jobs, e.g, security, water, power, and other infrastructures lacking in the society. Each branch of a bank runs like a local government.

“Taxing banks because they make money as a result of government policy on devaluation of the naira and tagging it as windfall is not proper.

“Which of those companies that the FG policy of devaluation affected which resulting in FX losses in their books, is the FG going to compensate them? It should be both ways,” he said.

Data reveals banks borrowed N131.42 trillion from CBN in 2024 to meet business obligations

Meanwhile, TheRadar earlier reported that data released by the Central Bank of Nigeria (CBN) showed that deposit money banks (DMBs) and merchant banks borrowed N131.42 trillion from the apex bank in 2024 to meet their daily business obligations.

According to the data, the amount borrowed in 2024 is 636.6 per cent higher than the N17.84 trillion borrowed by Nigerian banks in 2023.