The Chartered Institute of Directors Nigeria (CIoD) has expressed deep concern over the impact of the recent Federal Government policy, which imposed a 70 per cent windfall tax on profits generated from FX transactions by banks from 2023 to 2025. 
  
CIoD submitted that it will have a significant effect on Small and Medium-sized Enterprises (SMEs) and businesses, worsening their inability to access finance.
      
They said while they recognise the urge to rejig the economy and the importance of this tax policy in fostering economic stability, they said it is ill-timed, excessively high and not fit for purpose given current economic realities.
      
Director-General, CIoD, Bamidele Alimi, said the policy is against the overriding philosophy of the country’s tax policy, which he said is grounded in equity, efficiency and simplicity, aiming to create a fair and transparent system that supports economic growth and development.
  
“The Nigerian tax policy is geared towards creating an enabling environment for businesses to thrive, promoting investment and fostering economic diversification. While this windfall tax may have been implemented successfully in some advanced countries, it is not enough reason for a wholesome application in Nigeria now, because it negates the overriding philosophy of our tax policy.”
   
He added that remitting windfall tax for the 2023 financial year when audited reports have been submitted and dividends allocated to shareholders is ill-timed as the bank’s financial year ended in December 2023. 
  
“Expectedly, banks are to submit their Audited Reports to the apex bank and other stakeholders by March 31, 2024, and publish no later than 21 days after submission. This implies that all banks must have done this to avoid sanctions and dividends allocated to shareholders. To have them remit the 2023 windfall tax on FX transactions, after all these activities, is retroactive,” he said.
  
According to him, with the current recapitalisation to meet the minimum capital requirements, the imposition of such a high tax could divert essential funds away from these efforts, hampering their ability to strengthen their capital bases. “This is particularly concerning given the strict definitions of paid-up share capital, which leaves banks with limited options for raising necessary funds. A high windfall tax could lead to a decline in share prices, further complicating their financial stability.”
   
Adding that the lending capacity of banks would be reduced and inhibit their financial inclusion drive, he said the additional costs incurred from the windfall tax would be passed to customers, leading to higher fees for banking services. 
   
“Increased banking fees will affect SMEs and businesses, leading to financial exclusion. Our appeal to foreign investors would also be affected, leading to further reduced Foreign Direct Investment, (FDI). Finally, the high windfall tax could also negatively impact shareholder returns.

A significant portion of the profits being diverted to taxes could lead to reduced dividends and lower returns on investments, discouraging investments in the sector and reduced capital inflows,” he said.
     
Alimi urged the government to lower the windfall tax rate gradually; introduce thresholds for tax applicability to protect smaller financial houses; offer incentives for investment in innovation; conduct an impact assessment before finalising the tax policy implementation to understand its potential effects on the sector and economy and engage in extensive consultations with key stakeholders.     
   
He also told the government to explore alternative revenue sources to reduce reliance on windfall taxes; implement varied percentages for sustainable banking practices as well as monitor and review the policy regularly. 
  
Lastly, he urged the government to reconsider and look instead for a balance that ensures both revenue generation and sustainability of the banking and related sectors.