Bank Chiefs Lobby Tinubu on Forex Windfall Tax as Government Awaits Payment

The heads of seven major Nigerian banks are engaged in ongoing talks with President Bola Tinubu, aiming to negotiate a reduction in the newly imposed windfall tax on foreign exchange gains. The executives, working closely with government officials, are seeking a review of the 70% tax on profits from last year’s naira devaluation—a tax policy introduced to help fund key public infrastructure and welfare projects under Tinubu’s Renewed Hope Agenda.

Despite the tax’s official announcement four months ago, the government has not yet received any payments from the banks. This delay comes as the 2025-2027 Medium Term Expenditure Framework and Fiscal Strategy Paper reveals a significant expectation of revenue from the banks. Initially set at 50%, the one-time levy was raised to 70% by the Senate, sparking protests from the banking sector.

The windfall tax was introduced by President Tinubu as part of the 2023 Finance Act amendments. Aimed at increasing tax revenue from 11% to 18% of GDP, the tax targets the exceptional profits banks reported in 2023, largely due to foreign exchange revaluation gains from the naira’s substantial devaluation that year. The policy could raise over N425 billion from the banks, although government sources project a potential N1 trillion haul.

In July, key industry figures, including United Bank for Africa Chairman Tony Elumelu and First City Monument Bank’s Group Chief Executive Officer Ladi Balogun, met with Tinubuto express concerns. Since then, negotiations have continued behind closed doors. According to a senior government source, the banks have been “lobbying the President and top officials to reduce the tax,” citing shock over the 70% rate.

A 2023 Central Bank of Nigeria (CBN) circular, prohibiting banks from using their foreign exchange gains for dividends or operating costs, has added to industry frustrations. Intended as a prudential measure, the CBN directive directed banks to reserve forex gains as a buffer against future currency risks, essentially ensuring these funds were not allocated to shareholders or operational expenses—a move that some view as a precursor to the current tax policy.

A confidential government source explained the logic: “This was the policy on the exchange rate that made the banks realise these huge profits. All over the world, when a government policy enriches one sector while harming another, taxes are used to rebalance the impact.”

Despite the lobbying, industry experts warn of negative ramifications. International ratings agency Moody’s issued a report labelling the windfall tax a “credit negative for banks,” especially those whose capital positions already verge on regulatory limits. The agency noted that while the tax would provide the government with a short-term revenue boost, its impact on the financial sector could deter investors and strain capital adequacy ratios.

The controversy also underscores broader concerns around the fairness of the tax. Prof Pius Olanrewaju, President of the Chartered Institute of Bankers of Nigeria, criticised the policy as “discriminatory,” highlighting that banks appear to be the sole sector targeted for their forex gains. “In countries where windfall taxes have been applied, there are typically incentives to offset the impact,” Olanrewaju said, adding that the absence of such incentives could stymie foreign investment and disrupt efforts to strengthen capital bases.

The 2025-2027 Medium Term Expenditure Framework included an estimated revenue of N6.28 trillion from additional windfall taxes and exchange rate differentials. However, with no remittances received yet, the potential revenue remains theoretical. As negotiations continue, it is unclear if the government will uphold the 70% tax rate or reduce it to accommodate the banking sector’s position.

As Nigeria’s financial sector braces for the tax’s final structure, banks may soon face a definitive mandate to pay up. But with little indication of the government’s exact intentions, uncertainty looms over both the fiscal landscape and the banks’ financial strategies for 2024.