The Federal Government has reiterated that the principal officers of banks who refuse to comply with the law on the windfall tax on banks’ foreign exchange profits will be sanctioned.

The government’s position was reiterated on Monday at the National Assembly when the Minister of Finance, Wale Edun, and the Chairman of the Federal Inland Revenue Service, Zack Adediji, met with the finance committees of both chambers on the Amendment of the Finance Bill, 2024.

Last week Wednesday, the Senate gave expeditious passage to President Bola Tinubu’s request to amend the Finance Act to impose a one-time windfall tax on banks’ foreign exchange profits in 2023.

A windfall tax is a higher tax levied by the government on sectors or businesses that have disproportionately benefited from favourable market conditions.

The President said the money would be part of the revenue used to fund the additional N6.2tn added to the 2024 budget.

The bill which has passed the second reading states, “The Federal Inland Revenue shall assess the realised profits, collect, account, and enforce payment of levy payable under section 30 in accordance with the powers of the Service under the Federal Inland Revenue Service (Establishment) Act 2007; and in the exercise of its functions in 32(a) above, may enter into a deferred payment agreement with the assessed banks, provided that such deferred payment agreement is executed on or before December 31, 2024.

“Any bank that fails to pay the windfall profit levy to the service and has not executed a deferred payment agreement before December 31, 2024, commits an offence and shall, upon conviction, be liable to pay the windfall profit levy withheld or not remitted in addition to a penalty of 10 per cent of the levy withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria minimum rediscount rate and imprisonment of its principal officers for a period of not more than three years.

“Financial year means either the year commencing from January 1, 2023 to December 31, 2023, or any period within the financial year not aligned with the calendar year comprising twelve calendar months of the bank’s financial activity,” it added.

Speaking at the meeting, Edun said, the “bank windfall” profit levy, though small still constituted an important contribution to government finances at a time when revenues had substantially increased despite minimising taxes.

In his explanation, the FIRS chairman explained that the windfall tax was not a new tax imposed on banks.

Adedeji said, “These are the gains that you have without any contribution from you, without any value addition. They result from the effect of an adverse activity on others. And who are these others? If you look at the report of all manufacturing entities in the last one and a half years, you will discover that a lot of registered companies recorded huge losses from exchange transactions.

“Anywhere in the world, your duty as the government is to redistribute the wealth to sustain the progress and prosperity of the nation.

“So the loss suffered by manufacturing, as a result of these foreign gains, which is being recorded in the bank is what the government seeks to redistribute. And that is why we have this levy.

“So we seek your permission and your understanding in balancing this economic inequality that has occasioned due to the circumstances that we find ourselves.”

Speaking on the sharing formula, the FIRS chairman proposed that it be distributed 50/50 between banks and the government.

He said, “These gains that are realised, the levy proposal today is 50 (per cent) for the bank and 50 (per cent) for the government.”

Raising the issue of penalty as stated in the bill, Senator Isah Jibrin ( APC, Kogi East), asked that the bill be more explicit.

He said, “My area of worry is concerning the penalty, we need to be very explicit on it.

“On the issue of penalty, here it is stated, 10 per cent of the tax withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria MRR. So what are we going to do? 10 per cent is like coming from nowhere, so I would suggest that we align the MRR.”

“Then at what point does the issue of imprisonment of the officials come in? At what point do we now say, okay, enough is enough and the officials should be arrested after default, is it after a month, a year, two years, or three years.”

Responding to this, Edun said it was unlikely that banks would defy the government, but noted there were penalties for those who defaulted.

The finance minister said, “To be fair to the banks there is no reason to assume that’s what they trying to do. Let us give the benefit of the doubt to one another.

“Well there has to be, there has to be something that will serve as a deterrent. The penalties have to be there. And at the end of the day, tax evasion is a criminal offence.

“For underreporting of profits by the bank, we have enough technical ability to look at what the bank’s audited accounts say and track the level of foreign exchange and the profits therefrom.”

Adedeji also allayed fears regarding possible cases of underreporting.

He noted that the CBN in a memo in September 2023 and March this year had directed commercial banks in the country not to touch or spend the profits they made from foreign exchange transactions.