Despite the tough operating environment, Nigerians banks’ taxes to government agencies tripled between 2023 and 2022 as banks’ resilient operational growth and profitability continue to support economic growth.

THISDAY analysis of audited reports and regulatory filings by banks showed that they have paid over N1 trillion in taxes to government over the past two years, with payments in the last audited year accounting for about three-quarters of the total payments.

Nigerian banks recorded significant growth in profitability in 2023 with average profit growth in the sector in double digit.

The growth in profitability was due mainly to business expansions, but in several instances, boosted by gains from foreign exchange revaluation gains. Nigeria had undergone a currency exchange management in 2023, with relative floating of the naira and a market-driven exchange system.

Companies are required by law to remit tax income to state, federal government agencies, among other agencies where they operate.

Aside from paying the statutory rate of 30 per cent of total profit as the company’s income tax, companies operating in Nigeria are meant to pay Tertiary Education Tax, National Information Technology Development Agency (NITDA) Tax and Nigeria Police Trust Fund Levy.

The tertiary education tax is imposed on every Nigerian company at the rate of 2.5 per cent of the assessable profit for each year of assessment, while the Act that established the Nigeria Police Trust Fund was meant to receive funds from a levy of 0.005 per cent of the net profit of companies operating a business in Nigeria and other various sources, which will be utilized for the training and welfare of personnel of the Nigeria Police Force.

A breakdown revealed that Nigerian banks paid about N700 billion as taxes in 2023 financial year, an increase of 180 per cent on about N250 billion paid for the 2022 business year.

Further analysis revealed that United Bank for Africa Plc (UBA), followed by Zenith Bank Plc were the highest tax paying firms in the Nigerian banking sector.

As UBA generated N757.68 billion Profit Before Tax (PBT) in 2023 from N200.87 billion in 2022, it paid N149.98 billion income tax expense in 2023, about 390 per cent increase from N30.6 billion in 2022.

Zenith Bank reported the highest PBT of N795.96 billion in 2023 from N284.65 billion in 2022 and declared N119.05 billion income tax expenses in 2023, representing an increase of 96 per cent from N60.74 billion in 2022.

The likes of Stanbic IBTC Holdings Company Plc, Fidelity Bank Plc and FCMB Group Plc with significant growth in profit also show significant increase in income tax expenses in the year under review.

As Stanbic IBTC Holding declared 65 per cent increase in income tax expenses from N19.54billion in 2022 to N32.29 billion in 2023, Fidelity Bank’s income tax expenses closed 2023 at N24.81 billion, a significant increase of 256.8 per cent from N6.95billion declared in 2022.

In addition, FCMB Holdings announced N11.4billion income tax expenses in 2023, a growth of 109.76 per cent from N5.44 billion reported in 2022.

Analysts have expressed the importance of companies remitting taxes to government agencies, stressing that the federal government’s move to retroactively amend the Finance Act 2023 would have negative impact on banks profit and contribution to nation’s economy growth.

The senate recently passed a bill to amend the Finance Act 2023, and impose a one-time windfall tax on banks’ foreign exchange gains realised in their 2023 financial year.

But experts noted that the exercise is ill timed, citing that it could undermine investor confidence and negatively impact Nigeria’s investment climate.

The Vice-President, Highcap Securities Limited, Mr. David Adnori stated that listed companies over the years maintained stronger profit, which is meant to contribute to government tax revenue.

He expressed that most companies that were reluctant to come to the stock market were hiding their financials or were scared of take-over by wealthy Nigerians.

He said: “Once the government can work together with the FIRS to enforce tax laws, there would be no hiding place for companies. Thus, they will be forced to come to the market.”

He noted that the proposed policy by FG would translate into over regulated banking sector amid macro-economy challenges.

Speaking with THISDAY on the impact of retroactively tax, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka stated that the decisions had been taken by all categories of investors, analysts and other stakeholders, on the basis of all known existing laws and international accounting standards in arriving at buy or sell recommendations on all securities issued by these banks.

He sais, “Another consideration is the fact that business of a bank is centered around liability generation and asset creation, what then happens to all liabilities of these banks that were subjected to repricing by all their customers as a result of currency depreciation or changes in financial or economic conditions? It is a clear demonstration of incompetence by the current government.

“They may end up destroying the economy if they continue this way. It is an inappropriate decision by government, and could also be coined as backward hustle in the business parlance. It could affect so many investment decisions we cannot even think of as of now. The government must rescind this bad decision forthwith.”

Another analyst, who requested anonymity, acknowledged the government’s fiscal challenges but criticised the approach and timing.

He said: “The rationale for the Bill is clear when we see the weak fiscal state of the Federal Government of Nigeria. The recently agreed increase in the minimum wage is expected to further increase the government expenditure for the year without new sources of revenue for the government. However, the Bill if passed into law could have more negative impacts.

“The Bill seems to target a specific industry and not a specific activity. This violates one of the cardinal principles of taxation which is fairness. The narrative would have been better if the FX gains of all businesses are subjected to the windfall tax instead of restricting it to the banks. The timing of the Bill is also very wrong as most of the banks are currently on the road show, trying to court investors.

“Unfortunately, confidence in the Nigerian economy has not been great given the unorthodox policies of the last administration. Consultation with various stakeholders would have helped to reduce the backlash that greeted the Bill.”

“The rationale for the Bill is clear when we see the weak fiscal state of the Federal Government of Nigeria. The recently agreed increase in the minimum wage is expected to further increase the government expenditure for the year without new sources of revenue for the government. However, the Bill if passed into law could have more negative impacts. The Bill seems to target a specific industry and not a specific activity. This violates one of the cardinal principles of taxation which is fairness. The narrative would have been better if the FX gains of all businesses are subjected to the windfall tax instead of restricting it to the banks.

“The timing of the Bill is also very wrong as most of the banks are currently on road show, trying to court investors. Unfortunately, confidence in the Nigerian economy has not been great given the unorthodox policies of the last administration. Consultation with various stakeholders would have helped with reducing the backlash that greeted the Bill.” He said.

The former president, Association of Stockbroking Houses of Nigeria (ASHON), Mr. Emeka Madubuike stressed that a lot of the banks have paid dividends on their foreign exchange gains realised in 2023 financial statements.

He stated that these banks have closed their 2023FY books and decisions have been made on profits generated from foreign exchange gains.

He said, “Right now, we are in a very difficult time. I do not know how the federal government will be rolling it back since it is retroactively. I do not know how it is going to be implemented but, in our country, today, anything is possible.

“If the amended Finance Act 2023 stated that going forward, this is what is going to happen to banks, I will not have any problem. If it is for 2024, banks will begin to arrange themselves to respond. I know laws are not retroactive.” (THISDAY)

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