Updating my last post on Nigeria’s plan to tax forex-anchored profits of Nigerian banks, as the government pushes the budget from N28.7 trillion to N34.9 trillion, with plans to fund infrastructure projects and cushion economic challenges. That is about N6.2 trillion increase on the benchmark. Already, the requested amendment has passed second reading in the National Assembly. The revelation is this: “there is a proposal to tax banks 50% of their realized profits on foreign exchange (FX) gains”.
Nigeria’s banks reported about N3.5 trillion from FX gains. The gains include natural gains from normal FX-related gains in banking and gains as a result of the floating of Naira. It is also important to note that some of the gains are unrealised book gains (you hold an asset which you bought for $1 using N500/$, but now Naira is N1,500/$, you book that the investment has returned N1,000 even though you might not have liquidated it).
Now, many things will happen as the government goes to tax those gains. The banks certainly have their records of realized and unrealized gains, and the apex ideally knows what those numbers are. That said, even if the government can work on legislation to do this, it can get about N2 trillion which means N4.5 trillion offset remains for this budgetary amendment.
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This must be revealing to the government considering that its budget shifted because of the FX policies. Unfortunately, unlike the government which can enact new laws to get profits from banks, many companies cannot plug the holes in their own budgets. The next 6 months will be interesting in Nigeria. Good luck, Nigeria.
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Those who wish to reap where they did not sow will learn accounting by force, where what you see is not what you get. If your government corners your paper profit because of currency devaluation, will it also cover for your inflation and reduced purchasing power? This does not look right, but it was copied from from somewhere, where Oil companies were asked to pay ‘windfall’ tax. When oil prices go up, oil majors make actual money, but calling currency fiddling actual profit is misleading. $1000 is still $1000, whether you buy it with N500k or N1.5 million, nothing changes on the other end.
This country doesn’t rank high on Trust Quotient, and the government of the day has left no one in doubt that it didn’t have a plan for anything beforehand, so it resorted to putting hands and head wherever there’s an opening. Nothing shows that the over N28 trillion initially budgeted can be fully funded, but a certain amount of money will need to enter somewhere, you can keep guessing where it is.
You believed those who cannot perform, but doubted and derided those who could, and you think the gods will be happy with you? Keep standing. Don’t complain, and never explain.