Because the Central Financial institution continues to provoke varied financial insurance policies to scale back the volatility plaguing the change fee market, economists have defined why business banks in Nigeria look like making earnings whereas producers rely losses amid the prevailing foreign exchange disaster.
Towards the backdrop of overseas change revaluation good points arising from the depreciation of the naira, the earnings earlier than tax of 9 business banks within the nation rose sharply by 156.4 per cent to N2.3tn in simply 9 months of 2023.
In line with the monetary experiences of the 9 banks launched by the Nigerian Change Restricted final yr, about 63.6 per cent amounting to N1.457tn of the revenue got here from overseas exchange-related transactions.
Within the corresponding interval of 2022, the banks made simply N225.416bn, indicating a foreign exchange revenue development fee of 546.5 per cent.
In the meantime, eight producers, together with Dangote, BUA, and Lafarge, noticed their overseas exchange-related losses rise to N627.7bn within the first quarter of this yr, in line with the monetary statements of the companies revealed by the Nigerian Change Restricted in Could.
The Nigerian authorities, nevertheless, just lately launched a windfall tax on the business banks’ overseas foreign money revaluation good points, hoping to make use of the proceeds to part-finance its spending plans.
In a letter just lately despatched to the Senate, President Bola Tinubu requested the Pink Chamber to again laws that may tax the bumper revenue derived by banks final yr from the revaluation of their overseas currency-denominated belongings.
Because the windfall tax continues to generate reactions from the banking neighborhood, economists have defined why the banks look like recording elevated earnings amid the foreign exchange disaster that’s inflicting important losses for producers.
Chatting with Saturday PUNCH, Prof Taiwo Owoeye of Ekiti State College, Ado Ekiti, mentioned the latest windfall tax by the Federal Authorities was knowledgeable by the plain earnings business banks are making on the foreign currency deposited of their foreign exchange accounts, which is brought on by the constant depreciation of the naira in opposition to the greenback.
He defined, “Banks earn more money by means of foreign exchange tax. What that merely means is that if banks have some revenue of their dollar-denominated accounts and the change fee depreciates, they will make more cash from it. And that’s what the federal government is attempting to discourage. However for manufacturing companies, in the event that they produce and the naira depreciates, they make losses. That’s the reason banks are making more cash now than the producers. So what the federal government is attempting to do is to tax these benefits of the banks.
In his contribution, Prof Sheriffdeen Tella, a Professor of Financial Economics at Babcock College, Ilisan Remo, Ogun State, mentioned the federal government must train warning in its efforts to lift income by means of taxes.
He emphasised that the federal government shouldn’t attempt to tax the earnings being recorded by business banks, as these monetary corporations are already paying their revenue taxes into authorities coffers.
Tella mentioned, “The banks pay their regular revenue tax. If the windfall achieve is a part of the payable taxes, that will probably be comprehensible, but when the federal government is simply inventing it, it would discourage the banks from going into some companies that may give them more money. So it isn’t good for the federal government to simply get up and determine to tax this anyhow.
“Come to consider it, if the banks are making good points, is it not a part of their regular enterprise? And if the federal government is getting revenue taxes from them, that ought to have taken care of this new additional tax. So, I don’t assume the federal government ought to simply be taxing anyhow.
“If it isn’t a constitutional tax, I don’t see any want for the federal government to introduce it. They simply need to discourage the banks from making earnings. So the federal government needs to be cautious with the best way it taxes issues, in order to not be creating issues for native funding and the enlargement of companies.”