I am concerned about the constitutional validity of the Finance (Amendment) Act 2024 which imposes a windfall tax of 70% on the realised profit from all foreign exchange transactions of banks and other financial institutions in the 2023 financial year.
CONSTITUTIONAL VALIDITY OF THE ACT
It is my considered opinion that the imposition of a windfall tax by the Finance (Amendment) Act 2024 may be unconstitutional and likely the result of a flawed process for the following reasons:
The Finance Amendment Act introduces significant tax and criminal liability provisions. Section 30 of the Finance Amendment Act imposes a 70% windfall tax on the realised profits from all foreign exchange transactions of banks and other financial institutions during the 2023 financial year. This creates an issue of retroactive taxation, compelling banks to pay taxes on profits earned before the law was enacted, despite having already paid taxes on these amounts. In addition, Section 31 of the Finance Amendment Act criminalises the non-payment of these taxes. Under this section, banks that fail to remit 70% windfall tax will be subject to fines and imprisonment of their principal officers. The provision applies criminal liability to banks and their officers if they fail to comply by December 31, 2024. This section backdates criminal liability and creates an undefined, retrospective offence. Further, Section 32 which serves as the commencement clause states that Section 30 (the imposition of windfall tax) will take effect from January 1, 2023, creating a retrospective application of the tax law.
This raises a significant issue: whether criminal penalties can justly be imposed for non-compliance with a tax obligation that was unknown and unenforceable at the time of the profits’ realisation in the 2023 financial year and an undefined offence which is contrary to section 36(12) of the Constitution of the Federal Republic of Nigeria.
RETROSPECTIVE APPLICATION OF THE FINANCE (AMENDMENT ACT) 2024
Generally, a statute does not apply retrospectively except there are express clauses in the enactment approving the retroactive application of the statute. The courts have consistently upheld this principle as sacrosanct. Although a fundamental principle of law is that statutes are to operate prospectively and ought not to apply retrospectively, it is permissible that a statute may expressly allow a retrospective application.
There is an interesting and relevant decision of the Federal High Court that has an impact on this discussion; the case of Accugas Limited v Federal Inland Revenue Service (FIRS) and anor. The plaintiff in this matter received a corporate income tax (CIT) assessment from the Federal Inland Revenue Service (FIRS) for the year 2019, based on amendments in the Companies Income Tax Act (CITA) under the Finance Act 2019 (FA 2019). FIRS applied a minimum tax rule for companies with over N25 million turnover, but the plaintiff argued they were exempt under the old CITA, as they had 99.9% imported equity. The plaintiff contended the FA 2019 amendment, effective January 2020, should not retroactively apply to their 2019 assessment. FIRS countered that the plaintiff’s tax obligation fell within the provisions of FA 2019 because the relevant time to file CIT returns was within six months of the accounting year, which overlapped with the period when the FA 2019 was in effect. Therefore, the plaintiff no longer had a right to the prior exemption, as it was repealed by FA 2019.
The Federal High Court in holding that the provisions of the Finance Act 2019 cannot retroactively apply to periods, transactions, activities and income earned before 13 January 2020 pointed out that no statute may be construed so as to have retrospective effect unless the retrospective clause is clearly expressed in the law. The Judge said that:
“It suffice to say that cause of action of Plaintiff as it relates to this taxation dispute is for the year 2019 and it is the law that was in force as at 31 December 2019 that is applicable. This Court therefore vehemently disagrees with the position of the 1″ Defendant as same is illogical … The next question that calls for consideration is: whether it was the intention of the legislature to make the amendment of section 33(3)(b) CITA in the Finance Act to apply retrospectively. My answer is No and No. Doubtless, the legislature has the constitutional right to enact a statute and make it apply retrospectively. However, this must be stated expressly in clear terms by the enactment. A statute ought not to be given retrospective effect except where its language clearly intends the statute to operate retrospectively, …”
As a result of this decision, it appears that the National Assembly, in the new Finance Amendment Act, introduced a clause that purportedly addresses the defect highlighted in the Accugas case to seemingly comply with the decision of the Federal High Court. The Finance (Amendment) Act 2024 inserted a commencement clause intended to apply the Act retrospectively, but it did not clearly set out a retrospective clause. The commencement clause simply states: “The provisions of section 30 shall apply from 1st January, 2023.”
In my view, this does not qualify as an express retrospective provision and still suffers from the defects identified by the Judge in Accugas case. The commencement clause, much like an interpretation clause, is not considered part of the substantive law. For an Act to have retrospective effect, this must be explicitly stated in the substantive provisions of the law. Therefore, in the absence of an express provision in the substantive part of the Finance Amendment Act, stating that it is to operate retrospectively, it is my opinion that the Act fails to meet the requirement that the retrospective application of a law must be clearly included in the Act. Furthermore, by imposing tax liabilities on transactions completed before the enactment of the law, the Act disrupts settled financial positions, undermining the predictability essential for sound fiscal management.
CRIMINALISATION OF NON-COMPLIANCE
The National Assembly does not have the constitutional authority to pass laws with retroactive criminal penalties, as seen in the Finance Amendment Act. The imposition of retroactive taxes, in itself, is arguably not prohibited by the Nigerian Constitution. However, criminalising the non-payment of taxes that were imposed retroactively presents a major constitutional problem as it conflicts with Section 4(9) and Section 36(8) of the Constitution of the Federal Republic of Nigeria.
Section 4(9) of the Constitution explicitly prohibits the National Assembly from making laws with retrospective effect in relation to criminal offences.
“Notwithstanding the foregoing provisions of this section, the National Assembly or a House of Assembly shall not, in relation to any criminal offence whatsoever, have power to make any law which shall have retrospective effect.”
Similarly, Section 36(8) of the Constitution prohibits retroactive criminal legislation:
“No person shall be held to be guilty of a criminal offence on account of any act or omission that did not, at the time it took place, constitute such an offence…”
Although Section 31 gives the impression that the application of criminal penalties will begin from December 31, 2024, I do not see how the FIRS can enforce this provision without violating the constitution. The implication of Section 32 of the Finance Amendment Act which seemingly excludes the criminal liability from applying from January 2024 creates a potential overlap between tax liability and criminal liability. Banks are placed in a legal limbo, where they are exposed to criminal sanctions for non-compliance with a tax regime that was neither enforceable nor known during the time of the foreign exchange transactions. This ambiguity raises the question: Will banks that fail to pay the retroactive tax dating back to January 1, 2023, be subject to criminal prosecution even though the criminal liability clause applies from December 2024?
Given the criminal nature of the provision of Section 31(2) of the Finance Amendment Act, the Constitution’s prohibition against ex post facto laws is applicable, rendering the retroactive imposition of these penalties unconstitutional.
ELEMENTS OF AN OFFENCE
The Finance Amendment Act imposes criminal sanctions retroactively making the non-payment of windfall taxes by banks an offence punishable by fines and imprisonment of their officers for a term not exceeding three months. From my review of the Act, I have noted a key issue arising from the lack of a clear definition of the elements constituting the offence. In my opinion, this is bad for vagueness and violates the constitutional standard laid out in Section 36(12) of the 1999 Constitution of the Federal Republic of Nigeria (as amended).
Subject as otherwise provided by this Constitution, a person shall not be convicted of a criminal offence unless that offence is defined and the penalty therefore is prescribed in a written law; and in this subsection, a written law refers to an Act of the National Assembly or a Law of a State, any subsidiary legislation or instrument under the provisions of a law.
Without a clear actus reus (the failure to pay the tax) and a well-defined mens rea (whether the failure was intentional, negligent, or without fault) in a law creating an offence, such law leaves too much discretion to enforcement authorities. This undermines the principles of fairness and legal certainty and casts doubt on the legality of the Finance Amendment Act. Hence, the absence of clearly defined elements for the offence in the Finance Amendment Act not only violates constitutional principles but also undermines fundamental criminal law principles that require both the physical act (actus reus) and the mental state (mens rea) to be established beyond reasonable doubt for criminal liability to be imposed.
CONCLUSION
The retrospective imposition of taxes coupled with the criminalisation of non-compliance raises profound constitutional and legal concerns. The National Assembly lacks the constitutional power to enact laws that retrospectively impose criminal penalties. I believe that the attempt of the Finance Amendment Act 2024 to retroactively apply a 70% windfall tax from January 1, 2023, and impose criminal liability for non-payment violates the constitution and jeopardises the rule of law. The constitutional validity of this law is very dubious and questionable.
