Zenith Bank, one of Nigeria’s largest and most profitable bank had an effective tax rate of just 10 percent in the nine – months period to September 2019, according to MoneyCentral’s analysis of the tier-one lenders financial statement.
Zenith Bank Group reported profit before tax of N177.28 billion for the period (January – September 2020) and an income tax expense of N17.968 billion, equivalent to 10 percent of gross profits.
For the standalone bank as at September 2020, income tax expense of N9.72 billion was paid on gross profits of N145.9 billion, equivalent to an effective tax rate of just 6.6 percent.
Nigeria’s effective tax rate for most corporations is at 32 percent (including education tax).
The bank however is not to blame for this anomaly as Nigeria’s tax laws have numerous loopholes through which firms can lawfully avoid paying the maximum tax rate.
For banks interest earned on Federal government debt securities such as treasury bills and bonds are tax free, as well as for State government debt and corporate bonds, according to a tax exemption issued in 2011.
The tax exemption was granted for a period of 10 years, with the exception of Bonds issued by the Federal Government, which shall continue to enjoy such exemptions.
Government probably put in place the exemptions 10 years ago to enable the growth of Nigeria’s debt markets.
Zenith Bank earned a total of N100.94 billion as interest income from Treasury bills (N40.3 billion) and Government and other bonds (N60.64 billion) in 9 months (January to September 2020).
A breakdown of the N17.9 billion in taxes paid by Zenith Bank Group for the September 2020 period shows corporate taxes of N8.06 billion paid, prior period under provision of N5 billion, information technology tax of N1.48 billion, and Education tax of N1.28 billion.
The N17.9 billion in taxes paid in the 9 months’ period of 2020 by the Zenith Bank Group, were down by -29.6 percent compared to the N25.46 billion paid in the corresponding period of 2019.
This is as gross profits were virtually the same for both time periods. N177.28 billion as at September 2020, compared to N176.183 billion for September 2019.
Nigeria’s Federal Government which is struggling with a narrow revenue and tax base may need to undertake a cost benefit analysis on the portfolio investor friendly tax breaks compared to the need to improve its tax earnings, especially since Nigeria’s debt markets have grown spectacularly since 2011.