By Abraham John Onoja
Stamp duties are taxes levied on instruments executed by both companies and individuals. The duty rates differ depending on the types of instruments or nature of transactions and these may be flat charges or ad valorem charges, which means the percentage of the value of the transaction. Stamp duties are payable on instruments such as lease agreements, bills of exchange, promissory notes, receipts, transfer agreements, mortgage, insurance policies, share capital, guarantees amongst others.
Stamp duties, like other taxes, also serve as an instrument utilized by governments in order to raise much needed revenue. Stamp duties were first enacted in Nigeria, pre-independence in 1939 and 1954, and included in the compilation of the Laws of the Federation of Nigeria, 1990 and 2004, respectively.
Historically, stamp duties were also levied on documents such as marriage licences, military commissions, receipts and land transactions. In this regard, a physical stamp had to be impressed upon the documents to show proof that stamp duty had been paid before the document was legally effective. However, with modernization, there is no longer need for an actual stamp.
The Finance Act, 2019 (“the Finance Act”) introduced “electronic stamping” and “electronic denoting” of documents in order to match tax collection with business developments in the digital age. In this regard, the FIRS has provided a platform on www.stampduty.gov.ng for declaration and payment of stamp duty on dutiable instruments that exist in electronic form. Therefore, there would be no requirement to have such documents physically stamped.
The Finance Act also resolved the decades-long dispute between regulatory agencies over the power to administer the Stamp Duties Act (SDA) by clearly vesting power upon the Federal Inland Revenue Service (FIRS) to impose, charge and collect duties upon instruments that have been executed by companies or between a company and an individual.
Therefore, the only competent authority empowered to impose, charge and collect duties on eligible instruments relating to matters executed between a company and an individual, group or body of individuals is the federal government while the state governments are empowered to collect duties in respect of eligible instruments
executed between persons or individuals only.
In light of the clear powers vested in the FIRS for collection of duties, the Tax Authority issued a Public Notice (“the Notice”) on 19th July 2020 by the FIRS with respect to the SDA. The Notice provided clarification on the application and administration of Stamp Duties in Nigeria. It also highlighted the necessity to comply with
the SDA by paying the appropriate duties on relevant instruments and transactions. It further provided a short form listing of transactions and instruments and the applicable duty rates as a quick reference point. Some of the chargeable transactions are bank deposits or transfers, loan agreements, Memorandum of Understanding related to land, sales agreement, will, tenancy/lease agreements and all receipts.
This public notice released by the FIRS is of great importance as it will help to create tax awareness to Nigerian taxpayers and also enable the civic responsibility of paying taxes voluntarily in time. However, in reviewing the public notice, it is also important for tax payers to refer to the provisions of the SDA as some of the information provided by the FIRS in the Notice is at variance with the provisions of the SDA.
In terms of benefits of stamping documents, it is important to understand that stamp duty provides a legal protection over landed properties and interests in land generally. Without stamping, an owner’s title to property is merely equitable and not completely secured. Therefore, paying stamp duties brings such transactions under the cover of the Nigerian legal system and makes such instruments admissible in court as an evidence if issues ever arise.
Instruments should be stamped on the date of first execution in Nigeria. The penalty for failure to comply with the provisions of the SDA is stated in relevant sections of SDA that address the administration of various instruments, documents and receipts. There is therefore a need for tax payers to ensure compliance in order to avoid sanctions.
Stamp duty is an enduring tax type that can withstand economic shocks because of the varied instruments on which it can be charged. It has the potential to yield tax revenue in the region of trillions of naira per annum. This therefore can serve as a key to economic prosperity for the Nigerian Government to enable it to meet its obligations to Nigerian citizens and businesses, in light of the price fall in the oil market. All of these points state the importance of stamp duties to the economy, however, this is not without its challenges.
Some of the challenges of implementing the provisions of the SDA include, the complexity of the provisions of the SDA and the ability of the relevant tax officials and practitioners to accurately interpret it, lack of clarity on relevant stamp duties rate in the minds of tax payers given the discrepancies between the FIRS’ public notice and the provisions of the SDA; the tax authorities focusing on transactions that will not yield much revenue in light of the provisions of the SDA during tax audit exercises, thereby expending huge time and resources without commensurate results and achievements.
Notwithstanding the huge revenue potential of stamp duties for the government, enforcing the payment of the duty will be a huge financial challenge for low income earners in the country, especially in light of the high rate of unemployment and unproductivity due to the twin shock – the global pandemic and dwindling oil prices.
For the stamp duties implementation to be effective, it is important for the FIRS to provide adequate training for its staff in order to ramp up competence in this regard. The FIRS will also be required to review its public notice vis-a-vis the provisions of the SDA and correct relevant discrepancies in order to win the trust of individuals and businesses, and encourage willful compliance by these stakeholders. Where the FIRS fails to perform such a review, we may witness an increase in court cases with respect to disputes on stamp duties matters as some of the FIRS’ position can be successfully challenged.
Given the FIRS’ aggressive position in its public notice on stamp duties collection, it will be important for companies and businesses to perform a review of their transactions in order to ascertain their level of compliance with the SDA in respect of dutiable instruments in hard copy and electronic format, in order to avoid stiff penalty and interest for non-compliance.