DEVELOPMENTS ON STAMP DUTIES IN NIGERIA: WHAT YOU NEED TO KNOW

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Introduction 

Almost everywhere you turn to, the phrase ‘stamp duties’ keeps surfacing. Banks deduct N50 on certain bank transactions worth of N10,000 and above. Tenants (like you) have also been instructed to pay specific stamp duties, courtesy of FIRS.However, all of these do not exclude you from your obligation to pay stamp duties on some documents (electronic documents inclusive).

While it may appear that stamp duties are the new “cash cows” of the government, it is pertinent to have an appreciable understanding of same in order to keep you actively informed, aid your tax compliance and for avoidance of sanctions.

This piece hereby attempts to give a simplified analysis of key things you need to know about stamp duties vis-à-vis the recent developments (stamp duty on tenancy/lease agreements inclusive) and addressing the authority tussle between the FIRS and NIPOST.  

What Are Stamp Duties?

Under the Stamp Duties Act, CAP S8, LFN 2004 (as amended), Stamp Duties are taxes levied on electronic or written transaction documents executed in Nigeria or in any relation to a property situated in or to any matter or thing done in Nigeria. Example of such documents are: Agreements, Contracts, Loans and credit facilities, Bank deposits or transfers, Insurance policies, Promissory notes, Memorandum of Understanding (MOU), Receipts, and others stipulated in the Schedule to theStamp Duties Act (hereinafter referred to as SDA).

It is therefore a legal requirement that your documents such as agreements, conveyance or transfer of any property among others specified in the SDA must be duly stamped i.e tax must be paid on them and such document must receive an impressed adhesive stamp, electronic tagging or any other form of acknowledgement of payment adopted by FIRS as evidence of stamp duties payment.

Who Collects Your Stamp Duties?

Pursuant to section 4 (1) of SDA (as amended by section 53 of the Finance Act 2019) , stamp duties on documents which relates to matters executed between a company (banks and other financial institutions inclusive) and an individual, group or body of individuals are to be imposed, charged and collected by the FIRS.

While section 4(2) of SDA (as amended by 53 of the Finance Act 2019) stipulates that stamp duties on documents which relates to matters executed between persons or individuals are to be imposed, charged and collected by the Relevant Tax Authority in a State e.g LIRS, KWIRS etc.

That is:

PARTIES INVOVLED

TIER OF GOVERNMENT RESPONSIBLE FOR COLLECTION

1. Documents executed between Company A and Company B

FIRS

2. Documents executed between Company A and Mr. Ciroma

FIRS

3. Documents executed between Mr. Adekunle and Mr. Ciroma

Relevant Tax Authority in a State e.g LIRS, KWIRS

However, the stamp duties collected by the Tax Authority of a State like KWIRS, LIRS are based on rates or charges agreed with the FIRS. Also, notwithstanding the fact stamp duties between individuals are to be administered by relevant tax authority in a State (i.e KWIRS, LIRS etc), duties on bank transactions still goes to the FIRS.

Please note that the Stamp Duties Act does not provide for instances of a refund in the event of an erroneous payment. That is, if you make a mistake to pay stamp duty to the wrong tier of government, you will still be liable (owing) stamp duty to the appropriate tier of government you were supposed to pay to.  

How Are Stamp Duties Charged?

What you pay as stamp duty is dependent on the stamp duty charges on that particular document.

Stamp duty are charged on two metrics: i. ad valorem (i.e based on a given percentage of the value of the transaction which the dutiable instrument is used to execute) or ii. at a fixed rate (i.e the sum collected irrespective of the value of transaction which the dutiable instrument is used to execute). Dutiable instruments are documents which stamp duties must be paid on.

Specific details of the rates of each dutiable instrument can be accessed on the official FIRS Stamp Duty Portal via: https://stampduty.gov.ng/stamp_duty_charges

Who Pays Stamp Duties?

The execution of documents usually involves two or more individuals. But with respect to stamp duties obligation, someone has to pay.

Although, the person liable to pay for stamp duties is not expressly stated in SDA. Nevertheless, we can infer that the obligation to pay lies on the person that will be penalized for the non-payment.

This is provided for in section 23(3)(C) of SDA and illustrated below:

TITLE OF INSTRUMENT (DOCUMENT) AS DESCRIBED IN THE SCHEDULE

PERSON LIABLE TO PAY PENALTY

Bond, Covenant or Instrument of anykind whatsoever

The Obligee, Covenantee or the person taking the security

Conveyance on Sale Vendee or Transferee

Vendee or Transferee

Conveyances or transfers operating asvoluntary dispositions inter vivos

Grantor or transferor

Lease Lessee (tenant)

Lessee (tenant)

Mortgage bond, debenture, covenant and warrant of attorney

The mortgagee or obligee, in the case of a transfer or re-conveyance, the transferee, assignee or disponee or the person redeeming the security.

Settlement

Settlor

Another similar way to determine who pays can be seen in the FIRS Public Notice (released on Monday 20th July, 2020) wherein it is stated that the burden of payment of stamp duties is on the beneficiaries of such contract. For example, tenants are to pay stamp duties on lease agreements. Same applies to why bank customers pay N50 stamp duty on certain transaction worth N10,000 and above. However, this does not apply in all instances. For example, in the case of conveyances operating as voluntary dispositions inter vivos (e.g gifts), then the obligation to pay stamp duty is on the grantor or transferor (person making the grant or giving out the gift).

Effects of Non-Compliance

Documents not duly stamped will not enjoy full legal protection and cannot be admissible in court as envisaged in section 19 of SDA. Although documents not duly stamped may be admissible in court after a fine has been paid and other conditions have been fulfilled as provided for in section 22 of SDA. At best, compliance is the right option to choose.

Meanwhile, there are time limits for paying stamp duties. By virtue of section 23 of the SDA, dutiable documents must be stamped within a given time, otherwise, sanctions will be imposed.

For documents that are charged at fixed rates, they must be stamped within 40 days from its day of first execution. But for documents charged at ad valorem rates, the time limit for them is 30 days.

In the event that these time limits were not complied with, then the person liable to a penalty shall be guilty of an offence and liable on conviction to payment of the unpaid duty and a fine of twenty naira. But if the unpaid duty exceeds twenty naira, thenthere would be a further penalty or interest on such duty at therate of ten percent per annum from the day on which the document was first executed up to the time when the amount of interest is equal to the unpaid duty.

In the case of documents liable to ad valorem charges, further penalty equivalent to the unpaid duty in addition to the penalty stated above shall be paid unless a reasonable excuse for the delay is provided to the satisfaction of the Commissioner, court arbitrator or referee before whom it is produced.

Please note that: If a document contains several distinct matters, then such document will not be subject to stamp duties charges as a whole but will be separately charged in respect of the distinct matters contained therein. An example of this is a document for conveying sale of property to different transferee (buyer). Such will distinctly require stamp duties to be paid in respect of each transferee who are receiving the property.

Do You Have to Pay Stamp Duties on All Documents?

No. There are certain documents that you do not need to pay stamp duties on. Some of those documents include:

Exemption in Certain Cases of Winding Up of  A Company: Documents (e.g mortgage, charge, or otherencumbrance on any property or forming part of the assets of the Company to be liquidated, among others) used when a company is under liquidation by virtue of a compulsorywinding up order by a court or a creditors voluntary winding up are not liable to stamp duties (See section 513 of the Company and Allied Matters Act).

Exemption for Unstamped Bill in A Set: When one of the sets of a Bill of exchange is duly stamped, the other or others that are part of the bill do not need to be stamped again and they altogether enjoy full legal recognition and protection. The unstamped part of the set can be used to prove contents of the stamped parts in any instance where it has been proven that the stamped part has gotten loss or destroyed. However, this exception will only apply when the unstamped parts are not negotiated apart from the stamped bill.

 

Exemption for Penal Rent: Pursuant to section 70 of the Stamp Duties Act, a person paying an increased rent in nature of a penal rent or actually paying a penal rent is exempted from paying stamp duty on the document used in execution of that penal rent. Note: Penal rent is the money paid as penalty for non-payment of a rent at the due time or for violation of a lease agreement
Exemption of Loan Capital: Section 102 of Stamp Duties Act provides that before a corporation, company or body of persons issue a loan capital, a statement (document) of the amount to be secured must be submitted at the Corporate Affairs Commission (CAC) and where it has been proven to the satisfaction of the CAC that the corporation, company or body of persons issuing the loan capital has paid the charged duty on documents for securing the loan (such as the mortgage or marketable security on any trust deed among others), then the loan capital itself is free from stamp duty and the beneficiary(ies) of such loan capital does not need to pay stamp duty on the loan capital.
Exemptions based on Provisions of the Schedule to the Stamp Duties Act: Certain transactions are exempted from stamp duty under the Schedule to the Act. Such transactions are:
i. Agreement or Memorandum for the hire of any labourer, artificer, manufacturer or menial servant.
ii. Letter of Credit granted in Nigeria or authorised drafts to be drawn in Nigeria for payment out of Nigeria
iii. Bill or note issued by the central bank
iv. An order for the payment of money weekly, monthly or at any other stated period to the Nigerian Red Cross Society.
v. Affidavit or affirmation made for the immediate purpose of being filed, read, or used in any court in Nigeria, or before any judge or officer of any such court OR such that is required by the by a commissioner under the Act, or a commissioner of any public board of revenue in Nigeria or any of the officers acting under them, or required by any law of Nigeria OR such affidavit, affirmation or declaration which may be required by the Central Bank of Nigeria to prove the death of any proprietor of any stock transferable there, or to identify the person of any such proprietor, or to remove any other impediment to the transfer of any such stock. Etc.

Recent Development on Stamp Duties in Nigeria

Although stamp duty has colonial origin but it has since then witnessed significant rebirths and a couple of new naming. It first coming into life was through Ordinance 41 of 1939,thereafter codified into Nigerian laws in 1953, then consolidated in 2002, published in 2006, christened Stamp Duty Act 2004, amended by Finance Act 2019, a subject of FIRS Circular(2020/05) published on April 29, 2020 and also a subject of FIRS Public Notice released on July 20, 2020.

No doubts, stamp duties like others of its kind in Nigeria has been on a rollercoaster of legislations and administrative instruments. Some of the recent and notable developments witnessed by stamp duties in Nigeria are:

Applicability to Electronic Documents: Section 52 of the Finance Act 2019 amended section 2 of the Stamp Duties Act and included electronic documents as part of documents which stamp duties apply to. Hence, stamp duty is applicable to both written and electronic documents in Nigeria. Electronic documents can be stamped through the use of direct electronic printing or impression on the document, electronic tagging or any other form of acknowledgement of payment for stamp duties adopted by the FIRS.
Stamp Duties on Bank Transaction of N10,000 and above: Pursuant to section 54(3) of the Finance Act, 2019, electronic receipt or electronic transfer of money from N10,000 and above shall attract a stamp duty of N50. The only exception to this is when the money is paid or transferred to one’s own account within the same bank. That is, if Mr. Ciroma Adekunle has two accounts with Jaiyelo Bank Plc and he transferred N10,000 from one of his first account to his second account with Jaiyelo Bank Plc, then he is not liable to pay stamp duty.
Tenancy/Lease Agreement: FIRS Public Notice released on July 20, 2020 introduced a 6% stamp duty on tenancy/lease agreements. The imposition was greeted with public outcry and there were complaints on its contrary nature to the Stamp Duties Act but FIRS has corrected its position. The notice thereby raised certain issues as to compliance and collection, such as:
i. Stamp Duty on Lease Agreements is Dependent on Duration: That is, stamp duty payable on lease agreements is charged based on the term (duration) of the agreement. The terms and rates of the applicable lease agreement are illustrated below:

TERM

RATE

a. 1-7 years

0.78%

b. 7-21 years

3%

c. Above 21 years

6%

The implication of this is that each document used for executing a tenancy agreement will be charged at the percentage of the value of the tenancy based on the term of that tenancy as shown in the table above.

Note: For those that pay monthly rent, the applicable term to them will be less than seven years and their stamp duty by implication is 0.78%.

ii. Does This Mean Rents Would Increase? No! Stamp duties on lease agreements cannot be a justification for a landlord to increase his or her rent because the stamp duty is paid by the tenant and not the Landlord.
iii. Who Pays The Stamp Duty on Lease Agreement? The tenant is the one responsible for paying the duty on lease agreement. In the event of non-compliance, the tenant/leasee will be liable to penalty.
iv. Do Tenants Have to Pay Annually? No. Tenants do not have to pay stamp duties annually. The rule only applies to new tenants. That is, only those that are just entering into the lease agreement are required to pay and they only pay once. This was disclosed to The NationNewspapers by Mr. Femi Oluwaniyi, Coordinating Director, Tax Operations Group of the FIRS.
v. Are House Agents/Landlords Collection Agents for the FIRS? Safe to say the answer here is NO.

Initially, FIRS Public Notice released on July 20, 2020 stated that Landlords and house agents (executors of the agreement) are collection agents for stamp duties on lease agreements. But this has no basis neither in SDA nor FIRS (Establishment) Act 2007.

However, the FIRS Chairman, Mr. Muhammad Nami during a live interview with TVC on Monday 27, July 2020 stated that: “It is the responsibility of the tenant to pay stamp duty and you don’t have to give it to your landlord”. He also made it clear that tenants can obtain stamp duty on their lease agreements by themselves.

Hence, given the legal cobweb hovering around the FIRS Public Notice, it is advisable for tenantsnot to pay to their landlords or house agents but to pay their stamp duties by themselves.

 

NIPOST v. FIRS Authority Tussle: The recent Twitter outburst between the Nigerian Postal Service (NIPOST) and the Federal Inland Revenue Service (FIRS) has generated questions on who the appropriate authority for administration of stamp duties is.

Originally, section 4 of the Stamp Duties Act (that is, the primary law governing stamp duties in Nigeria) only mentioned that administration of stamp duties in Nigeria is vested in Federal and State Government with respect tocertain given circumstances stated therein.

However, the provision of section 53 of the Finance Act 2019 already laid the matter to rest by amending section 4 of SDA. The amendments thereby operate to mean that the FIRS and relevant tax authorities in a state (e.g KWIRS, LIRS etc) are in charge of administration of stamp duties in Nigeria.

While the Finance Act stipulates that FIRS is in charge of stamp duties involving a company (banks and other financial institutions inclusive) and an individual, group or body of individuals, tax authorities of a state like LIRS are in charge of stamp duties on documents which relates to matters executed between persons or individuals.

Meanwhile, the provision of section of section 4 of the Nigerian Postal Service Act does not include administration of stamp duties in the functions of NIPOST. The only mention of stamps for NIPOST is in relation to postage stamps which is for documents/items delivered by NIPOST. The interpretation section of the NIPOST Act is instructive with respect to meaning of postage stamp.

In one breath, it is legally safe to say that based on prevailing laws of the Federal Republic of Nigeria, FIRS is the body responsible for stamp duties.

Conclusion

In all of these, one thing is certain – stamp duty has come to stay. Enforcement of same is equally going to improve. Compliance is therefore key.

References

Ashiata Agboluaje, “Stamp Duties: ‘A Rude Awakening” <https://www2.deloitte.com/ng/en/pages/tax/articles/stamp-duties-in-nigeria-a-rude-awakening.html > accessed:August 7, 2020.
Dolapo Ajayi: “Stamp Duties: What You Need to Know” < https://www.detailsolicitors.com/media/archive1/articles/article15.pdf > accessed: August 7, 2020.
Finance Act, 2019.
FIRS Circular (2020/05) published on April 29, 2020
FIRS Public Notice (released on Monday 20th July, 2020)
Stamp Duties Act, CAP S8, LFN 2004

ARTICLE WRITTEN BY: Musa Kalejaiye, a fifthyear law student at Faculty of Law, University of Ilorin. You canconnect with him on LinkedIn via: http://linkedin.com/in/profileoflekankalejaiye  OR reach him via mail on: kalejaiyemusa@gmail.com

NOTE: This publication is only an informative piece from the Editorial Board of The Tax Club, University of Ilorin. You are advised to consult tax professionals for professional guidance as regards your tax obligations.

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