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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:
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PARTIES INVOVLED
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TIER OF GOVERNMENT RESPONSIBLE FOR COLLECTION |
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1. Documents executed between Company A and Company B
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FIRS |
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2. Documents executed between Company A and Mr. Ciroma
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FIRS |
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3. Documents executed between Mr. Adekunle and Mr. Ciroma
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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:
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TITLE OF INSTRUMENT (DOCUMENT) AS DESCRIBED IN THE SCHEDULE |
PERSON LIABLE TO PAY PENALTY |
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Bond, Covenant or Instrument of anykind whatsoever
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The Obligee, Covenantee or the person taking the security
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Conveyance on Sale Vendee or Transferee
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Vendee or Transferee |
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Conveyances or transfers operating asvoluntary dispositions inter vivos
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Grantor or transferor
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Lease Lessee (tenant)
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Lessee (tenant) |
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Mortgage bond, debenture, covenant and warrant of attorney
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The mortgagee or obligee, in the case of a transfer or re-conveyance, the transferee, assignee or disponee or the person redeeming the security.
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Settlement
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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 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.
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:
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TERM
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RATE |
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a. 1-7 years
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0.78% |
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b. 7-21 years
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3% |
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c. Above 21 years
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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%.
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.
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
ARTICLE WRITTEN BY: Musa Kalejaiye, a fifth–year 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.
