The Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Muhammad Nami, recently disclosed that ₦66 billion was recovered from stamp duties between January and May 2020. This figure when compared to the ₦6 billion generated from stamp duties for the comparative period in 2019 represents an unprecedented 1000% increase.1
The renewed focus on stamp duties is therefore predicated on the expected increase in stamp duties collection, especially, given the expansion of the scope of dutiable instruments to include electronic documents via the introduction of the Finance Act, 2019. In several public fora, the FIRS Chairman has referred to stamp duties as the 'black gold' in Nigeria, alluding to its potential to bring in significant revenue. In this regard, the FIRS has issued several public notices, information circulars and carried out enlightenment in the media. However, there has been some controversy particularly with the Nigerian Postal Service on the collection of stamp duties and powers to issue stamps, in addition to a miscommunication on the applicable duty rates on rent, which required a detailed clarification from the FIRS.
In this Newsletter, we have examined the relevant provisions of the Stamp Duties Act (SDA) as amended by the Finance Act, 2019 vis-à-vis the FIRS' position and the possible implications on Nigerian businesses. We have also examined the stamp duties regime in other jurisdictions and provided recommendations for the efficient administration of stamp duties in Nigeria.
Overview of SDA and the Finance Act Amendments in Nigeria
The SDA was promulgated in 1939 pursuant to Ordinance 41 of 1939. The language of the Act is invariably dated and may be difficult to understand for the average taxpayer given the age of the Act. This difficulty in understanding the SDA has sometimes led to uncertainty regarding the applicability of stamp duties to various kinds of instruments and transactions in Nigeria.
Furthermore, the SDA only made provisions for the application of stamp duties on physical documents, which is understandable, since at the time of its passage, electronic or paperless transactions could not have been in contemplation. This was the status of the Act and its implementation prior to the passage of the Finance Act, 2019. This largely contributed to the poor enforcement of the SDA and little or no attention given to its implementation compared with other tax laws, more so, as the applicable stamp duty rates, including penalties for default did not reflect prevailing economic realities. It is therefore no surprise that the FIRS has now put its focus on the collection of stamp duties given the recent amendments to the SDA, which imposed stamp duties on electronic transactions and the overall need to improve government revenue.
As discussed, the SDA imposes stamp duties on various documents listed in the Schedules to the Act, which include Bills of Exchange, Contracts, Promissory notes, Agreements, Insurance Policies, Statutory declarations, Affidavits etc. The Finance Act introduced a number of amendments to the SDA and we have summarised the notable changes as follows:
- Under the Finance Act, 2019, the FIRS is now the only valid authority empowered to impose, charge, and collect stamp duties in respect of documents relating to matters between a company and an individual, group or body of individuals, previously this power was allocated to the Federal Government, although exercised by the FIRS. Likewise the State Internal Revenue Services have replaced the State Governments in respect of documents executed between individuals or persons at such rates charged that may be agreed with the Federal Government.2
- Prior to the Finance Act, Section 2 of the SDA defined instruments to mean 'every written document' and thus only written documents were subject to stamp duties. The definition of instruments under the SDA did not therefore contemplate electronic documents. However, the Finance Act expanded the definition of "instruments" to include electronic documents and amended the definition of receipts to include "electronic inscription whereby any money or any bill of exchange or promissory note for money is acknowledged or expressed to have been received or deposited or paid..."
"The SDA only made provisions for the application of stamp duties on physical documents, which is understandable, since at the time of its passage, electronic or paperless transactions could not have been in contemplation."
- The definition of stamp was also amended to include "electronic stamp or electronic acknowledgment" while the definition of stamped was revised to include "instruments and material digitally tagged with electronic stamp or notional stamp on an electronic receipt." 3
- While electronic documents in respect of dutiable transactions are now liable to stamp duties, the Finance Act omitted to define what constitute electronic documents and did not prescribe a specific method for electronic stamping of documents.
- The Finance Act also imposes obligation on Banks to charge a duty of ₦50 on all intra and inter-bank deposits and transfers from ₦10,000 and above (per transfer) with the exception of transfer between two accounts maintained by the same person in the same bank.
- The Finance Act, 2019 deletes Section
90 of SDA which exempted receipts of monetary deposits by a bank
from stamp duties but provided exemptions for the following
- receipts given by any person in a regulated securities lending transaction carried out under regulation issued by the Securities and Exchange Commission;
- all documents relating to a regulated securities lending transaction carried out under regulations by the Securities and Exchange Commission;
- shares, stocks or securities transferred by a lender to its approved agent or a borrower in furtherance of a regulated securities lending transaction; and
- shares, stock or securities returned to a lender or its approved agent by a borrower in pursuant to a regulated securities lending transaction.
FIRS Information Circular and Our Comments
In a bid to clarify the amendments in the Finance Act, the FIRS issued an Information Circular titled "Clarifications on the Provisions of the Stamp Duties Act" ("the Circular") dated 29th April, 2020. The Circular reiterates some of the amendments made by the Finance Act to the SDA and further provides that for the purpose of complying with stamp duties obligations taxpayers should access the Service's portal for automated stamp duties collection at www. stampduty.gov.ng. The Circular also contains other positions highlighted below:
- Dutiable Instruments
The Circular clarifies that the following documents are dutiable:
- all written or printed dutiable instruments or receipts;
- all electronic dutiable instruments or receipts in the form of electronic media content, electronic documents or files, emails, Short Message Services ("SMS"), Instant Messages ("IM"), any internet-based messaging service, website or cloud-based platform;
- all printed receipts (including Point-Of- Sale receipts, fiscalised device receipts, Automated Teller Machine (ATM) print-outs and other written or printed acknowledgments);
- and all electronically generated receipts and any form of electronic acknowledgement of money for dutiable transactions.
The Circular further stated that agreements and transactions consummated over online platforms such as email, WhatsApp, Instant Messaging (IM) or any other internet based messaging service, website or cloud based platforms are dutiable instruments and should be disclosed by the contracting parties for the purposes of stamp duties.
Originally published 22 August, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.