Benjamin Franklin is quoted to have said, ''... in this world nothing can be said to be certain, except death and taxes''.1 The reality of this phrase is likely to be seen in the approach that will be adopted by tax authorities around the world towards increasing revenue generation post COVID-19. As the economic impact of the pandemic continues to take a toll on economies around the world, it is expected that some economies will descend into recession. For example, it was recently announced that the United Kingdom (UK) is experiencing its first recession in 11 years,2 while the World Bank has projected that Nigeria may experience its worst recession in 40 years.3 As a result of these economic realities, it is expected that governments will tend to shift more attention to taxation in a bid to shore up their revenue.
One area that the Federal Inland Revenue Service (FIRS) has identified as having significant potential (the black gold) for revenue generation is stamp duty. In June 2020, an Inter-Ministerial Committee on Audit and Recovery of Back Years Stamp Duties was inaugurated to recover backlog of unremitted stamp duties.4 This seems to re-inforce the added attention which stamp duty has received since the amendment to the Stamp Duties Act (SDA) by the Finance Act 2019.
This article will discuss the relevance of the SDA in contemporary tax administration in Nigeria and analyze the key issues associated with the SDA, including the appropriate authority to collect stamp duty across the country, the current enforcement regime under the Act and the power to alter the stamp duty rates. The article will also provide recommendations for modernizing the administration of stamp duties in Nigeria.
History of Stamp Duty Globally and in Nigeria
Stamp duty was first introduced in Spain in 1637, it was originally a tax on items like paper, vellum and alcohol. Other countries in Europe introduced stamp duty as a form of tax, France (1651), Denmark (1657), Prussia (1682) and England (1694). Stamp duty was introduced in England primarily to prosecute a war with France.
In these countries stamp duty was introduced principally for the purpose of raising revenue. Subsequently, in addition to being a proof of payment of tax, it assumed other significance, for example, it began to confer genuineness and authenticity on products and also played the role of an anti-tampering and anti-reuse seal. By extending its use to stamping of legal documents, stamp duty assumed an additional role of conferring legal validity to transaction documents.
In Nigeria, stamp duty was introduced on 1st April 1939 as a charge of duty on instruments. Since its enactment, the SDA has not undergone any significant amendment until the enactment of the Finance Act, 2019 which introduced some amendments. Despite being in existence for over 80 years, the SDA has not been fully administered and implemented. However, as explained above, the drive for revenue generation seems to have rekindled attention and focus on the Act.
Current Coverage of the Stamp Duties Act
One key question that has consistently been asked is what transactions, instruments and documents are liable to stamp duties in Nigeria.
The Schedule to the SDA lists instruments and transactions that are liable to stamp duty in Nigeria. Some of the instruments and documents listed include - admission into the bar and as a notary public, statutory declarations, affidavits and statutory declarations, agreements, appraisement or valuations, instrument of apprenticeship, award, bank notes, promissory notes and bills of exchange, bills of lading, bond and covenant, bonds, capital of companies, contract notes, conveyances on sale or transfer, debenture, duplicate and counterparts, exchange, partition or division, insurance policy, instrument of apprenticeship, leases, letters of power of attorney, letter of allotment or renunciation, letter of credit, marketable securities, license coupled with grant, mortgages, notarial acts, other conveyances, insurance policies, receipts, settlements, share warrants, warrants for goods, etc.
Some documents are however, exempted from stamp duties, including instruments executed following reconstruction or amalgamation of companies5; penal rent in a lease6; instrument on which the duty is payable by Government and documents relating to transfer of stocks and shares. While providing for the duty applicable to specific instruments, the Schedule to the Act also provides for exceptions applicable to some instruments.
Key Issues under the Stamp Duties Act
Relevance of the SDA
Some countries have appraised the relevance of stamp duty on most transactions and instruments as a result of which they have reduced the number of transactions and instruments that are liable to payment of stamp duty. This may be due to the fact that most items listed in schedules to SDAs are either obsolete or not widely used anymore. In this regard, in 2005, Ghana repealed all its stamp duty laws and enacted a new Stamp Duty Act, which is contemporary and streamlines the scope of its application. In the UK, stamp duty is now largely limited to purchase of land and buildings, transfer or shares and securities, issuance of bearers instruments and some partnership transactions. In South Africa, the Stamp Duties Act 1968 was repealed on 1st April 2009, which effectively abolished the application of stamp duties in South Africa.
Nigeria may therefore need to re-assess its strategy and focus on the SDA for driving improved revenue generation. Other countries are streamlining the scope of application of stamp duties within their jurisdictions, ensuring that there is a justifiable basis for its charge. Most of the items listed as liable to stamp duties in Nigeria may no longer have any valid basis for the charge, thus it may be necessary to prune the list to only the most essential instruments and transactions.
Appropriate Authority to Collect Stamp Duties
Prior to the enactment of the Finance Act 2019, the Federal Government was responsible for imposing, charging and collecting stamp duties in respect of instruments between a company and an individuals or group or body of individuals, while State Governments were responsible for the performance of similar roles if the instrument is executed by natural persons. The powers of the Federal Government to administer the Act were exercised by the FIRS, although the Nigerian Postal Service also claimed to have powers to enforce the SDA.
The relevant provisions in the SDA has now been amended by the Finance Act 2019 and the FIRS is now stated as the only authority empowered to administer the collection at the Federal level, while State tax authorities are to perform similar roles at the State level.
Various issues have come to the fore since the amendment of the SDA, for example, there are questions as to whether, FIRS is empowered to collect stamp duty on bank transactions between two persons. In view of the amendment introduced by the Finance Act 2019, such transactions may actually be within the purview of the State tax authority, however, the FIRS has held itself out as the relevant collection authority for this purpose. Another issue relates to the exclusive powers granted to the FIRS for stamp duty administration to the exclusion of any other authority, which is being contested by NIPOST.
The enforcement mechanism under the SDA appears to be weak, particularly because of the very low stamp duty rates and the outdated penalty provisions in the Act. As a result of this, there is the likelihood that where the relevant authority seeks to pursue a claim for the recovery of unpaid stamp duties, fines and penalties, the cost of recovering the unpaid stamp duties, fines and penalties may be higher than the amount sought to be recovered.
Power to Alter the Schedule
Based on the provisions of the Constitution and decided cases, only the National Assembly and/ or the State House of Assembly have the powers to alter the Schedule to the SDA. This power is exercisable by way of a resolution as against an amendment of the Schedule6. The implication of this is that significant flexibility has not been built into the alteration process, since you will require legislative action, rather an administrative action by the FIRS or other authority. One implication of this provision is that different duty rates may apply to similar transactions in different States, depending on the rates adopted by each State's House of Assembly, additionally, it may mean that all alterations, which have been done by either FIRS or JTB may not be held to be valid if challenged in Court.
In this regard, in 2002, the Joint Tax Board (JTB) altered the Schedule to the SDA by including additional instruments to the list and altering the rates. It is important to note that under the SDA, the JTB is not empowered to alter the Schedule to the SDA because it is not statutorily empowered to do so7. The power conferred on the National Assembly and State Houses of Assembly is such that it cannot be delegated to any other person, neither can another person exercise that power 8. Hence, the FIRS and JTB may be unable to validly exercise the powers of alteration to vary or introduce new rates. Where this is done, it may be ultra vires their powers and be overturned by a Court if challenged.
Enforcement Mechanism of the SDA
The enforcement mechanism under the SDA appears to be weak, particularly because of the very low stamp duty rates and the outdated penalty provisions in the Act. As a result of this, there is the likelihood that where the relevant authority seeks to pursue a claim for the recovery of unpaid stamp duties, fines and penalties, the cost of recovering the unpaid stamp duties, fines and penalties may be higher than the amount sought to be recovered. This will constitute a huge disincentive to enforcement and recovery of back duties and needs to be addressed.
Recommendations and Conclusion
Based on the above analysis, it is clear that the provisions of the SDA are outdated and may not be fit for purpose for a modern economy. The amendments under the Finance Act 2019 are viewed as not being comprehensive enough and more work needs to be done on the SDA. It is our view, that the Act needs a holistic amendment in order to enact a modern law that streamlines the scope of transactions under the Act and provides rates that reflect current realities amongst others.
It is advised that, a review of the rates and penalty regime should be done in a manner that will incentivize compliance and enhance enforcement efforts. The SDA should also be amended in a manner that will make it compatible with other laws including the Evidence Act (as amended) and the Electronic Transactions Bill, amongst others.
Finally, it is important for the FIRS and State Boards of Internal Revenue to embark on significant public enlightenment and training of their officers to improve awareness levels about the provisions of the SDA, enlighten members of the public on their obligations under the Act and ensure tax officers know the extent and limit of their powers under the law.
1. Benjamin Franklin, in a letter to Jean-Baptiste Le Roy, 1789.
2. Lizzy Burden and Tim Wallace, 'Britain Officially Entered Record Recession in Second Quarter' The
Telegraph (London, 12 August 2020) < https://www.telegraph.co.uk/business/2020/08/12/britain
officially-enters-record-recession/> accessed on 14 August 2020.
3. Mansir Nasir, ''Nigeria's Economy Faces Worst Recession in Four Decades Says New World Bank Report'' (World Bank Press Release, 25 June 2020) < https://www.worldbank.org/en/news/press-release/2020/06/25/nigerias-economy-faces-worst-recession-in-four-decades-says-new-world-bank-report> accessed 14 August 2020.
4. Muhammad Nami, 'Making Stamp Duty the New Black Gold' Business Day (Abuja, 6 July 2020) <https://businessday.ng/opinion/article/making-stamp-duty-the-new-black-gold/> accessed on 14 August 2020.
5. Stamp Duties Act, s 104.
6. Section 116, SDA
7. A.G. Abia v A. G. Federation (2000) 17 WRN 1; NNPC v. FAMFA Oil Ltd (2012) 17 NWLR (Pt 1328) 148
8. Ahmed v. Abu & Anor (2016) LPELR-40261(CA); Bamigboye v. University of Ilorin (1999) 6 SCNJ 295
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