In this piece, a legal practitioner and Associate of the Chartered Institute of Arbitrators, Onyejekulum Ebube examines the Stamp Duties Act 2004 as amended by the Finance Act 2020 to critique the legal basis of FIRS’ imposition of stamp duty rates on certain dutiable instruments/documents under the SDA which, he argues, are inconsistent with the provisions of the applicable statute.
Introduction
Following the amendment of the Stamp duties Act (SDA) Cap S8 LFN 2004, by the Finance Act 2020, the Federal Inland Revenue service (FIRS) released an Information circular titled “Clarifications on the Provisions of the Stamp Duties Act”.
In the said circular, the FIRS provided implementation guidance for clarity and ease of compliance.
Also, on 20th July 2020, the FIRS made a Press Release titled “Clarification on Administration of Stamp Duties in Nigeria”.
Amongst other things, the Notice contained the chargeable rates and transactions for stamp duty payment in Nigeria.
The notice set out the applicable rates for payment of stamp duties.
However, there are issues that call for concern in the FIRS Public Notice.
This paper will specifically consider the legal basis of FIRS’ imposition of stamp duty rates on certain dutiable instruments/documents under the SDA which are inconsistent with the provisions of the applicable statute.
Administration of Stamp Duties in Nigeria
The Stamp Duties Act, CAP S8 LFN 2004 (as amended) regulates stamp duties in Nigeria.
It is important to note that “Stamp Duties” is a matter listed as Item 58 of the exclusive legislative list under the Second schedule to the Constitution of the Federal Republic of Nigeria, 1999 (as amended), thus the National Assembly is the body empowered to make law regulating/governing stamp duties in Nigeria.
Worthy of reference is Item D, Part 2 of the second schedule to the 1999 Constitution of the Federal Republic of Nigeria(as amended) which provides that the National Assembly may provide that the collection of stamp duties shall be carried out by a state or other authority of a state.
Stamp duties due from individuals are collected by the relevant State tax authority, while the FIRS collects stamp duties on instruments relating to a company. This is in accordance with Section 4 of the Stamp duties Act (as amended) which provides that: “The Federal Inland Revenue Service shall be the only competent authority to impose, charge and collect duties upon instruments specified in the schedule to this Act if such instrument relates to matters executed between a company and an individual or a group of individuals.
The relevant tax authority in a state shall collect duties in respect of instruments executed between persons or individuals at such rates to be imposed or charged as may be agreed with the Federal government”
Where stamp duties are collected by a state government or authority of a state, the net proceeds shall be treated as part of the consolidated revenue of that state. But where the stamp duties are collected by the Federal Government or other authority of the Federation (e.g the FIRS), there shall be paid a sum equal to the proportion of the net proceeds of the stamp duty derived from that state.
Stamp duty is payable on both physical and electronic documents.
The stamp duty rates applied by FIRS are in two ways, namely: flat rate charges and ad valorem charges.
The Federal Inland Revenue Service (Establishment) Act 2007, empowers the FIRS to control and administer taxes and laws specified in the First Schedule to the Act which includes the SDA.
Validity of the new rates specified by the FIRS
It is acknowledged that the FIRS is the body statutorily empowered to control and administer Stamp duties in Nigeria and by virtue of which it has released circulars on the administration of stamp duties in Nigeria.
However, I am of the view that the FIRS acted ultra vires its powers under the law to unilaterally impose new rates which are inconsistent with the provisions of the law.
Section 3(1) of the Stamp Duties Act provides as follows:
“From and after the commencement of this Act, the duties to be charged upon the several instruments specified in the schedule to this Act shall be the several duties set out in the said schedule, which duties shall be in substitution for the duties heretofore chargeable under the enactments repealed by this Act and shall be subject to the exemptions contained in this Act and in any other Act for the time being in force” (Emphasis supplied)
Some of the stamp duty rates imposed by FIRS are unsupported by the Schedule to the Stamp Duties Act.
For instance, the FIRS imposed an ad valorem rate of 6% on all Lease/Tenancy agreements. A cursory reading of the Schedule to the SDA will reveal that the Act imposed varying rates of stamp duty depending on the tenure of the lease which is simplified and outlined as follows:
Where the lease is for a definite term less than a year;
If the rent is below ₦50 the flat rate is ₦09 of the rent ;
If the rent exceeds ₦50, the flat rate is ₦39 of the rent.
Where the lease is for any other definite term or for any indefinite terms;
If the term is definite and does not exceed seven years, the stamp duty will be ₦39 for every ₦50 and also for every fractional part of ₦50 (that is an ad valorem rate of 0.78% of the rent)
If the term exceeds seven years but is not above twenty-one years, the stamp duty will be ₦50 for every ₦50 also for every fractional part of ₦50 (that is an ad valorem rate of 3% of the rent)
If the term exceeds twenty-one years the stamp duty will be ₦00 for every ₦50 also for every fractional part of ₦50 (that is an ad valorem rate of 6% of the rent)
If the term is indefinite, the stamp duty will be ₦00 for every ₦50 also for every fractional part of ₦50 (that is an ad valorem rate of 6% of the rent)
If the lease is of any kind not described above, then, the stamp duty will be ₦00 for every ₦50 also for every fractional part of ₦50.(that is an ad valorem rate of 6% of the rent)
Thus, in accordance with the Act, the tenancy or lease agreements should be liable to stamp duty of 0.78% to 6% depending on the lease tenure, with 6% applicable to only lease terms that exceed 21 years or are indefinite.
It appears that it will be unlawful for the FIRS to impose 6% on all types of leases with utter disregard to the clear provisions of the Stamp Duties Act.
Usually, residential tenancy agreements in Nigeria have a term of one year and the applicable stamp duty rate ought to be 0.78 % and not 6%.
The burden of payment of stamp duties is borne by the beneficiary of the contract, which is the tenant in this case.
The 6% ad valorem rate prescribed by FIRS is exorbitant, more so for a tenant who may relocate to another house shortly afterwards (e.g after 1 year) and will be required to pay another stamp duty on a new tenancy agreement.
Considering the huge rent, agency and legal agreement fees paid by new tenants to secure an accommodation in Nigeria especially in Lagos and Abuja, it will be quite unbearable to impose a high rate of stamp duty on all types of leases including short term leases (tenancy).
Agency fee is usually 5%, with legal agreement at 5% and stamp duties at 6%, it means that the tenant will be expected to pay the principal rent sum together with an additional sum of 16% of the rent. This can only worsen the housing problem in Nigeria especially in the urban areas.
Also, tenants who make payment of their rents through electronic transfer will also be subject to stamp duty of ₦50 and the usual bank charges. These costs are burdensome on average tax payers and the FIRS ought to put all these relevant factors into consideration.
Going forward, while the FIRS assigned a 0.375% ad-valorem rate to a mortgage, the SDA provides for rates ranging from 0.075% to 0.375% depending on certain conditions as specified in the schedule to the Act.
Similarly, the stamp duty rates prescribed by the FIRS for receipts, bank cheque per leaflet and a letter appointing an attorney are inconsistent with the rates stipulated in the stamp duties Act.
It is true that The Finance Act 2020 substituted Section 89 of the Stamp Duties Act with a new Section 89 with the effect that electronic receipt or electronic transfer deposited in any bank amounting to ₦10,000 upwards shall attract a stamp duty of the sum of₦50.
However, the amendment provided for stamp duty of ₦50 on only electronic receipts and electronic transfers, it does not apply to All kinds of Receipts as stated by FIRS.
Note that under these heads, the stamp duty rates provided under the SDA may be considered unrealistic in the face of inflation and FIRS may be pardoned pending an amendment of the Act.
Obviously, some of the rates adopted by the FIRS originated from the Joint Tax Board Harmonization of Stamp Duty Rates and Items which, lacking legislative force, cannot be considered an amendment to the Schedule to the SDA.
The National assembly is the body with statutory and inherent powers to legislate on and impose tax in Nigeria. Such powers cannot be left to the whim and caprices of an executive body such as the FIRS.
The FIRS can charge and collect stamp duties but it is a renowned principle of taxation that tax can only be imposed and specified by an act of parliament.
Indeed, the law vests administrative powers of stamp duties Act (and some other tax laws) on the FIRS, however, such power does not extend to imposition of stamp duties (and other taxes) which are inconsistent with the applicable statute.
Furthermore, Section 116 of the Stamp Duties Act vests the power to increase, diminish or repeal the duty chargeable on instruments on the National Assembly or the House of Assembly of a State, as the case may be. This power is to be exercised by passing of a resolution of the National assembly or the state house of assembly as the case may be.
Although Section 4 of SDA was amended by the Finance Act 2020 to replace the word “Federal government” with the word “Federal Inland Revenue Service”, this has not elevated the status of The FIRS to that of a legislative body with powers to impose Taxes/stamp duties, more so where such Taxes/stamp duties are contrary to the provisions of the Constitution, The Stamp Duties Act, The FIRS Act and other relevant tax laws.
The Stamp duties Act and the Constitution are both superior to the FIRS Press Release/Circular and any inconsistent provision in the said circular ought to be declared void to the extent of its inconsistency. Certainly, the FIRS Press Release cannot override statutory provisions.
Conclusion
Whilst the FIRS affirmed that the SDA is the legal basis for the imposition of stamp duties in Nigeria, it proceeded to impose stamp duty rates which are inconsistent with the stamp duties act.
Also, “Stamp duties” are on the exclusive legislative list of the National Assembly under the constitution. It is therefore my firm view that the FIRS acted ultra vires its statutory powers by varying the stamp duty rates. Such action is inconsistent with the SDA and other relevant provisions of law and is liable to be set aside by a court of competent jurisdiction. Such variation can only be performed by a resolution of the National Assembly or State House of Assembly. Until such resolution is passed, the rate provided for under the SDA remains the applicable rate with the force of law. The FIRS Circular ought to be set aside to the extent of its inconsistency with the law.
Apart from the position of the law presented above, it is inappropriate that the FIRS will impose higher rates of stamp duties to be borne by the same individuals and corporate bodies struggling for survival in this difficult period of Covid-19 pandemic. Meanwhile, some other governments have provided tax palliatives and tax rebates to their citizens and resident businesses.
Ebube Godwin Onyejekwulum (ACIArb UK), an Associate at Synergy Attornies writes from Lagos and can be reached via [email protected].
