DON’T LEAVE ME
It is fairly easy to ignore old things, especially when they do not really trouble most until they suddenly incorporate a company, need to perfect their land or financial documents or until after after they see one, or many stamp duty debit alerts.
The Stamp Duties Act of 1939 has now been amended. It craves your full attention, demands it. It wants to be online, in your face, and in your alerts. It has acquired a new, digital face. It has become entangled with you. Oh, you would not be leaving it now.
PREVIOUSLY, ON STAMP DUTIES
You already know that the Stamp Duties Act (the Act) applies to written documents. You also know that not all written documents are subject to Stamp Duties.
The written documents that are subject are expressly listed in the Stamp Duties Act and referred to as “Instruments”. What the Stamp Duties Act wants from you is payment of a duty when these Instruments are created or executed. Your payment of the duty is evidenced by a stamp on the Instrument.
Instruments include: Agreements, Contracts, Bank Deposits, Bills of Sale, Bonds, Certificates, Deeds of Assignment, Deeds of Release, Leases/Tenancies, Legal Mortgages, Loan Agreements, Memorandum and Articles of Association, etc.
The rates of duty (flat rate or ad valorem – according to value) to be paid on Instruments are stipulated in the Act.
The FIRS collects Stamp Duties on Instruments executed between corporate bodies or with a corporate body as a party. The Relevant State Tax Authority collects stamp duties on Instruments executed between individuals.
Now, to the novel things. The Finance Act has amended the Stamp Duties Act in a very fundamental way. Recall that the Act applied to written Instruments.
This was however limiting as taxpayers over the years may have gotten away with the argument that digital/electronic Instruments would not qualify as ‘written’ Instruments so there would be no need to pay stamp duties on such digital Instruments.
So because the Stamp Duties Act expressly applied to written Instruments, the Government has steadily been losing stamp duty revenue that it would have generated from many electronic Instruments.
There were over 100 Billion electronic payment transactions in the Banking Sector in 2019. The total value of these transactions was over 1 Trillion Naira.
Imagine the whopping amount the Government would have generated if stamp duty of N50 was charged on these transactions.
With the increase in online transactions and various online activities, electronic Instruments are being generated more than ever before. This is why the scope of the Stamp Duties Act was expanded by the Finance Act, 2019 to also cover electronic documents, electronic stamping and electronic acknowledgment.
This upgrade of the Stamp Duties Act is majorly to boost the revenue generation efforts by Government since oil is falling everyone’s hands.
The Stamp Duties projection in the revised 2020 budget stands at 200 Billion Naira. So you know that the Government is serious about Stamp Duties. It is the new gold.
WHAT DID THE FINANCE ACT REALLY DO
The Finance Act started this gist by amending the Stamp Duties Act. The changes it made include the following:
1 Money Movements: The Finance Act modified Section 89 of the Stamp Duties Act so that Stamp Duty of ₦50 would be charged on every bank deposit or transfer from ₦10,000 upwards. This applies whether the transfer or deposit is within the same Bank (intra-bank) or between different Banks (inter-bank).
The Finance Act came into effect from February 2020. You should have been receiving many Stamp Duty debit alerts since February unless your Bank has taken up your stamp duty costs or you packed all your money outside Nigeria.
2. Receipts Reloaded: Stamp duties now apply to electronic acknowledgements of payment or settlement of debts i.e. electronic receipts.
This is due to the Finance Act amendment of the definition of ‘Receipts’ to include an electronic inscription whether signed or unsigned that acknowledges payment or deposit of money or settlement of any debt or demand.
The stamp on receipts may be physical or digital.
3. E-Features: The Finance Act also added electronic features to the definition of ‘Instrument’, ‘Stamp’ and ‘Stamped’. As explained earlier, Instruments have been upgraded to include “electronic documents”.
Stamp now means electronic stamps or electronic acknowledgments that denote payment of duty or fee.
Stamped now means instruments and material that are digitally tagged with an electronic stamp or a notional stamp on an electronic receipt.
By increasing the scope of ‘stamp’, ‘stamped’ and ‘instrument’ to cover electronic and digital forms, more kinds of documents are now liable to stamp duties in Nigeria, with increased stamping options. These eventually translate to more revenue for Government.
4. Giveaway: In response to the cries of those “do giveaway” citizens, the Finance Act decided to add to the list of instruments that are exempt from Stamp Duties. These new instruments are:
(i) receipts given in a Regulated Securities Lending Transaction carried out under regulation issued by the Securities and Exchange Commission (SEC);
(ii) shares, stocks or securities transferred by a lender to its approved agent or a borrower in furtherance of a Regulated Securities Lending Transaction;
(iii) shares, stocks or securities returned to a lender or its approved agent by a borrower in furtherance of a Regulated Securities Lending Transaction; and
(iv) all documents relating to Regulated Securities Lending Transactions carried out under regulations issued by SEC.
You must have noticed that common phrases in the above are Regulated Securities Lending Transactions and SEC. The exemptions are basically to promote borrowing and lending of securities that are in accordance with regulations issued by SEC.
This means that Stamp Duties will not apply to the securities transferred and the documents relating to these types of transactions.
The FIRS decided to clarify the provisions of the Stamp Duties Act based on the Finance Act amendments.
1. Sample Instruments and Receipts: To clear your doubts, FIRS explained that “Instruments” and “Receipts” also mean:
(i) written or printed dutiable instruments or receipts including POS and ATM receipts;
(ii) all electronic dutiable instruments or electronically generated receipts that may also take the form of electronic media content, electronic documents or files, e-mails, sms, instant messages (IM), internet-based messaging services, website or cloud-based platforms, etc; and
(iii) any form of electronic acknowledgement of money for dutiable transactions.
By this extensive interpretation, the FIRS tried to bring the written and electronic definitions of Receipts and Instruments in the Stamp Duties Act to life.
2. Money Movements Remix: We already stated above that Stamp Duty of ₦50 is to be charged on every inter and intra bank deposit or transfer from ₦10,000 upwards.
We waited for you to get here to inform you that the Finance Act included this exception to the money movement rule:
“Provided that money paid into one’s own account or transferred electronically between accounts of the same owner by the owner within the same bank shall not be chargeable to duty”.
What the exception means is that when you, Akpos, deposit money that is above ₦10,000 into your own account in Bank A or you transfer from your Bank A account to your Bank B account, stamp duties will not apply on these your money movements.
In interpreting the transfer and deposit rule stated above, the FIRS however decided to switch things up a bit.
It explained that the Stamp Duties Act mandates Banks and other Financial Institutions to charge N50 stamp duties on:
(i) all inter-bank deposits and transfers from N10,000 and above involving accounts owned by different persons;
(ii) all intra-bank deposits and transfers from N10,000 and above except where the deposits or transfers occur between two accounts maintained by the same person in the same bank; and
(iii) all inter-bank deposits and transfers from N10,000 and above involving accounts owned by the same person in different banks.
The FIRS’ third interpretation means that stamp duties will apply where an account owner moves money from his Bank A account to his Bank B account. This interpretation contradicts the exception above.
The correct position according to the exception is that money movements by an account owner to his/her account in other banks is not liable to Stamp duties in Nigeria. Based on this, taxpayers can actually challenge stamp duty charges on any inter-bank money movements between their own accounts.
The FIRS also stated that the Stamp Duties Act mandates Banks and Other Financial Institutions to charge stamp duties on money movements.
This contradicts the Stamp Duties Act as it only expressly mentioned “Bank” and “Banker”. Other Financial Institutions according to the clear words of the Stamp Duties Act, are not required to charge stamp duties on money movements.
3. Due Stamping: According to the FIRS, an electronic document is deemed to be duly stamped where: (i) all duties chargeable on the document have been paid; or (ii) a certificate or any form of acknowledgement of the payment of stamp duties has been issued.
This interpretation is logical given that due stamping was not expressly defined in the Stamp Duties Act.
4. Stamp Duties Arising: The FIRS demonstrated how stamp duty obligations may arise by giving the following illustrations:
According to the FIRS, a whatsapp message acknowledging receipt of a cash payment of money on a dutiable transaction constitutes a receipt for which stamp duty is payable.
The sender is also required to disclose the transaction details to the relevant stamp duties Commissioner or using the FIRS e-stamp duty platform for assessment, payment and acknowledgement receipt.
The FIRS illustrates that a lease agreement drafted and executed online with no physical document to evidence it is liable to stamp duties, and it must be electronically stamped or acknowledged.
The FIRS believes that an email trail which contains terms and conditions of a lease agreement that was not formally drafted is a dutiable instrument that evidences a lease and so it must be properly stamped.
Though the FIRS may have been high on motivation when providing these examples, it is important to consider how the FIRS intends to achieve visibility over majority of these and other electronic types of transactions. It seems that a lot of reliance is placed on taxpayers’ ability to come forward and subject their transactions to stamp duties. This belief may prove to be overly optimistic.
5. Received in Nigeria: The FIRS clarified that an electronic document, receipt or instrument executed outside Nigeria is received in Nigeria if:
(i) it is retrieved or accessed in or from Nigeria; (ii) it (or an electronic copy of it) is stored on a device (including a computer, magnetic storage, etc.) and brought into Nigeria; or (iii) it (or an electronic copy of it) is stored on a device or computer in Nigeria.
The FIRS also explained that:
(i) electronic records saved on a server abroad and downloaded in Nigeria are liable to Stamp duties, having being ‘received’ in Nigeria; (ii) electronic records of a transaction carried out outside Nigeria which are stored in a cloud facility outside Nigeria, but viewed by a Company inside Nigeria, are ‘received’ in Nigeria and liable to stamp duties; and (iii) electronic records stored on a computer in Nigeria are received in Nigeria.
The FIRS based its clarification on Sections 7(3)(a), 23(3) and 47 of the Stamp Duties Act.
These Sections quoted by the FIRS do not however define “received in Nigeria”. No section in the previous and amended version of the Stamp Duties Act actually defines “received in Nigeria”.
It follows that the definitions and illustrations assumed by the FIRS are independent of the law and may be seen as an attempt to stretch the provisions of the Stamp Duties Act. The illustrations may also be seen to be quite extreme.
6. Penal Teas: FIRS informed taxpayers of consequences for failing to comply with the provisions of the Stamp Duties Act. These are: enforcement actions; prosecution for offences under the Act; payment of penalties of various degrees; and inability to use the relevant instruments as evidence in court/judicial proceedings. These are in accordance with the provisions of the Act.
FIRS by its latest Public Notice on Stamp Duties, reminded the public of its obligations to comply with the provisions of the Stamp Duties Act. It also gave examples of various instruments that Stamp Duties apply to. They include: Tenancy/Lease Agreements, Proxy forms, Promissory Notes, Charter-Party, Contract Notes, Ordinary Agreements, Receipts, Certificates of Occupancy, Appointment of Receiver, Joint Venture Agreements, etc.
The FIRS in its Public Notice however failed to capture the exception on inter and intra bank deposits and transfers for own accounts by stating that “any electronic receipt for or electronic transfer of money deposited in any bank or with any banker, in any type of account of an amount from N10,000 above, will attract a one of duty of N50“.
This contradicts the Stamp Duties Act and we have already highlighted above that all transfers and deposits between ‘own accounts’ should in accordance with the law, be stamp duty free.
STAMP DUTIES OF OLD
In a move to recover stamp duties that may have been collected but have not been remitted over the past five years, the Federal Government inaugurated an Inter-Ministerial Committee on Audit and Recovery of Back-Years Stamp Duties (the Committee) earlier this month.
The Committee consists of representatives from the FIRS, Central Bank of Nigeria, the Federal Ministry of Finance, Budget & National Planning and the Federal Ministry of Justice. Its main aim is to recover stamp duties and accompanying fines and penalties for the relevant five-year period.
Banks, the Corporate Affairs Commission and other similar stamp duty- collecting institutions are targeted by the Committee. It follows that stamp duty audits would be conducted by the FIRS on the relevant/ targeted institutions and banks and it would be in their best interest to regularize their stamp duty positions and ensure compliance with the provisions of relevant laws in this regard.
The digital upgrade and the broadening of the scope of the Stamp Duties Act are necessary in view of the reduction in oil revenue and prevailing circumstances. Teething issues with implementation may however arise as a result of the widened scope.
There is also the possibility of potential stamp duty leakages as the dependence on taxpayers to voluntarily submit themselves and details of their transactions to the tax authorities for stamp duty purposes may end in tears.
These regardless, taxpayers are enjoined to conduct their affairs in accordance with the provisions of Stamp Duties Act to prevent accumulation of penalties and interest, prosecution and activation of other enforcement procedures by the relevant tax authorities.
Eniola Akinoso is an Associate with Andersen Tax, Nigeria and the Initiator of TaxVille.