The Federal Inland Revenue Service (FIRS) recently issued a Public Notice (the Notice) clarifying the applicable stamp duties rate on certain transactions. According to the FIRS, the Notice became necessary in response to requests received from taxpayers seeking clarification on the chargeable stamp duties due to the tax authorities. The renewed focus on stamp duty is to make it a major source of revenue for the government.
The Stamp Duties Act, Chapter S8, Laws of the Federation of Nigeria (LFN) 2004 (SDA) provides the legal basis for the imposition and collection of stamp duties in Nigeria. Stamp duties are chargeable on all instruments relating to matters executed between a company and individual, group or body of individuals and those executed between persons or individuals.
The instruments upon which stamp duties are chargeable include bond, bill of exchange, promissory note, covenant, conveyance on sale, lease, mortgage, etc. The duty rates vary depending on the types of instruments or nature of transactions and these may be a flat charge or ad valorem charge (i.e. a percentage of the value of the transaction).
The Notice provided for the following:
- Chargeable transactions and rates: Stamp duty is payable on both physical and electronic instruments at either ad-valorem or a flat rateApplicable rates:
- The Notice listed specific instruments and provided the rate of stamp duties payable on them, either at ad-valorem or a flat rate
- Responsible agency: The FIRS is the agency responsible for imposing, charging and collecting stamp duties where the dutiable instrument is between a company and a person including all banking transactions. Where an instrument is executed between individuals, the state revenue services are empowered to collect such taxes.
- Stamp duty on receipts: A N50 fixed rate applies on receipts, using FIRS adhesive stamp. Also, electronic transfers of N10,000 and above will attract a N50 stamp duty charge.
- Remittance of stamp duties: Deposit Money Banks (DMBs) are required to remit stamp duties collected on behalf of the FIRS to the FIRS stamp duties account including electronic transfers of cash between individuals.
- Burden of payment of stamp duties: The beneficiary of a contract or DMB customer who transfers the funds shall bear the burden of stamp duties. Also, Ministries, Departments and Agencies (MDAs) and landlords are agents of collection for the FIRS and state boards of internal revenue.
- FIRS stamp as the only stamp for denoting payment of stamp duties: The FIRS adhesive stamp is produced for the sole purpose of denoting stamp duty payments and the Nigerian Postage Service (NIPOST) stamp is not a substitute.
- Penalties and interest: Penalties and interest will apply, in line with the provisions of the SDA for non-compliance.
Notwithstanding the above clarification provided by the FIRS, the Notice has raised other practical concerns, some of which are discussed below:
- The SDA as the only valid basis for imposing stamp duties: From our review of the Notice, it appears that the 0.375% ad-valorem rate for mortgages stated in the Notice is misleading.mThe SDA provides for a range of rates for different mortgages from 0.075% to 0.375%. In the same vein, the stamp duties rate on leases/tenancies for a tenancy not exceeding 7 years is 0.78% rather than 6% which should only apply for a tenancy tenor exceeding 21 years. Notwithstanding the flat rate of 6% provided in the notice, FIRS has clarified that the tenancy rate will be based on this graduating scale. Only the Legislature can amend the SDA as provided in Section 116 of the SDA. We, therefore, expect some pushback from taxpayers.
- The Powers of FIRS to collect stamp duties on banking transactions: It is arguable that some banking transactions are usually between the banks, as a representative of the individual and the individuals, and hence, the appropriate authority in this regard should be the state tax authorities. Thus, it is advisable that both FIRS and the state Revenue authorities align, to create certainty for taxpayers and prevent double taxation.
We will continue to monitor this space and provide updates as they become available. Please click here for a copy of the Notice.