Stamp duty on bank deposits: The unintended consequences

The purpose of this article is to examine the implications of the recently introduced stamp duty on bank deposits in Nigeria. Many years ago the Central Bank of Nigeria (CBN) and commercial banks invested huge amount of resources in their effort at inculcating banking habits among Nigerians.  These efforts yielded good dividends in boosting the number of bank account-holders in Nigeria as well as improving the level of financial inclusion. Current initiatives at promoting a cashless economy and e-banking have further made the use of banks’ payment system attractive and inevitable in some cases such as in the payment of money to government agencies and utilities.

 

According to the statistics from CBN, private sector demand (current account) deposits increased from N4.9billion in 1981 to N5873.5billion by December 2015- an impressive growth of 1198.7 percent. Similarly, private sector savings deposits in the same period rose from N2.0 billion in 1981 to N3044.3billion by December 2015 – a growth of 1522.1 percent. Deposits of rural branches of commercial banks equally increased from N111.7million in 1982 to N90374.1million in the fourth quarter of 2015- an increase of 809.1 percent. As a signatory of the MAYA Declaration, CBN pledges to create an enabling environment that substantially lowers the cost of financial services through the deployment of innovative technology as well as to recognize consumer protection and empowerment as key pillar of financial inclusion among others.

 

The CBN’s directive in its circular to banks of July 17, 2009 titled “Re: Circular to Banks on Non-Compliance of Securities Companies of Banks in Nigeria with Stamp Duties Act 2004” had observed that most brokers/dealers do not affix revenue stamps on their contract notes contrary to the provisions of the Stamp Duties Act 2004 thus depriving the government of accruable revenue from securities transactions and inhibiting the development of the postal system in Nigeria. It reminded banks of the provisions of the Stamp Duties Act 2004 under (i) Section 89(2) that every receipt given by any person in acknowledgment of goods purchased or services rendered should be denoted by an adhesive postage stamp worth N50 issued by the Nigeria Postal Service (NIPOST) and (ii) Section 14(2) which makes it mandatory for a receipt to be so denoted. The circular therefore enjoined all banks to ensure that their securities subsidiaries are in full compliance with the provisions of the Stamp Duties Act 2004 failing which the penalties spelt out in Section 92 of the Act would apply.

 

Referring to the same Section 89(2) of Stamp Duties Act 2004, the Bank’s circular in January 2016 to Deposit Money Banks and Other Financial Institutions titled “Collection and Remittance of Statutory Charges on Receipts of Nigeria Postal Service Under the Stamp Duties Act states: “As part of efforts to boost its revenue base the Federal Government of Nigeria is exploring revenue opportunities in the non-oil sectors especially taxes and rates. It is in recognition of this fact that banks and other financial institutions are enjoined to support government’s revenue drive through compliance with the provisions of the Stamp Duties Act LFN 2004 as reinforced by the court judgment in suit No. FHC/L/CS/1710/2013. In this regard, the CBN pursuant to the provisions of its enabling laws hereby issues this circular to all DMBs and other financial institutions. With immediate effect, all DMBs and other financial institutions shall commence the charging of N50 per eligible transaction in accordance with the provisions of the Stamp Duties Act and the Federal Government Financial Regulations 2009, that is, all receipts given by any bank or other financial institutions in acknowledgment of services rendered in respect of electronic transfer and teller deposits from N1000 and above. For the avoidance of doubt the following receipts are however exempted from imposition of stamp duties: payments of deposits or transfer by self to self whether inter or intra-bank and any form of withdrawals/transfers from saving accounts…….”

 

Section 34 of the Act deals with the term “bank notes”. Accordingly, “for the purpose of the Act, the expression “bank notes” include “(a) any bill of exchange or promissory note issued by any banker for the payment of money not exceeding two hundred Naira to the bearer on demand and (b) any bill of exchange or promissory note so issued which entitles or is intended to entitle the bearer or holder thereof without endorsement or with further endorsement than may be thereon at the time of the issuing thereof, to the payment of money not exceeding two hundred Naira in demand whether the same be so expressed or not and in whatever form and by whomsoever the bill or note is drawn or made”.

 

Section 36 goes further to explain a “bill of exchange” to include “draft, order cheque, letter of credit and any document or writing ( except a bank note) entitling or purporting to entitle any person whether named therein or not to payment by any other person of or to draw upon any other person for any sum of money. A “bill of exchange on demand” includes (a) an order for the payment of any sum by a bill of exchange or a promissory note or for the delivery of any bill of exchange or promissory note in satisfaction of any sum of money or for payment of any sum of money out of any particular fund which may or may not be available or upon any condition or contingency which may or may not be performed or happen and (b) an order for the payment of any sum of money weekly, monthly or at any other stated periods and also an order for the payment by any person at any time after the date thereof of any sum of money and sent or delivered by the person making the same to the person by whom the payment is made or to any person on his behalf”.(To be continued)

 

Sunday. I. Owualah