Diversification of the economy has remained a front-burner issue in Nigeria owing to the dwindling revenue from crude oil, which has remained the mainstay of the Nigerian economy. Consequently, the need to revisit other non-oil sectors such as taxes, technology, and tourism for increased revenue has become pressing. Undoubtedly, taxes have remained a viable source of income generation for governments globally including Nigeria. However, while direct taxes such as Company Income Tax often enjoy the attention of revenue-collecting agencies, indirect taxes specifically stamp duties, notwithstanding their potential to boost revenue generation are less recognized. This is because salient provisions of the Stamp Duties Act (SDA) have been left unreviewed for several decades consequently making stamp duties an untapped goldmine.
Stamp Duty can be defined in simple parlance as taxes paid on written and electronic instruments or documents relating to an act performed or required to be performed in Nigeria. The rationale for stamping documents is for admissibility purposes when such documents are tendered before a court of law. Notably, taxes generated from stamp duties are hinged on certain rates which could either be ad valorem or flat. The ad valorem rate implies that a certain percentage will be applied based on the value of the transaction in accordance with Section 10 of the Act, while the flat rate refers to a fixed amount to be paid on such electronic or written transactions. Under the Stamp Duties Act, not every transaction is dutiable as some are exempted from stamp duty liability. For instance, the transfer of shares by the government or transactions in which the burden of the stamp duty liability is placed on the government are exempted from stamp duties. Additionally, in regards to the collection of stamp duties, Section 4 of the SDA vests power in the Federal Inland Revenue Service (FIRS) to collect stamp duties on transactions involving an individual and a company. On the other hand, the State Government through the State Internal Revenue Service collects stamp duties on transactions involving individuals. Thus, considering the volume of transactions businesses and individuals engage in daily, it will not be out of context to presume that Stamp Duties collection should increase revenue for the Nigerian government. Alas! This has not been the reality owing to a myriad of factors with the most conspicuous being the fundamental challenge emanating from the legislative perspective.
Laws in every society play pivotal roles in driving economic stability and compliance among citizens. However, when laws defy the sociological school of jurisprudence as propounded by Roscoe Pound which views laws as an instrument of social engineering which should be organic, non-compliance becomes inevitable. A major challenge affecting stamp duty compliance in Nigeria from a holistic perspective emanates from the obsolete provisions of the Act. Notably, the Schedule containing the rates is majorly inconsequential when juxtaposed with current inflationary trends. For instance, the Schedule to the Stamp Duties Act provides that any Agreement under hand shall attract a fixed duty of 15Kobo. Similarly, Section 48 of the Act prescribes a penalty of 45 Kobo and 20 Naira for failure to stamp a charter-party Agreement that was first executed outside Nigeria within the relevant statutory timeframe. In practice, Tax advisors have had to adopt the FIRS rates released through circulars periodically and adopted the fixed rate of N500 as the fee payable on Agreements because of the immateriality of the amount. This challenge has largely contributed to the low compliance of stamp duty in Nigeria.
Furthermore, a fundamental lacuna of the Stamp Duties Act is that the Act fails to state the party with the liability to pay stamp duty. The Act in Section 23 provides the party to pay a penalty in certain cases but fails to state the party with the burden to pay stamp duty in other regular transactions. In resolving this lacuna, recourse has often been made to the Circulars issued by the Federal Inland Revenue Service on applicable rates and amounts which often take a more pragmatic outlook in line with prevailing monetary value. For Tax Advisors, the FIRS circular on ‘Clarification on Administration of Stamp Duties in Nigeria’ particularly Item 8 addressed the question of the party to bear liability for stamp duty payment by placing the burden on the beneficiaries of the contract. This position has been adopted as the panacea for the question of the party with the hanging responsibility to pay stamp duty. The lingering lacuna orchestrated by SDA has resulted in the conflict of laws and to which should take precedence between an Act of the National Assembly and Circulars issued by the FIRS
On the recent applicability of adhesive stamp, there has been a conflict on the appropriate authority to stamp documents, especially between the Nigerian Postal Service (NIPOST) and the Federal Inland Revenue Service. Flowing from the amendment of Section 2 of the Stamp Duties Act by the Finance Act, 2020 which expanded the definition of Stamp to mean ‘an impressed pattern or mark by means of an engraved or inked die, an adhesive stamp, an electronic stamp or an electronic acknowledgement for denoting any duty or fee, provided that the Service shall utilise adhesive stamp produced by the Nigerian Postal Service pursuant to its enabling Act’. On the flip side, the Federal Inland Revenue Service is the relevant agency under law responsible for the administration and collection of stamp duties in line with Section 4 of the Stamp Duties Act and Section 25 of the Federal Inland Revenue Service (Establishment) Act. In line with this power, FIRS issued a Circular dated 3rd June 2021, where the Service excluded any reference to the usage of the Nigerian Postal Service stamp and defined stamp to ‘include an impressed pattern or mark by means of an engraved or inked die, an adhesive stamp, an electronic stamp, or an electronic acknowledgement for denoting any duty or fee.’ Furthermore, Paragraph 3.1 of the Circular recognizes various modes of denoting stamp duties such as employing a die impressed on an instrument; affixing printed adhesive (revenue) stamps on instruments; direct electronic printing or impression on the instrument; electronic tagging; issuance of stamp duties certificate; and any other form of acknowledgement of payment for stamp duties adopted by the Service, that is, the FIRS. This has created ambiguity on the appropriate revenue stamp to adopt on written or electronic transactions.
The provisions of the Stamp Duty Act are in urgent need of a holistic overhaul beyond the amendment initiated by the Finance Act of 2019, 2020 and 2022 which introduced the Electronic Money Transfer Levy and the Revenue sharing formula by the government. Furthermore, while several dutiable transactions take place daily, the inability of the government to harness these transactions under the purview of stamp duty assessment has remained a challenge. One of the objectives of the Presidential Fiscal and Tax Reform Committee is to achieve revenue transformation for the government. In achieving this, the Stamp Duties Act must be revisited through holistic amendments to the highlighted lacunas in the Act. Only then can high-level compliance be enforced among taxpayers with the resultant effect being increased revenue for the government.
Similoluwa Daramola @ [email protected]
