1. STAMP DUTY
Stamp Duty is a type of tax levied on documents and payable to the Federal or State Government. These documents are known as dutiable instruments and include the conveyance on sale, bills of exchange, promissory notes, agreements, insurance policies, contracts or even regular documents such as letters and certificates of admission, instruments of apprenticeship, etc.
The payment of Stamp Duties was first enabled by the Stamp Duties Act, 1939, which has since been amended by numerous acts. The current act – Stamp Duties Act 1990 (“SDA”) – provides a list of dutiable instruments and the applicable duty. According to the SDA, a dutiable instrument is defined as “every written document” being that only written documents were capable of being stamped physically.
However, the recently enacted Finance Act, 2019 (“FA”) has expanded the definition of ‘’instrument’’ to cover electronic documents. This of course is geared towards enlarging the tax net of the government but also brings the SDA up to date with the digital age of doing business.
Now, stamp duty is due and payable on transactions such as point of sale transactions, bank transfers and electronic receipts. The purpose of this article is to identify the changes introduced by the FA and illustrate the impact on taxpayers.
2. AMENDMENTS BY THE FINANCE ACT
The Finance Act, 2019 was enacted as an omnibus legislation to amend the provisions of several tax acts including the SDA. The amendments to the SDA are captured under Part VII and span Sections 52 to 56. In particular, Section 2 of the SDA was amended to expand the scope of instruments to include “electronic documents”. However, though the Finance Act expanded the scope of instruments, it did not define the term “electronic documents”, thereby leaving room for different interpretations. Considering the many options for electronic completion of transactions that would ordinarily have been completed on written documents, it was prudent for the Federal Inland Revenue Service (“FIRS”) to publish on 29th April, 2020, a circular titled “Clarification on the Provisions of the Stamp Duties Act” (“Information Circular”) to provide implementation guidance to taxpayers.
Below are some amendments to the SDA and the FIRS guidance on same:
“stamp” means an impressed pattern or mark by means of an engraved or inked block die as an adhesive stamp or an electronic stamp or an electronic acknowledgement for denoting any duty or fee.
“stamped” with reference to instruments and material, applies to instruments and material impressed with stamps by means of an engraved or inked block die, adhesive stamps affixed thereto as well as to instruments and material digitally tagged with electronic stamp or notional stamp on an electronic receipt.
“instruments” includes every written document and electronic documents”
The Information Circular clarifies that Stamp Duties may be symbolised in an instrument by:
- Employing a die impressed on an instrument as an adhesive stamp;
- Affixing printed adhesive stamps issued by the FIRS;
- Direct electronic printing or impression on the instrument;
- Electronic tagging;
- Issuance of a stamp duties certificate; or
- Any other form of acknowledgement of payment for stamp duties adopted by the FIRS.
Options a – c above clearly indicate that the evidence of payment of stamp duties will be visibly evident on the face of the instruments whilst there is a possibility that the evidence of payment of stamp duties for options d and e may not be visibly evident. This may impose an additional obligation on the taxpayer to retain the evidence e.g. (a certificate) alongside the instrument as it is uncertain if the FIRS will provide to a taxpayer, on request, evidence of payment of stamp duties from their records as readily as one would obtain an account statement from a bank. Nonetheless, it is beneficial to know that an electronic instrument can be said to be properly stamped as long as stamp duty has been paid in full on such an instrument.
The Information Circular also provides an illustration for further clarification, so that where an agreement between parties is executed online using digital signature applications or the usual print, execute, scan and email option, the agreement becomes an electronic instrument to which stamp duty is due and payable, using one of the options a – f above, this means that the electronic creation of an agreement does not eliminate the obligation to pay stamp duty but under the SDA, a tax payer could have made such argument going by the strict interpretation of the definition of an instrument.
Section 89 of the SDA provides that for the purposes of the SDA, the expression “receipt” includes any note, memorandum, or writing whereby any money amounting to four naira or upwards, or any bill of exchange or promissory note for the money amounting to four naira or upwards, is acknowledged or expressed to have been received or deposited or paid, or whereby any debt or demand, or any part of a debt or demand, of the amount of four naira or upwards, is acknowledged to have been settled, satisfied, or discharged, or which signifies or imports any such acknowledgement, and whether the same is or is not signed with the name of any person.
This establishes that receipts are dutiable instruments, Section 54 of the FA now substitutes the entire Section 89 of the SDA to confirm that receipts are dutiable instruments and expands the meaning of receipts to include electronic receipts:
54(1) “receipt” includes any note, memorandum, writing or electronic inscription whereby any money, or any bill of exchange or promissory note for money is acknowledged or expressed to have been received or deposited or paid, or whereby any debt or demand, or any part of a debt or demand is acknowledged to have been settled, satisfied, or discharged, or which signifies or imports any such acknowledgements, and whether the same is or is not signed with the name of any person”
In the Information Circular, the FIRS clarifies that stamp duties applies to written, printed or electronic dutiable documents and receipts such as e-mails, short message service (SMS), instant messages (IM), documents on website or cloud-based platforms, point of sale (POS) receipts and Automated Teller Machine (ATM) printouts.
So if a taxpayer acknowledges receipt of a payment for goods or services or repayment of a debt via SMS, WhatsApp, email, Instagram; that message constitutes a receipt within the context of Section 54(1) of the FA and stamp duty becomes payable on same. In this case, the taxpayer is expected to notify the FIRS of the details of the transaction and proceed to make payment of the applicable stamp duty.
Section 54(3) introduces a flat rate stamp duty charge of
N50.00 on interbank and intrabank transfers.
54 (3) Notwithstanding the provisions of the Stamp Duties Act, electronic receipt or electronic transfer for money deposited in any bank or with any banker, on any type of account, to be accounted for and expressed to be received of the person to whom the same is to be accounted for of amounts from
N10,000.00 upwards shall attract a singular and one-off duty of the sum of N50.00 (Fifty Naira only)
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.
The information circular mandates banks and other financial institutions to charge
N50.00 (Fifty Naira only) stamp duties on all intra-bank deposits and transfers from N10,000.00 and above except where the deposit or transfer occur between two accounts maintained by the same person in the same bank; all inter-bank deposits and transfers from N10,000.00 and above involving accounts owned by the same person in different banks; and all inter-bank deposits and transfers from N10,000.00 and above involving accounts owned by different persons.
- If taxpayer A makes a transfer of
N20,000.00 to taxpayer B within the same bank, stamp duty is due and payable
- If taxpayer A makes a transfer of
N20,000.00 to taxpayer C in another bank, stamp duty is due and payable
- If taxpayer A makes a transfer of
N20,000.00 to his other bank account in another bank, stamp duty is due and payable
- If taxpayer A makes a transfer of
N20,000.00 to his other bank account within the same bank, stamp duty is not due and payable
- If taxpayer A deposits cash of
N20,000.00 into any of his accounts with any bank, stamp duty is due and payable
It is however arguable that the SDA as amended does not impose stamp duty on cash deposits into one’s account by virtue of the proviso in Section 54(3) which interprets that money paid into one’s own account by the owner within the same bank shall not be chargeable to duty but the circular to banks by the FIRS states otherwise.
There is no doubt that the amended SDA has widened the tax net of the government, an illusory imagination could stretch the intention of the FIRS to state that a transaction made telepathically with a telepathic acknowledgement of receipt will be flagged by the FIRS for payment of stamp duty as that seems to be the direction we are headed in terms of revenue generation.
However a major issue is the practicability of enforcing compliance, for example, in the Information Circular, the FIRS expects a taxpayer who makes cash payment and receives an electronic acknowledgement to self-declare the payment on the FIRS’ e-platform and pay the necessary stamp duties.
It is doubtful taxpayers will voluntarily declare information that will impose a liability to pay a tax except where this is beneficial to them or the penalty attached is apparent and vigorously enforced.
According to Section 19 of the SDA, failure to pay stamp duty on an instrument may prevent the admissibility of the said instrument as evidence in any civil proceedings in a court of law or before an arbitrator or referee.
However, Section 22 of the SDA provides the terms under which instruments not duly stamped may be received in evidence, for instance, where a judge, referee or an arbitrator finds out that a document sought to be tendered is unstamped, the party seeking to tender the document in evidence will be required to remit the unpaid duty, as well as the penalty payable thereon and a further sum of
N2.00.00 (Two Naira only) to the officer of the court, arbitrator or referee and same will be received in evidence.
The further penalty sum attached to Section 22 is merely an accessory to the provision considering our current economic realities, as it does little to discourage non-compliance. Other monetary penalties contained in the SDA share the same shortcoming and are less than a thousand Naira. That notwithstanding, it would be unsurprising if a further regulation is published to attach higher fines to non-compliance. Again, policies may be introduced to require evidence of payment of stamp duty for certain ordinary activities, akin to the requirement to provide proof of personal tax payment where a taxpayer in Lagos state wishes to pay a fine for the release of vehicle impounded on account of a traffic offence.
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