Stamp duty is levied on written or electronic transaction documents. The tax is governed by the Stamp Duties Act (SDA) of 1939 and charged as a flat rate or percentage of the transaction/instrument value, taking the nature of the instrument into cognizance. Over the years, stamp duty has been an underutilized source of revenue to the Nigerian government. The government enacted the SDA in 1939 to provide a statutory basis for imposing duties on executable dutiable instruments; however, the implementation of the Act has not been as effective prior to the introduction of the Finance Act 2019 and the Act was further amended by the Finance Act 2020.
Major Changes Effected by the Finance Act 2019 & 2020
The Finance Act’s enactment in January 2020 was heralded as a milestone event due to the far-reaching amendments it made to several tax statutes including the SDA. The main amendments to the Stamp Duties Act are the introduction of electronic documents as chargeable instruments and providing for electronic receipts and electronic stamping. As a result, deposit money banks and other financial institutions receiving cash deposits of N10,000 and above are required to charge a one-off N50 levy. The levy is to be accounted for by the person to whom the transfer or deposit is made.
These amendments clearly demonstrate the government’s aim of increasing government revenue by taking into account the impact of technological advancements on commercial transactions. In addition, on 30 June 2020 the federal government inaugurated an Inter-Ministerial Committee on Recovery and Audit of Stamp Duty and announced its intention to position stamp duty as the next major revenue source for Nigeria as oil and gas revenues continue to dwindle due to a global fall in demand and price.
Administration of Stamp Duties
Stamp duties between a group of individuals and companies are collectible by the Federal Inland Revenue Service (FIRS) while the revenue bodies of states are charged with the power of collecting stamp duties in respect of transactions between individuals.
Dutiable transactions may be subject to fixed or ad valorem duties. Instruments with fixed stamp duty include Power of Attorney, Certificate of Occupancy, Proxy Form, Appointment of receiver, Memorandum of Understanding, Joint venture Agreements, Guarantors form, Ordinary Agreements and receipts.
Instruments with Ad valorem duties include Deed of Assignments, Sales Agreements, Legal mortgages and debenture, Tenancy and Lease Agreements, Insurance Policies, Contract Agreements, Vending Agreements, Promissory notes and Charter Party.
The Stamp Duties Act provides that an instrument executed in Nigeria (or if executed elsewhere, relating to property in Nigeria) or any matter or thing to be done in Nigeria must be stamped in order to be admissible in evidence in civil proceedings in Nigeria. In respect of instruments executed outside Nigeria, the timeline for stamping is 30 days after the instrument is first received in Nigeria.
The term ‘instrument’ was previously defined in the Stamp Duties Act to include “every written document”. The Stamp Duties Act as amended by the Finance Act defines the term ‘instrument’ as every written and electronic document but does not define the term ‘electronic document’ or state when an electronic document is received in Nigeria.
On the question of when an electronic document is received into Nigeria, the FIRS confirmed this via an information circular dated 29 April 2020, which clarified certain provisions of the Amended Stamp Duties Act. In the circular, the FIRS stated that an electronic document, receipt or instrument executed outside Nigeria is received in Nigeria if:
The circular appears to resolve the question of when an electronic document is received in Nigeria and from a combined reading of the circular and the Amended Stamp Duties Act, it seems clear that chargeable instruments received in Nigeria electronically from the commencement date will be liable to stamp duty. Therefore, the practice of executing documents offshore and leaving documents outside Nigeria and retaining only electronic versions will no longer be sufficient to avoid payment of stamp duty.
A new formula for distribution of revenue from stamp duties allocates 15% to the Federal Government and Federal Capital Territory, Abuja., while 85% should be remitted to the State Governments.
Dutiable instruments can be stamped by either employing a die impressed on an instrument; affixing printed adhesive stamps issued by the Nigerian Postal Service; direct electronic printing or impression on the instrument; electronic tagging; issuance of stamp duties certificate, or any other form of acknowledgement of payment for stamp duties adopted by the FIRS.
Electronic stamping of documents has been made easy by the FIRS through an electronic portal – www.stampduty.gov.ng – solely for the purpose of collection of stamp duties. The portal is to be used by all chargeable persons including individuals, institutions, private organisations, and banks for payment of stamp duties on dutiable transactions.
The amendments to the SDA via the Finance Acts 2019 and 2020 are laudable; however, there are grey areas with respect to the practicability of enforcing compliance and it is expected that such issues including the inability to make bulk remittance of stamp duties via the portal will be addressed by the tax administrators.
It is nevertheless advised that an overhaul of the SDA is long overdue.