Nigeria has a long list of legislations that impose tax and levies on individuals and companies. The three tiers of government have statutory powers to collect and administer specific taxes and levies allocated to them. Whilst the Federal Government has exclusive rights to legislate on certain matters, some items are on the concurrent list for which the States equally share legislative competence.
The various taxes, responsibilities for collection and other matters are spelt out in Taxes & Levies (Approved List for Collection) Act, CAP T2 LFN 2004. Based on the last amendment carried out in 2015, there are 55 different taxes and levies with collection rights shared amongst the 3 tiers of government. Federal Government collects 9 different taxes, State Governments collect 25 and Local Governments collect 21. Some of these items are taxes determined based on percentage of gains or profits, others are just fixed levies and charges of different sorts. The list cover the big and the very small, from petroleum profit tax to charges for public conveniences and motor park levies.
Taxes collectible by Federal Government include corporate income and capital gains taxes and taxes payable by residents of Federal Capital Territory (FCT), Abuja. Federal Government also collects taxes from members of the armed forces and non-residents individuals. Collection of VAT is also handled by the Federal Government on behalf of others tiers of government and allocated base on statutory sharing formula. Stamp duties payable by corporate bodies and residents of FCT is also collected by Federal Government.
State Governments collect income and capital gain taxes of individual residents in their States and Stamp duties on instruments executed by individuals. There are various levies and charges collectible by State Governments and Local Governments. The focus of this discussion is on the current issue of Stamp Duties Act.
The Stamp Duties Act CAP S8 LFN 2004 hereafter to SDA, provides for levying of stamp duties on certain transactions. SDA requires that all written instruments, conveyances, and various transactions must be stamped. Any written agreement that is not stamped is not admissible in any judicial proceeding in Nigeria. Some of the rates are ad valorem. That is, levied in proportion to the estimated value of the goods or transaction concerned. For example stamp duties is charged at the rate of 75kobo for every N200 of the consideration of certain real estate transactions like mortgages. That comes down to 0.375% of the consideration. Some rates may be fixed/flat.
In order to make collection simple, the use of pre-priced adhesive stamps was introduced on certain categories of documents. This makes for efficiency achievable through lower compliance cost and minimal cost of administration. Like many other legislations in the country, level of compliance with the provisions of Stamp Duties Act is low. This is due in part to the effectiveness of NIPOST and FIRS plus the usual challenges of administering multiple taxes in an economy as this. The need for tax harmonization to improve efficiency and effectiveness has been mentioned severally on this forum. Let’s leave further discussion on that for another day and keep our focus on the issue at hand.
Over-dependence on oil revenue is another factor that made the country to look away from non-oil revenue sources. Now that oil that accounts for nearly 90% of Nigeria’s earnings have fallen by over 70%, the country is forced to look inwards. The chickens have finally come home to roost and everyone is scrambling for breadth.
One of the items covered by SDA on which stamp is required is RECEIPTS. Receipts generally refer to compensation received for goods and services rendered. SDA says receipts should be stamped. In a circular issued by Central Bank on 15 January 2016, attention of Banks and other financial institutions was drawn to the provisions of SDA. It was clear from the circular by that the directives was issued to support government’s revenue drive. The circular directed all Banks and financial institutions to commence charging N50 per eligible transaction.
Transaction covered by the circular to the Banks are RECEIPTS by any bank or other financial institutions for services rendered. The services cover electronic transfer and teller deposits from N1,000 and above. The cost of the stamp is to be borne by the receiving party.
The circular listed exempted transactions to include own account transfers within the same bank or interbank as well as withdrawals from savings account. Banks were asked to open designated accounts for these charges and transfer the balance at month-end to designated account at CBN.
There a number of issues triggered by this directives. I will highlight few of them while I hope to deal with other issues in future. My first concern is the meaning of transaction covered by this circular. Is CBN referring to RECEIPTS BY BANKS for services rendered by them to customers? Or does receipt mean every inflow into customers’ account outside own account transfers?
Let me reproduce the section of the circular that explains eligible transaction for ease of following.
“..all receipts by ANY BANK or financial institution in acknowledgement of services rendered in respect of electronic transfer and teller deposits..”
If the circular is aimed at making Banks to comply with payment of stamp for fees collected by BANKS for their services, that would be fine. But this doesn’t appear to be the focus of the circular based on the exemptions listed. It appears from the exclusions that eligible transactions being referred to are receipts by customers into their accounts. Now, that is where the problem arises. How will the Bank know which receipt is in payment for goods or services? What happens when parents send money for up-keep to their kids in school or when spouse and friends exchange money for no work/service? What document or legal transaction is being stamped in such cases? What happens when there are donations? What happens when there are refunds? And many other cases?
Also, exemptions provided by SDA goes beyond own account transfers and savings account receipts. Receipts of salaries, wages, pension, and other allowances are exempted by SDA.
In addition to employment benefits, 14 different forms of receipts were further exempted by SDA. How would Banks be able to identify which inflow is eligible for stamp charges so as to be able to apply the law correctly? How will the Banks identify if appropriate stamp duties have already been paid on payments passing through the Bank?
It is understandable and appreciated that seeking assistance from Banks through whom financial transactions flow will be of great help. It will help greatly with ease of collection and remittance, but critical issues must not be overlooked.
Again, the circular failed to differentiate between corporates and individuals who pay taxes/levies to different authorities. Stamp duties on instruments executed by individuals are payable to State Governments, not Federal Government. FIRS collect taxes on behalf of Federal Government while the various State Boards of Internal Revenue collect for their States.
With introduction of Treasury Single Account, all Federal Government’s revenue are domiciled with CBN, but how about States?
The circular asked Banks to open an account to warehouse stamp duties collected and transfer at month-end to dedicated NIPOST account at CBN. This suggests that the money is due to Federal Government. It will be in order if the directive is focused on corporate taxpayers but different arrangements need to be made for individuals. It is important that these key issues are quickly addressed to avoid future reconciliation issues that may set in afterwards.
To ensure that appropriate Tax Authorities get credited with revenue due to them, Banks will be required to open separate accounts for stamp paid by individuals and remit same to applicable States. Revenue to States should not be mixed with that of the Federal Government.
One thing that is clear from recent developments across the country is that tax has become the new oil. Tax is the new gold! So, welcome to this season of responsible citizenship. Your life as a taxpayer will not remain the same.
Let’s borrow the popular saying from Lasgidi and end it by saying: Nigeria o ni ba je o! (Loosely interpreted: God bless Nigeria). It’s a wrap for today, see you next time.
Footnote:
This article was posted in verses via my Twitter handle, @YomiOlugbenro, on Wednesday 20 January 2016, during my weekly “tweetax” session with hashtag #TaxWiseNG. The tweets are subsequently “storified” and posted as an article on my blog www.yomiolugbenro.com and my social media accounts – facebook.com/YomiOlugbenro and LinkedIn.com/YomiOlugbenro.
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