On 30 June 2020, an Inter-Ministerial Committee for the Audit and Recovery of Back-Years Stamp Duties (the committee) was inaugurated and the Federal Inland Revenue Service (FIRS) Adhesive Stamp was launched. The committee is comprised of representatives from the FIRS, the Central Bank of Nigeria, the Federal Ministry of Justice and the Federal Ministry of Finance, Budget & National Planning. The committee is tasked primarily with enforcing Sections 110, 112 and 114 of the Stamp Duties Act (SDA) which empowers the Federal Government to recover stamp duty as well as accompanying fines and penalties for up to 5 years.
We outline the key matters below:
- The Federal Government (through the Committee) intends to strictly enforce the provisions of the SDA and the amendments introduced by the Finance Act 2019 including the extension of Stamp Duty to electronic documents, receipts, bank deposits or transfers. Our earlier alert on the amendments to the SDA and the related FIRS Information Circular is available on this link
- The Presidency has directed all institutions of government (all relevant MDAs, particularly the CBN, FIRS, NIBBS, MDBs, NIPOST etc) and related stakeholders to give maximum cooperation to the Committee in the discharge of its mandate.
- The back-years recovery is targeted at institutions such as Deposit Money Banks (DMB), Nigeria Inter-Bank Settlement System (NIBSS), Central Securities Clearing System (CSCS), Corporate Affairs Commission (CAC) etc in respect of stamp duties already collected but not yet remitted.
- It is expected that the Committee will soon commence the recovery exercise which may be extended to companies and other persons to assess compliance with the provisions of the SDA.
- The use of the FIRS' e-portal for the payment of stamp duties is now mandatory. The development by the FIRS of the Application Programming Interface (API) is being expedited for corporate bodies and persons upon request, presumably for automated deduction and remittance of stamp duties.
- It is expected that the introduction of the FIRS Adhesive Stamp will, among other things, plug the revenue gap; enable proper accountability and transparency; simplify administration of Stamp Duties; and reduce disputes.
- At the event, the FIRS disclosed a 1,000% increase in stamp duties collection of N66 billion in the first five months of 2020 compared to only N6 billion naira collected from January to May 2019. According to the Secretary to the Federal Government, "stamp duty will be second to oil revenue, as it has the potential to yield up to a trillion naira if properly harnessed."
Several banks have started to debit their customers for the arrears of stamp duties not previously charged.
Non compliance may attract imposition of significant interests and penalties especially if the section 32 of the Federal Inland Revenue Service Establishment Act (FIRSEA) is applied, which is 10% of stamp duty payable and interest at prevailing CBN minimum rediscount rate plus a spread.
The FIRS also stated that it will invoke Section 32 and 40 of the FIRSEA which impose penalties and interest for non-deduction of tax. This provision may not be applicable to stamp duties as stamp duties are a surcharge and not a deduction. Also, some of the rates stated in the referenced FIRS Information Circular are not consistent with the Act.
With the inauguration of the Committee, the Federal Government has demonstrated a special focus on stamp duty as a huge revenue earner to help plug the 2020 budget deficit and shore up government revenue going forward.
While section 114 of the SDA provides that enforcement must be initiated within 5 years, there will be a practical challenge in conducting back-duty assessment beyond the recovery of stamp duties already collected and yet to be remitted. In addition, penalties under the SDA are generally based on conviction rather than merely administrative.
There are questions regarding the appropriateness of the timing and fundamental issues regarding lack of clarity in the law making compliance difficult.
We are of the view that a comprehensive reform of the SDA is necessary to ensure that the law is simple to understand and administer, and fit for purpose while also limiting the coverage to fewer items that are high revenue yielding.
Also, the redesign of the SDA should align with other economic and social objectives of the country, in particular to avoid taxing investments or production and not to discourage financial inclusion.
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