Nigeria’s real estate professionals are distraught by the federal government’s proposed introduction of stamp duty on property transactions. They believe it is bad for the economy and want the National Assembly to stop its implementation. Bennett Oghifo writes
Real estate practitioners have condemned the stamp duty requirement proposed by the Federal Inland Revenue Service for property transactions, calling it multiple-taxation, insensitive and have demanded that the federal government should discard such idea.
The proposed property tax unfairly targets a vulnerable group in the society, according to these professionals, who called on the National Assembly to wade in to protect Nigerians.
Lagos State, they said collects stamp duty on Deed of Assignment, wondering if the state would gladly handover this cash cow to the federal government.
The Federal Inland Revenue Service, in a statement recently, compelled landlords and property agents to ensure that they charge six per cent stamp duty on all tenancy and lease agreements they enter into with all renters and remit same promptly to the Service in order not to contravene the Stamp Duty Act.
FIRS’ position is sequel to the recent circulation of a stamp duty clarification guide by its Executive Chairman, Mr. Muhammad Nami, which stipulates that property-related transactions like “tenancy or lease agreement fall under the Ad Valorem category of the stamp duty which attracts six per cent duty payable in percentage of the total value or sum of the tenancy or lease.”
A statement by the Director, Communication, FIRS, Mr. Abdullahi Ismaila Ahmad said the burden of payment of the six per cent lies on the beneficiary of the tenancy or lease agreement, whom the Stamp Duty Act identified as the tenant or renter while the responsibility of collection and remittance falls on the landlord or agent in charge of the property for lease or rent.
Nami stressed that “in any case, the party making the payment shall have the obligation to account for the applicable stamp duties.”
Some other Stamp Duty types and their rates are Appraisement or Valuation of Property, 1.5 per cent; Certificate of Occupancy, Partnership, N1,000 flat rate; Gift of Land, 1.5 per cent; Legal Mortgage, 0.375 per cent; Legal Mortgage (Upstamping), 0.375 per cent, and Deed of Conveyance or Transfer on Sale of Property, 1.5 per cent
Others are Gift of Land, 1.5 per cent; Memorandum of Understanding (Related to Land, Sales, Joint Venture, Surrender, Subdivision Agreements, 1.5 per cent; Power of Attorney (Irrevocable/Land Related), 1.5 per cent; and Sales Agreement, 1.5 per cent.
Government should recognise that Real estate plays a major role in economies
Interestingly, the entire proposition has not gone down well with professionals in the nation’s real estate sector, most of whom regard it as insensitive and capable of extending economic depression in the nation.
Reacting to the proposed collection of stamp duty on property, the President, Fine and Country West Africa, Mrs. Udo Okonjo said, “I think it’s important for the state and federal governments to recognise that real estate plays a major role in economies and be mindful of an unintended consequence of these significant charges, especially for first time home buyers and SMEs who typically require property as collateral for their businesses.
She believes multiple taxes/charges have adverse impact on real estate investments. “That said, the clarification recently provided by the federal government is welcome as it opens up an opportunity for stakeholders to assess their investments more critically and for professionals to be guided without ambiguity.”
Regardless, she said, “With the corporate tenants, compliance and enforcement is not a challenge. I however foresee a challenge with much smaller transactions.”
She said Fine and Country would uncover and assess the adverse impact of multiple taxes/charges on real estate investments, especially in an economy that requires stimulation of the Housing and Real Estate sector at its Real Estate Tax Webinar on Thursday August 6th for real estate investors to understand the various applicable taxes and regulatory charges.
An added burden that will escalate incidental charges and taxes to more than 23.5% of the rent paid on a property
The Lagos State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV) describes it as “added burden.”
The Chairman, Lagos NIESV, Mr. Adedotun Bamigbola said the Stamp Duty directive would have a major impact on the cost of leasing properties and “it is an added burden on the property end users or lessees/tenants. This is not encouraging, especially in this economy which has already stretched finances of the citizenry.
“Don’t forget that a legal fee, which in some cases may be about 10%, will be paid to prepare the lease agreement, before you can affix or pay a stamp duty on it again at 6%, by this regulation. “That is already 16% of the consideration on a year’s tenancy or lease, just to have a legal document on the transaction. Let us not forget that recently, FIRS brought up the implementation of VAT at 7.5% on rent and all fees. This will escalate these incidental charges and taxes to more than 23.5% of the rent paid on a property.”
Bamigbola said, “This will more likely create a setback for transactions and the tenants/lessees. Government should note that their responsibility is to make life easier for the people in this critical time when all businesses are still trying to find their feet. In fact, people should be getting tax breaks for the taxes they have paid in the past. I personally will advise a review and reversal of this policy in the interest of the end-users and Nigerians.
Stamp duty was first introduced in England in 1694 to raise funds for the war
A past President, International Real Estate Federation, (FIABCI), Nigeria chapter, Asiwaju Kola Akomolede said the timing of the proposed stamp duty was wrong and that it unfairly targets a vulnerable group.
“First, we should ask ourselves – what is stamp duty? It is a duty levied on the legal recognition of certain documents. It was first introduced in England in1694 to raise funds for the war. It is due payable on property purchased at more than £125,000 and it is limited only to property purchase not on tenancy! It has since been reviewed severally, but it is still payable only on properties sold. There is no such payment also in the United States of America (USA).
“Come back home to Nigeria, if you see any old Deed of Assignment or any agreement/receipt, to give it legal backing a ‘One-Kobo postal stamp’ was usually affixed to such documents. I won’t know the reason for that but it represented a stamp duty payment to give legal backing to such documents. “But this practice had died down over the years! It therefore appears that this is what the Federal Government is about to introduce back to the system in order to raise more revenue in view of the dwindling revenue from oil.
“However, in my opinion, the timing is wrong and the group that is targeted is very unfair.”
Chief Akomolede, who is a Fellow of the Nigerian Institution of Estate Surveyors and Valuers, said the stamp duty was being introduced “at a time when many tenants cannot pay their rents due to the lockdown of the economy for months now, I think it is a wrong time to put additional financial burden on the common man. Many have lost their jobs while many self-employed could not earn any income in the last four months.
“Many are forced to take half salary while many were not paid at all because their employers too did not earn any income. In other countries, their governments have come to their aid by providing palliatives. Why will our own government think that the already disadvantaged class is the one to tax in order to raise revenue? It is very insensitive.
“In England, from where we imported the practice, stamp duty is only payable on property purchase and not on every tenancy agreement. Why do we have to extend it to tenancy agreements in Nigeria?”
Conflict with Lagos State likely and effect in the sector
According to Akomolede, “In Lagos state, (I am not sure of other states), there is already payment of stamp duty on Deed of Assignment or sublease and tenancies of more than three years if you want it to be registered. To ask for another payment of stamp duty will amount to double taxation. Or will that of the Lagos state be cancelled? I doubt if the Lagos state government will stop one of the very potent sources of revenue.
“I can predict the likely effects of this new tax. One is that many tenants will not bother to have tenancy agreements. In which case, they won’t even have to pay for the legal fees for the preparation of the agreement in the first place. A letter of offer, acceptance and consideration is enough proof of contract. Even oral contract is binding on the parties if it can be proved. Why would you bother to pay for an agreement and still pay 6% on stamp duty then?”
He said even for Deed of Assignment or sublease, many people would not bother themselves if the cost of perfecting title became too exorbitant. “This has been happening in Lagos state. Government realised this and reduced all the costs, such as consent fees, registration and stamp duty fees. Before, all these usually amounted to about 15% of the value of the property but it has been reduced to about 3% now. Lack of perfection of title will lead to reduction in the “ease of doing business” that government has been encouraging. It is therefore like one step forward and two steps backwards.”
The overall effect is to discourage investment in property development which may result in reduction in supply of housing with the effect of increase in rents and house prices, Akomolede said.
“One may ask why put stamp duty on tenancy agreement at 6%? All the other rates are either a maximum of 1.5% or a small fixed amount. For example, the rate for Certificate of Occupancy is a flat rate of
N1,000, Will – N500, MOU – 1.5%, Mortgage – 0.375%, and valuation – 1.5%. It therefore appears that the federal government intentionally wants to single out tenants for punishment. The FIRS need to explain the rational for asking for 6% to Nigerians. Most people do not even pay more than 5% as legal or agreement fee. Why will the stamp duty on such agreement cost more than the agreement itself? A fixed rate of N1,000 will be more reasonable if at all it must be paid.”
He said another peculiar thing about this law was that it imposes the stamp duty of 1.5% on valuation reports. “One may ask again why valuation reports only? Any such duty on building plans prepared by Architects? Or auditors reports, or bill of quantities, or on engineering drawings? Already, every valuation report must have a stamp purchased from the federal government through the Estate Surveyors and Valuers Registration Board on Nigeria (ESVABORN). What therefore is the reason for another stamp duty? That also will amount to double taxation! To ask for payment of 1.5% of the value of the property is in fact very ridiculous when in actual fact the fee for such exercise is not even up to 1%. It is also very unfair to be asking people who want to take a loan from banks either to build a house or to finance their businesses to carry the burden of additional tax in form of stamp duty or any other name.”
He then called on the federal government to review this law and that “the National Assembly should wade in and protect the voiceless poor people that will carry the burden of this new tax.”