Again, Stamp Duty Act Amendment Ruffles Feathers

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As criticisms begin to surface over several amendments to the Stamp Duty Act, as contained in the recently signed Finance Act 2020, analysts call for an amicable resolution of all the disputes as the current administration battles to restore confidence within the remaining few months it has to hand power over to a new government, writes Festus Akanbi

From all indications, 2022 promises to be full of drama as the three tiers of government struggle to solidify their financial positions in the wake of rising bills and lean resources.

On its part, the federal government, faced with a long list of activities that must be carried out before the 2023 general election, rolled out the Finance Act 2020, which was signed into law by President Muhammadu Buhari.

Harvest of Amendments

The Finance Act 2020 amends some important provisions of a few federal tax laws such as the Companies Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value-Added Tax VAT) Act, the Capital-Gains Tax Act (CGTA), Industrial Development (Income Tax Relief) Act, Customs and Excise Tariff (Consolidation) Act, Tertiary Education Trust Fund Act, Federal Inland Revenue Service (Establishment) Act, Fiscal Responsibility Act, Public Procurement Act, the Companies and Allied Matters Act, Nigerian Export Processing Zone Act, Oil and the Gas Export Processing Free Zone Act and the Stamp Duty Act.

The government’s spokespersons argued that one of the policy objectives of the Finance Act 2020 is to introduce counter-cyclical fiscal measures and policies aimed at counteracting the unpredictable impact of economic cycles. An example of such measures includes the increase of expenditure or cutting of taxes to help stimulate economic recovery during a recession. Other policy objectives include the funding of COVID-19 responses and financial efficiencies on the part of Government Ministries, Departments and Agencies (MDAs) as well as the leveraging of modern digital technologies to achieve fiscal and economic efficiency.

Stamp Duty Act Amendment

As Nigerians continued to study the new Finance Act, one aspect that is already ruffling feathers is that of the Stamp Duty Act.

The Finance Act 2019 (“the FA 2019”), particularly section 52, expanded the scope of the SDA to capture electronic transactions. The FA 2019 (in section 54 which amended section 89 of the SDA) also expressly introduced stamp duties on bank deposits and transfers. This has been replaced by an Electronic Money Transfer Levy (‘EMTL”) now contained in a new section 89A of the SDA (amended by section 48 of the Finance Act, 2020 (‘the FA 2020”).

The Act, amongst other things, imposes stamp duties on written or electronic instruments (agreements, contracts, receipts etc.). Under the Act, stamp duties may be levied either at an ad valorem or flat rate depending on the type or nature of the instrument. (Ad valorem is a Latin phrase that translates to “according to the value.”

The essential characteristic of ad valorem tax is that it is proportional to the value of the underlying asset, unlike a specific tax, where the tax amount remains constant, irrespective of the underlying asset’s value.)

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.

THISDAY checks showed that the protest, which started in a hushed tone among officials of various states government snowballed into what analysts described as a proxy war last week, when a tax consultant, Mr Uzoma Ubani wrote the Attorney General of the Federation (AGF) and

Minister of Justice, Mr Abubakar Malami, faulting the 2021 Finance Act, which empowers the Minister of Finance to collect and administer Stamp Duties in the country.

The Controversies

In his letter, Ubani argued that the provisions of Section 27 of the Finance Act, 2021, was aimed at or targeted at stamp duties accruable to the different states of the federation under Section 4 (2) of the Stamp Duties Act, 2004, as amended by Section 53 (b) of the Finance Act, 2019, and was therefore void to the extent that it purports to take over the administration and collection of stamp duties and EMTL under Section 4 (2) of the said Stamp Duties Act, in total disregard to the separation of powers enshrined in Section 4 of the SDA, and contrary to the provisions of Section 163 of the Constitution of the FRN, 1999, as amended.

Ubani argued further that even if the FIRS were to be the only competent authority to collect stamp duties and EMTL paid through the banks’ platform, such duties/levies collected are “not by law”, to be paid into the Federation Account as clearly stated in paragraph 7 of the said FIRS Press Release on Stamp Duties collections and remittances in Nigeria.

He submitted that all FIRS could do, according to the law, was toreturn net proceeds of such collection to the states of “derivation” after deduction of administration costs, as fixed by the Fiscal Responsibility Act, as amended, and the recent Senate resolution.

According to him, it appears that the solution and the only way out in the circumstance is for Deposit Money Banks and Financial Institutions

to start forthwith, to remit stamp duties and EMTL collected from instruments initiated and executed or transactions initiated and carried out between persons or individuals under Section 4 (2) of the Stamp Duties Act, directly to the states of the federation in line with the Law and the arrears distributed according to derivation to each of the different states of the federation.

His position was corroborated by frontline tax consultant and Partner, Fiscal Policy and Africa Tax Leader, PwC, Mr Taiwo Oyedele who insisted that all revenue from stamp duties belongs to states.

In an interview with our correspondent, the foremost tax consultant said, “Based on the clear and unambiguous provisions of theConstitution, all revenue from stamp duties in any shape or form belong to the states. The only amount that may be legally retained by the federal government, where the tax is collected at the centre, is the cost of collection. Anything above this is depriving the states of their revenue, plain and simple”.

A Long-drawn Battle

The tax war between the federal government and some states took a twist sometime last year when the 36 states of the federation, through their Attorneys-General, dragged the federal government to the Supreme Court over alleged failure to remit funds generated from stamp duties into state accounts.

The states are contending that they are legally vested with the authority to administer and collect stamp duties on all transactions involving individuals and persons within their territories, and not the federal government.

Specifically, they are urging the apex court to determine; “Whether having regard to the provisions of Section 4(2) of the Stamp Duties

Act Cap. S8 of the Laws of the Federation of Nigeria read in conjunction with the provisions of Section 163, items 58 and 59 of the Second Schedule part I and items 7 (a) and (b) of the second Schedule part II and other provisions of the Constitution of the Federal Republic of Nigeria, 1999 (as amended), the defendant (the Attorney General of the Federation and the Minister of Justice, Abubakar Malami) could claim, retain, distribute or in any other manner deal with the monies or sums collected as stamp duties on person transactions within the respective states of the plaintiffs without reference to, the concurrence of, input or agreement of the plaintiffs?

“Whether having regard to the mandatory provisions of Section 4(2) of the Stamp Duties Act Cap. S8 Laws of the Federation of Nigeria (LFN), the plaintiffs (all the state attorneys) are not the sole authority to administer and collect stamp duties on all transactions involving individuals/persons within their respective states?

“To ascertain whether or not states are entitled to 85% of all stamp duties collected on electronic money transfer levy, on electronicreceipts or electronic transfer for money deposited in deposit money

banks and financial institutions, on any type of account to be accounted for and expressed to be received by the person to whom the transfer or deposit is made in the plaintiffs’ respective states.”

As the new front of the taxation battle raged last year, an economist and former Director-General of LCCI, Dr Muda Yusuf, had said: “All arms and levels of government have a responsibility to uphold the constitution. This is what they have all sworn to do.

“If the position of the constitution is that stamp duty should be remitted to the federation account, then so be it. Doing otherwise would amount to illegality.

“It is interesting that the sub nationals are getting bolder and more assertive. We are beginning to see some flavour of federalism in governance. It is a good development.”

Economic affairs commentators that share Yusuf’s view said Nigerians should expect more disagreement over the distribution of income generated from various taxes and levies in the year.