Magnus Eze, Enugu
Last June, the Federation Accounts Allocation Committee (FAAC) shared a total of N696 billion to the three tiers of the Government of Nigeria, the bulk of which was generated from taxes paid by citizens.
For government’s chief tax collector, paying taxes to sustain the machinery of state is an age -long practice that had contributed to the development of many nations which he would like Nigerians to emulate especially now that the COVID-19 pandemic has disrupted revenues from crude oil sales.
Executive Chairman of Federal Inland Revenue Service (FIRS), Muhammad Nami, who at a recent media interaction lamented the negative impact of the COVID-19 pandemic on government’s revenue sources disclosed that the FIRS alone accounted for 70 per cent of the amount shared while other revenue generating agencies collectively contributed the remaining 30 per cent.
He pointed out that government would not be able to fund its programmes and activities without revenue from taxes, while shedding more light on why paying Stamp Duty on tenancy agreement shouldn’t lead to increase house rentals
Well, so far so good. I give glory to God. I am not in a new terrain. Before I was appointed the Executive Chairman of the Federal Inland Revenue Service (FIRS), I had practised tax for 26 years. So, in the tax terrain, this should be my 27th year. This fact confirms what I have been engaged in since 1991 when I graduated from the University. I started tax practice in 1993, some few months after I completed my National Youth Service. This is the path God has carved for me; little did I know that I would be talking to you today as the Executive Chairman of the FIRS.
Stamp duty controversies
We are in a period of economic downturn occasioned by the COVID-19 pandemic. However, let me clarify that Stamp Duties are not new in Nigeria. Stamp Duties came into effect in Nigeria as a result of Ordinance 41 of 1939. There have been several amendments to the Stamp Duties law over the years up to the Finance Act of 2019. The most recent amendment recognised technology, e-commerce and cross border transactions in line with global best practices and current economic realities. Stamp Duty is a tax payable in respect of dutiable instrument as provided under the Stamp Duties Act, CAP S8, LFN 2004 (as amended). Such instruments include agreements, contracts, receipts, Memorandum of Understanding (MOU), promissory notes, insurance policies and others stipulated in the schedule to the Stamp Duties Act. What is happening now is that we are looking into the tax laws and implementing the Stamp Duties Act, which is a form of indirect tax that is more viable in the economic situation we find ourselves today. It may interest you to know that the economic situation has increased the Government’s demand for funding.
The annual target for Stamp Duties that was pegged at N17billion has been revised up to N446billion for FIRS to collect. Please note that this happened before the pandemic. We collected as much as N18 billion in 2019. Presently, the Finance Act, 2019 has taken away 60 per cent of our tax base. That is, 60 per cent of the people who are supposed to pay Companies Income Tax will not do so. Sixty per cent of the people who are supposed to act as agents and pay Value Added Tax monthly will also not do so because their annual turnover is not more than N25million. So, a large number of Small and Micro Enterprises in Nigeria today do not pay taxes. What this means is that these companies will no longer act as agents for collecting VAT. The implication of this is that 60 per cent of Nigerian taxpayers will neither pay VAT nor CIT. Nigerians may note that the Federal Government is so mindful of the taxpayers that the Finance Act, 2019 was passed long before the COVID-19 lockdown in Nigeria. It seemed that the government foresaw the pandemic and quickly passed the Act to give the palliatives contained in the Act. Now that our target on Stamp Duties is about 3000 per cent more than the previous years’, we have to inform taxpayers that Stamp Duties are not only payable at the point of incorporating companies but also on other items that are chargeable. Chargeable items are more than a hundred. This is what we have done. We did not take these decisions from a communiqué after a management meeting. This is in the tax law. People keep asking, what is Stamp Duties, what are the rates, who are they paid to? We consulted the tax law to be able to explain and clarify to Nigerians what it is all about.
Stamp Duty on tenancy agreement
Our public notice on tenancy agreement captured only the last band which is 6 per cent It does not mean that it has a flat rate of 6 per cent. It was a publication error and we sincerely apologise for that. The Stamp Duty on Tenancy is charged on a graduated rate, so that if your rent is from one year to seven years, the Stamp Duty payable is 0.78 percent This is not up to 1 percent The implication of what I have said is that if your rent is N100,000 per annum, the stamp duty due at 0.78 per cent is just N780.00. The second category is the Tenant whose agreement is above seven years and up to 21 years. If an individual can afford to pay rent for 21 years, the Stamp Duty chargeable is three per cent Such a person is not going to pay rent for a long time, so, three per cent is deducted to provide social amenities and fund infrastructure. There are people who would comfortably pay rent for above 21 years; for 22 or 25 years, such people will not go back to their landlords to pay rent again. Therefore, the law states that such people should pay 6 percent of the rent as Stamp Duty. That is the information that generated controversy across board. This is another opportunity we have to clarify it.
Who remits the Stamp Duty?
In VAT administration, the service provider collects the VAT component from the consumer. For ease of administration of Stamp Duties, in the case of individual to individual agreement, the tenant is the agent of collection. The tenant is not expected to pay the Stamp Duty component of rent to the landlord who is also an individual. What the tenant is expected to do is, once an agreement is reached with the landlord or agent, he takes 0.78 per cent of the rent sum to the bank and pays into the Stamp Duties account (for instance, 0.78 percent of 100,000 is N780.00). The bank gives him a teller or an e-ticket as evidence of payment. The tenant presents the payment evidence to the landlord, before he is entitled to the copy of the rental agreement.
For emphasis, the tenant does not pay to the individual landlord; he must insist on going to a bank nearby to remit the Stamp Duty element of the rent. It is equally the responsibility of the landlord to ensure that the Stamp Duty element of the rent is paid to the bank before he issues receipt or a copy of the agreement to the tenant. The evidence of payment of the Stamp Duty should be made available to him. This decision is taken because if an individual landlord is asked to collect the money and pay into the Stamp Duty account, some of them can take the money from the tenants and fail to remit same to the Stamp Duty account in the bank. If a landlord fails to ensure that the Stamp Duty element is remitted before an agreement is signed, such a landlord will bear the burden of payment.
If the transaction is between entities or between entities and an individual or a body of individuals, the landlord is the agent of collection and should ensure that the tenant pays to the FIRS account which is a Federation Account. That money is collected and shared among the three tiers of Government. If the rent is between me (an individual) and another individual, the Stamp Duty element will be paid to the State Government where the property is situated. If I am a tenant living in Suleija, Niger State, the Stamp Duty element of my rent will be paid to the Niger State Stamp Duty account. This has nothing to do with someone who is living in his own house even if it is a ten-storey building. You are not going to pay Stamp Duty on your own house. The essence of it is to legalise the agreement between you and the landlord.
Utilisation of tax revenues
The responsibility of the FIRS is to assess, collect and account for the taxes it has collected. What happens to the money that has been collected is unknown to me. But the little I can assure you is that the money we collect does not belong to the Federal Government alone. The revenue collected by the FIRS is paid into the Federation Account.
The Federation Account belongs to the three tiers of Government: the Local Government where you come from, the State Government where your colleague comes from and the Federal Government that has its headquarters in Abuja. What happens to such money; for instance, the N18 billion collected as Stamp Duties in 2019, is that, certain percentage of the money is paid to the Local Government, a certain percentage is paid to the State Government and the Federal Government takes the balance. It is possible that out of the N18 billion you made reference to, only about N700 million or less than that goes to the Federal Government.