THE STAMP DUTIES ACT
Overview
Stamp duties are a form of tax paid on documents or instruments executed in Nigeria. It is also paid on documents or instruments to be performed in Nigeria. It was first introduced to Nigeria in April 1939 by Ordinance 41 of 1939, and currently codified as the Stamp Duties Act (Cap S8, LFN 2004). Stamp Duties are imposed on agreements, contracts, receipts, etc. Currently, the scope of documents covered by the stamp duties have been expanded to include electronic documents by Section 52 of the Finance Act 2019. Under the Act, stamp duties may be levied either at an ad valorem rate or flat rate depending on the type of document or instrument.
Legal framework
In Nigeria, the regulation of stamp duties is predominantly overseen by the Stamp Duties Act. This legislation encompasses the management of stamp duties and outlines various types of documents along with their corresponding duty rates as outlined in the Act's schedule.
Additionally, there exist the Finance Acts, which introduced amendments to the Stamp Duties Act. Complementary to the main Act, there are subsidiary regulations such as the Stamp Duties (Mortgage and Marketable Security Duties) Regulations of 1963 and the Stamp Duties (Approval for One Unit Die of One Million Naira) Notice of 2003.
Administration of Stamp Duties in Nigeria
Section 4 of the Stamp Duties Act addresses the management of stamp duties. According to this section, the exclusive responsibility for imposing, levying, and collecting duties on documents related to companies or groups of individuals lies with the Federal Inland Revenue Service (FIRS). Notably, Section 4(2) of the Act specifies that in cases of documents executed between individuals, the respective state tax authority shall gather duties based on rates established by the State in agreement with the Federal Government.
Instruments that attract Stamp Duties and rate of Stamp Duties
Stamp duty is charged either at an ad valorem rate or at a fixed rate. In Latin, ad valorem translates to "according to value" thus implying that ad valorem duties are charged at fixed percentages of the value of the consideration of the transaction to which the document relates. On the other hand, duties that have fixed rate do not vary regardless of the consideration of the transaction to which the document relates.
Which Agency is responsible for collection of Stamp Duties
Federal Inland Revenue Service (FIRS) is the body responsible for collecting stamp duties on behalf of the Federal Government- where a corporate entity is a party to the transaction to which the dutiable instrument relates, while the State Internal Revenue Service (SIRS) is responsible for collecting stamp duties on behalf of each State of the Federation- for transactions executed between individuals. However, with respect to the electronic money transfer levies, the Banks remit same to the FIRS who is saddled with the responsibility of collection, administration, and distribution of the electronic money transfer levies.
Implication of not stamping a document
A document that lacks proper stamping in accordance with the stipulations outlined in Section 22 of the Stamp Duties Act carries a legal consequence; it becomes inadmissible as evidence in a court of law. However, it is important to note that this exclusion does not apply to documents presented as evidence in criminal cases or other exceptions explicitly provided for within the Act.
Who has the responsibility to stamp a document?
The Stamp Duties Act did not expressly indicate which party to a transaction has the obligation to ensure that the instrument is duly stamped. Nevertheless, in some transactions, the Act mentions the party who is liable for failure to stamp the instrument, thus by implication such party has the duty to stamp the instrument. For instance, in a lease transaction, the leasee has the obligation to stamp the instrument. In conveyances or transfers operating as voluntary dispositions inter-vivos, the transferor or grantor has the obligation to stamp the instrument. In a mortgage bond or debenture, the mortgagee or oblige has the obligation to stamp the instrument. However, in the case of a transfer or re-conveyance, the transferee, assignee or the person redeeming the security has the obligation to stamp the instrument.
Where the law is silent on this matter, convention dictates that the party making the payment, often tied to the consideration involved, is responsible for settling the duty. Should this party fail to fulfill the duty, the responsibility falls upon the individual seeking to use the instrument or agreement as evidence in a legal proceeding.
What is the timeline for paying Stamp Duties?
The Stamp Duties Act provides for varying rules with respect to stamping different categories of instruments. Dutiable instruments which should be stamped by adhesive stamps are required to be stamped on or before the first execution. Unstamped and insufficiently stamped ad valorem documents are expected to be stamped within 30 days post-execution, while fixed rate documents are to be stamped within 40 days, after which penalty and interest will apply. Instruments executed outside Nigeria are generally expected to be stamped within 30 days of receipt in Nigeria.
Other specific instruments such as appraisements, charter party (executed within or outside Nigeria) and bill of lading have specific timelines to be stamped, according to the Act.
VALUE ADDED TAX ACT
Overview
Value Added Tax (VAT) is an indirect tax chargeable on the supply of all goods and services in Nigeria, except those listed in the first schedule of the VAT Act. It operates as a consumption tax, applying at each transaction stage, and is ultimately borne by the ultimate consumer of the goods or services.
Legal framework
Value Added Tax in Nigeria is primarily governed by the Value Added Tax Act (Cap V1, LFN 2004). The Act covers the administration of value added tax and provides for classes of goods and services exempt in the schedule to the Act.
There are the Finance Acts that amended some provisions of the VAT Act and other subsidiary legislation like the Value Added Tax (Modification) Order 2021.
Administration of Value Added Tax in Nigeria
The Administration of Value Added Tax is covered by Section 7 of the Value Added Tax Act. The Federal Inland Revenue Service (FIRS) is the only competent authority to administer and manage Value Added Tax.
For proper collection of VAT, the law requires that every person shall upon commencement of business register with FIRS. Also, non-residents who makes taxable supply in Nigeria shall register for VAT. Similarly, the FIRS can appoint a person responsible to charge and collect VAT for specific transactions.
The VAT Rate, and the Goods and Services Subject to VAT
The current VAT rate in Nigeria is 7.5%, although exemptions or zero-rated categories exist for specific items.
VAT is charged and payable on all supply of goods and services in Nigeria, except those listed in the First Schedule to the VAT Act.
Goods include all forms of tangible properties, excluding interest in land, building, money or securities. Buildings for VAT purposes exclude any structure not permanently affixed to land for all or most of its useful life.
While services mean anything other than goods or services provided under a contract of employment, and includes any intangible or incorporeal property over which a person has right which can be transferred. It excludes interest in land, building, money or securities.
Who to Collect and when to Remit VAT
The supplier of the chargeable goods or services is to collect and remit VAT from its customers/clients at the specified rate and remit to the FIRS. The VAT amount should be part of the bill or invoice. FIRS can also appoint a person responsible to charge and collect VAT for specific transactions. For transactions with non-residents, it is either non-resident supplier or the person appointed by FIRS that should collect and remit VAT; where they fail, the person to whom the supply is made in Nigeria will collect and remit VAT.
The amount collected as VAT is to be remitted to the FIRS in the currency of the transaction within the 14th day of the month following the month of the transaction. This took effect from September 1 2023, in line with the provisions of the Finance Act 2023. In other words, the old timeline of the 21st day of the month following the month of the transaction is no longer applicable.
Exempt and Zero-Rated Goods and Services
VAT does not apply to the supply of goods and services specifically mentioned in the first schedule to the Act. Some of the exempt goods are medical and pharmaceutical products, oil exports, books and educational materials etc. some of the exempt services include medical services, services rendered by Microfinance Banks, People's Banks and Mortgage institutions etc.
Also, some supply of goods and services attract VAT at zero rates. They are non-oil exports, goods and services purchased by diplomats, and goods and services purchased for humanitarian donor-funded projects.
Conclusion
Stamp duties and VAT are compulsory obligations imposed by law. Failure to pay stamp duty on a document that is dutiable will not only attract penalty but render it inadmissible in evidence in a civil matter. Also, failure to collect and remit the appropriate VAT will make the person that has the obligation to collect and remit VAT to be liable for the VAT due on the transactions. Individuals and businesses should ensure that their stamp duty and VAT obligations are complied with and contact their tax advisors for professional advice and clarifications.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
