The introduction of the electronic money transfer levy ("EMT levy" or "the levy") through the Finance Act, 2020 (the Act) has replaced the previous stamp duty on electronic receipts or electronic transfers. Prior to the enactment of the Finance Act, 2019, the Central Bank of Nigeria (CBN) issued a Circular to Deposit Money Banks (DMBs) and other financial institutions which mandated the deduction of N50 stamp duty on electronic transfers and receipts from N1000 and above. The duty was to be borne by receiving bank accounts and remitted to the CBN. Transfers between accounts owned by the same person and transfers from savings accounts were exempted from the duty.
Subsequently, the Finance Act 2019 introduced the legal framework for the imposition of this stamp duty through an amendment to section 89(3) of the Stamp Duties Act (SDA). However, the threshold for eligible transactions was increased to N10,000 and above and the exemption for savings account was effectively removed.
The enactment of the Finance Act 2020 (the Act) subsequently deleted Section 89(3) of the SDA and replaced it with the Electronic Money Transfer levy. However, the Act provides that the Minister of Finance shall make regulations regarding the administration, collection, and remittance of the levy subject to approval by the National Assembly. The Act also provides a sharing formula for the revenue derived from the levy, with 15% of the revenue allocated to the Federal Government and Federal Capital Territory, while the remaining 85% is to be shared among the State Governments.
The remittance of stamp duties by the DMBs and other financial institutions to the Federal Inland Revenue Service (FIRS) has continued to be a source of controversy with the spate of audit/investigation exercises and legal suits at the State level, as various States Board of Internal Revenue Services (SBIRS) have laid claims to the duties. Recently, the controversy has been escalated to the Supreme Court, as the Attorney Generals of the 36 States have sued the Attorney General of the Federation on the entitlement of their States to the stamp duties/EMT levy on electronic transactions involving individuals.
This article seeks to highlight the brewing issues that are bound to be carried over from the erstwhile stamp duties on electronic receipts to the administration of the EMT levy.
Controversies around the erstwhile stamp duty on electronic transactions
DMBs have always struggled with the implementation of the CBN Circular due to several issues.
- One of these issues is the difficulty in identifying transfers between accounts of the same person. Prior to the mandatory embedding of bank verification numbers, there was a lack of interface between different banking systems to enable a bank to identify that a particular transfer was made from an account holder to his or her other account with another bank.
- Another issue was the applicability of the duty to special purpose accounts, as certain bank accounts are not particularly for customers e.g., collection accounts for government agencies, correspondent accounts and sundry accounts used by the banks to hold money temporarily, etc. It was not clear if these accounts should suffer stamp duty.
- Deciding the appropriate authority to remit the stamp duties was another issue faced by DMBs during the stamp duty administration. While the CBN Circular clearly stated that the deducted amounts are to be remitted to the Nigerian Postal Service (NIPOST) account domiciled at the CBN, the FIRS has claimed it is the agency tasked with collection of all taxes and levies on behalf of the Federal Government and therefore should be the collecting agency for this duty. NIPOST has also in the past claimed it is the right agency to collect stamp duties, as the stamps it produces is what is utilized as evidence of stamping.
- The legality of the CBN imposing stamp duties on the DMBs, without an enabling legislation, had also been an issue, which led to a suit being lodged at the Federal High Court (FHC). It is pertinent to note that the FHC's judgement in December 2020 declared that the CBN Circular was not law and the CBN does not have the right to mandate banks to deduct stamp duties unless it was codified by an Act. This therefore calls to question the validity of the stamp duties collected prior to the Finance Act, 2019, and raises the following questions: Whether the deducted amounts should be returned to the customers? What is the legal basis for the audit of a tax that was not recognized by law? Can the banks that did not deduct the levy or did not pay it over be penalized by law?
The above issues, amongst other issues, necessitated the amendment of the SDA through the Finance Act 2019 to legalize the imposition of stamp duties on electronic receipts/transfers and clearly empower the FIRS as the collecting agency. However, this does not address periods prior to the Finance Act. Also, there are controversies around the implementation of the amendments introduced through the Finance Act, which has brought about additional issues.
Based on the provisions of the SDA, the FIRS is the designated competent authority to collect stamp duty on instruments relating to matters executed between a company and any other party, while the relevant tax authority in each state is to collect the stamp duty on instruments executed between individuals.
Therefore, the question is whether the transfer of funds was purely a transaction between a company (the bank) and other parties (the customer(s)), in which case the stamp duties will be entirely due to the Federal Government; or if the transfers were directly between the individuals with the bank acting merely as a conduit?
While most banks have followed the former interpretation and remitted all stamp duties deducted to the CBN and/or FIRS, various state governments ascribe to the latter and have sent demand notices to banks on stamp duty assessments. In some states, including Lagos and Anambra, legal actions have been instituted for the interpretation of the above.
The issue has catapulted into a scenario where different agencies are claiming authority for the collection of stamp duties on electronic transactions. This has led to the multiplicity of stamp duty audits on banks, both at the federal level (through the inter-ministerial committee constituted with the Office of the Attorney General of the Federation) and at the state level (through the various SBIRs), for the years prior to the enactment of the Finance Act 2020.
Administration of the EMT levy
As earlier mentioned, the EMT levy was introduced through the Finance Act, 2020, as a replacement of the stamp duty regime on electronic transactions. However, there are currently no clear guidelines for the administration of the levy, despite its enactment almost a year ago. Therefore, there is likely to be a recurrence of some of the issues that plagued the deduction of stamp duty on electronic receipts/transfer. This is exacerbated by the fact that the Act did not at least state the collecting agency. As a result, some banks have continued to remit the EMT levy to the FIRS, as though it were a similar regime to the stamp duty on electronic transactions.
On the other hand, some banks have been remitting the EMT levy to the CBN, as their apex regulator, while other banks have suspended remittance of the levy as they await the regulation from the Minister of Finance. The varied approach adopted by different banks has the likelihood of raising further issues when the regulation is eventually issued. This is because the agency tasked with collection of the levy may lay claims to the levy, since inception of the law, which will be a challenge for banks who may have remitted to other bodies, creating complicated reconciliation issues that may lead to some banks being exposed to additional liabilities in the event of an audit.
Another challenge is the fact that the levy came into being through specific provisions of the law, passed through the Finance Act 2020. The fact that the levy was introduced through a section in the SDA may still create controversies, as the levy could be deemed to be same as stamp duties and, thus, the issues that plagued the stamp duties regime may spill over into the current EMT levy regime. This can be seen in the recently instituted stamp duties suit by the 36 State Attorney Generals against the Attorney General of the Federation, as mentioned earlier.
The SDA, as amended by the Finance Acts 2019 and 2020, has clearly expanded the scope of stamp duties in Nigeria. While we await further developments regarding the administration of the EMT levy, it is imperative for taxpayers who are engaged in transactions covered by the SDA to review their transactions and business arrangements and ensure compliance with their obligations under the law. They are also encouraged to seek professional advice on how to ensure compliance with the SDA, especially on grey areas and also on the necessary steps for seeking redress in situations where they believe they may have been inappropriately assessed to additional tax liabilities.
It is also pertinent that the regulation regarding the administration, collection and remittance of the EMT levy is issued by the Minister of Finance, promptly, in order to give banks a clear direction as to the responsible body for the remittance of the levy.
Given the lingering issues around the illegality of the erstwhile stamp duties, and spillover issues into the EMT levy, it is pertinent that a ruling by the Supreme court is delivered speedily to put to rest the identified issues. Therefore, all the parties laying claims to the stamp duties on electronic transactions, are advised to suspend actions in relation to recovering the stamp duties from banks until further clarity is provided by the Supreme court judgement to taxpayers and other stakeholders.
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.