Until recently, stamp duties had been one of the underutilized sources of revenue for the Nigerian Government. The Stamp Duties Act (SDA) was enacted in 1939 to provide statutory basis for the imposition of duties on executed dutiable instruments but its application to dutiable instruments in Nigeria was largely downplayed or even ignored by both the duty payers and the collection agencies. The wide spectrum of dutiable instruments outlined in the SDA including agreements, contracts, bank deposits, bills of sale, bonds, certificates, deeds, legal mortgages, etc., and the immense volume of transactions requiring the execution of such dutiable instruments, would have made stamp duties one of the main sources of revenue for the government.

However, the fact that the SDA was neither reviewed nor updated for several decades made it almost outdated and out of touch with current realities. This may have led to the low level of enthusiasm of the tax authorities to enforce collection and the overall non-compliance with the provisions of the SDA. It is therefore not surprising that various dutiable instruments executed from transactions carried out over the years were not duly stamped. The fact that many economies around the world are moving away from stamp duties to more efficient taxes may also be a contributory factor.

The amendments introduced by the Finance Act 2019, which are geared towards expanding the scope of dutiable instruments in the SDA to cover electronic/ digital forms, are a wake-up call that there is a renewed focus on SDA. Based on the amendments, "Receipts" now include electronic inscriptions that acknowledge money received and settlement of debt, while "Stamps" can now be in the form of electronic stamps or electronic acknowledgement. Also, there is now a Stamp Duty charge on bank deposits or transfers of ?10,000 or more.

This article seeks to examine the question of who bears the responsibility for any liability and the possible impact of the amendments introduced by the Finance Act, in the light of the palpable apathy of both the populace and the relevant authorities over the years.

Where Does the Liability Lie?

Generally, stamp duties are payable upon the execution of dutiable instruments that are contained in the Schedule to the Stamp Duties Act which also provides for the applicable Stamp Duty rates per dutiable instrument. The rates provided are fixed or ad valorem (according to value). For example, assignments by way of primary security attracts Stamp Duty at an ad valorem rate of 0.00375% (75 kobo for every ?200) while appointment of a new Trustee and a letter or power of attorney for receipt of one payment of dividend attracts stamp duties at a fixed rate of ?1.50. However, in some cases such as dividend warrants, the SDA provides for both ad valorem and fixed rates.

The amendment to the SDA by the Finance Act not only widened the scope of dutiable instruments, it also brought to the spotlight, the reportable revenue that the government may have lost over the years. Thus, there has been renewed vigor from the government towards stamp duties collection and back-duty assessment. This brought about the commissioning of an Inter-Ministerial Committee on Audit and Recovery of Back-Years Stamp Duties ('the Committee'). The Committee was inaugurated with the aim of recovering Stamp Duties and accompanying fines and penalties for the relevant fiveyear period, in line with Sections 110, 112 and 114 of the SDA. Since then, the FIRS has also reported significant increase in the Stamp Duty revenue collected. In 2019 fiscal year, the FIRS generated about ?18 Billion from stamp duties while in the first half of 2020 alone, the FIRS has collected over ?67 Billion as stamp duties.

Given the above, it is important to determine the parties with the responsibility to pay stamp duties. Although, the SDA makes no specific mention of the persons liable to pay Stamp Duties, Section 23 of the SDA sets out the parties liable to pay penalties for failure to stamp on transactions. For example, the penalty arising from an unstamped lease transaction is payable by the Lessee. It can be argued that the liability to pay a penalty presupposes the responsibility to do a thing. Therefore, it can be inferred that the persons liable to pay penalties for not stamping the dutiable instruments stipulated are the parties responsible to pay the stamp duty relating to said instruments. Unfortunately, there are many other dutiable instruments contained in the SDA for which the parties liable to pay stamp duties or penalties are not specified. The amendments to the SDA by the Finance Act do not address this issue.

Given this obvious lacuna, taxpayers in recent times have sought to rely on opinions of tax authorities as expressed through Public Notices and Circulars for guidance. One of latest Public Notices of the Federal Inland Revenue Service (FIRS) clarifying the administration of Stamp Duties in Nigeria provides that the burden of payment of stamp duties (whether fixed or ad valorem) is that of the beneficiaries of a contract i.e. that of the parties making payment. While some taxpayers agree with this position as it appears to align with the provisions of Section 23, others feel there is a need for more clarity and so this should be specifically provided in the SDA, as mere inferences cannot assign duties and responsibilities in the matters of the law.

Also, since the SDA expressly states each dutiable instrument and the rates to apply to transactions, the SDA should be relied on in the determination of dutiable instruments or transactions and the corresponding rates. Any contradicting rates or dutiable instruments contained in other sources do not have the force of law and can be challenged by any dissatisfied parties.

Enforcement of Stamp Duty Liability

In the light of dwindling oil revenue, the Federal Government continues to explore other avenues to reduce the budget deficit. Consequently, it is expected that the tax authorities will increase their stamp duties collection drive. There are conflicts with respect to the appropriate agency of the government tasked with the administration and collection of stamp duties. For instance, stamp duties arising from bank transactions between two individuals have been claimed by the State Board of Internal Revenue (SBIR). Meanwhile, the FIRS is of the view that such duties should be payable to the Federal Government, given that the electronic instrument on which the duties are charged is issued by a corporate entity. However, from the strict reading of the amendments to the SDA, it appears the FIRS is the relevant authority empowered to collect stamp duties on such transactions.

In line with this amendment, the FIRS has commenced several audits of taxpayers' records for the recovery of stamp duties due to the government and may continue in this light. In like manner, the SBIR of the different states are beginning to include stamp duties as part of the scope of their routine tax audit exercise. Where taxpayers comply fully with the provisions of the SDA, they are able to avoid a five-year back-duty assessment and the possibility of penalty and interest in the event of an audit.

Additionally, the SDA provides that the amounts to be paid by persons liable to pay fines or penalties under the SDA are not subject to any mitigation, so at first instance, they cannot be reduced. Only the President or Governor, in the exercise of their discretionary powers, can mitigate the amounts, which a person is liable to pay under the SDA and any fine, penalty or debt payable after judgment is given. The adverse impact of potential stamp duty liabilities on businesses may thus be drastic and may even threaten the survival of some businesses in light of the harsh effects of the Covid-19 pandemic.

Some of the offences contained in the SDA are listed below:

a Failure to stamp or sufficiently stamp instruments after execution

Under the SDA, any unstamped or insufficiently stamped instrument may be stamped at any time within forty days upon payment of the unpaid duty only. Thereafter, the instrument may only be stamped upon payment of the unpaid duty and a penalty of ?20. By way of further penalty, where the unpaid duty exceeds ?20, interest at the rate of 10% per annum of the duty will apply from the day of first execution of the instrument until the time when the amount of interest is equal to the unpaid duty.

b Issuance of unstamped bill or note

Persons that issue, endorse, transfer, negotiate, present for payment or pay any bill of exchange or promissory note that is liable to duty and which is not duly stamped are guilty of an offence and liable upon conviction to a fine of ?20 and the person that takes or receives any such bill or promissory note will not be entitled to recover thereon or make the same available for any purpose whatsoever.

c Failure to file Statement of Amount or increase in amount of Nominal Share Capital with the Corporate Affairs Commission (CAC)

Such Statements of Amount of Nominal Share Capital or Statements of Increase in Amount of Nominal Share Capital are chargeable with ad valorem duty of ?1 for every ?200 of the capital or increase in capital. Where such Statements are not duly delivered to the CAC, a penalty of 10% per annum of the duty payable and a like penalty for every month after the first month of default is payable by companies with limited liability.

Although, it appears that the rates and amounts of penalties and interests do not reflect present economic and financial realities and are thus, not so punitive to make the attendant stamp duty liabilities substantial. However, it is important to note that Section 114 of the SDA provides that all proceedings for the recovery of any duty, fine, penalty and debt imposed by the SDA may be commenced or prosecuted at any time within five (5) years after the duty, fine, penalty or debt is incurred. Further, this underscores the need for the recent expansion of the scope of dutiable instruments to cover electronic/digital forms. Therefore, the quantum of liabilities that may arise from the volume of unstamped dutiable instruments/transactions, over a five-year period for which penalties and interest have been running, may be substantial.

The Way Forward

Oil revenue has remained a dominant source of income for Nigeria and its fall has necessitated a very critical and strategic repositioning. According to a statement made by the FIRS' Chairman, the government may have chosen stamp duties as 'the new gold', since it generates additional revenue to the government. This notwithstanding, there is a need for holistic review of the SDA by the National Assembly, in order to bring it in tandem with current realities. In the meantime, government may consider setting a stamp duty threshold for transactions involving Micro, Small and Medium enterprises and extending a window of penalty and interest waiver specific to non-compliance to the SDA. Since the discussions for the Finance Act, 2021 have commenced, this window presents an opportunity for the government to provide the necessary clarifications on who bears the brunt of stamp duties and the relevant authority to collect the duties on certain controversial transactions. Ultimately, this will encourage voluntary compliance with the provisions of the SDA.

On the other hand, taxpayers are encouraged to take deliberate steps to ensure compliance with the provisions of the SDA and adequately prepare for impending stamp duty audits. In this regard, taxpayers may undertake stamp duty compliance checks for the relevant period(s), so as to detemine the level of compliance and quantify any potential liabilities. This has become necessary given the expanded scope due to the amendments made by the Finance Act.

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.