Nigeria’s first Stamp Duty legislation dates back to 1948. As the name implies, it provided for a stamp to be affixed to a wide range of documents, from receipts to agreements for loans and mortgages. The provisions of this act were known by only a few Nigerians, for instance, people seeking to perfect titles for lands. The idea was that if you are not involved in transactions such as selling property or contracting mortgages which involve drafting and signing documents to be admissible in a court, you do not have to border with stamp duty. This is no longer the case, as the law has resurrected, through an amendment to the Stamp Duty Act of 2004 contained in the 2020 Finance Act.  Simple things like giving receipts or paying rents now require affixing adhesive stamps to relevant documents or paying stamp duty. SMEs should not be caught unawares. 

The Two Classes of Transactions the Stamp Duty Act Impacts 

The Stamp Duty Act has different provisions for two types of transactions: those that only require N50 postage stamp or Federal Inland Revenue Adhesive stamps to be affixed to them. These include bank transfers from N10,000 and issuance of any kind of receipt. Of course, there is no way of affixing stamps to bank transfers-the bank only charges a flat rate of N50 on transfers over N10,000, regardless of the amount transferred.

The second category is a transaction on which a stamp duty charge is levied as a percentage of the transactions. A charge of 0.78 % is levied on rents, 3% on leases of between 7-21 years and 6% on leases over 21 years. Loans with collateral will attract a stamp duty of 0.375% while equitable mortgages will have a stamp duty rate of 0.15%. Documents for simple loan agreements i.e. without any collateral will have to be simply affixed with a N50 stamp.

Ministries, Agencies and Departments usually charge 1% of the value of all contracts as stamp duty. The Finance Act has clarified that this has no basis in the law.

Liability- Who Should Pay?

Bank transactions are straightforward- the N50 charge is paid by the person transferring money.  Companies and landlords have the responsibility to ensure that they charge the stamp duty i.e. make service providers, contractors, tenants etc. pay the stamp duty on agreements, receipts and other dutiable instruments and remit same to the Federal Inland Revenue. The Lagos State Inland Revenue is demanding that businesses supply details of landlords with business premises. 

Penalties

The Act states that “Failure to deduct or remit stamp duties into the Federal or State Stamp Duties Account attracts relevant penalties and interest as stipulated in the Stamp Duties Act, Cap S8, LFN 2004 (as amended)”. The law permits unstamped documents to be stamped within 40 days from which they became effective and within 30 days in the case of transactions on which the stamp duty is a percentage of the value. The penalty is payment of the outstanding stamp duty plus 10% interest on the outstanding amount. 

Federal versus State

Both the Federal and State Governments can impose stamp duty. The Federal Government has the authority to charge stamp duty on documents relating to transactions between a Company e.g. a bank and an individual, group or body of individuals. The Stamp Duties Office of the Federal Internal Revenue Service collects federal stamp.

State Governments have the right to collect stamp duty on documents relating to transactions between individuals or persons such as receipts for rent or lease agreements. Every State Internal Revenue Service has a Stamp Duties Office but this office shall not charge more than the amounts or rates stipulated in the Stamp Duties Act. However, stamp duty erroneously paid to either the Federal Inland Revenue or a State Internal Revenue Service cannot be recovered; the stamp duty has to be paid anew to the appropriate agency.

Possible Risks

The charges, for the most part, seem negligible but SMEs should be aware of the risks of disruption to their services if they do not comply. Many SMEs have suppliers that supply goods or render services to them. They have to issue receipts, affix N50 stamps on these receipts and keep records of the transactions. The amendment to the Stamp Duty Act is omnibus, as it encompasses so many types of transactions. It is not likely that it will be rigorously enforced. This may create a false sense of comfort for SMEs who find compliance burdensome- the new requirement to fix stamps on receipts for all transactions for instance.

Most of the funds envisaged by Government will likely come from big businesses such as banks; the FIRS has realized N66 million in just six months from stamp duties. But SMEs face the risks of negligence – failing to pay because the FIRS has no capacity to go after the millions of SMEs whose transactions are liable to pay stamp duty. There is likely to be selective or targeted implementation e.g. inspections on businesses in concentrated areas such as business or shopping complexes. Evidence of compliance may also be demanded down the line when bidding for government contracts.

Recovery of Stamp Duty Debts

The Stamp Duties Act (SDA) empowers the Federal Government to recover stamp duty from companies that have not paid in the previous five years and to also levy penalties on the outstanding payment. Again, neither the FIRS nor its state counterparts will not likely bother with investigating SMEs for arrears of stamp duty payments except in selective or targeted cases.

The Stamp Duty Act will start to bite. The burden it places on SMEs is quite light, but many SMEs will likely not comply with the provisions because the FIRS and State Stamp Duty Offices will likely concentrate on monitoring big companies to enforce compliance. This will be a mistake because they could be subject to selective enforcement, especially from State Inland Revenue Services which will prove disruptive to their businesses.