Introduction

There are a number of archaic provisions in the Stamp Duties Act that have become redundant over time due to changes in how business is being carried out in the 21st century and lack of robust enforcement mechanisms. One of the archaic provisions in the law that has created significant controversy in recent times is the requirement for stamp duty of N50 to be charged on every receipt of N1,000 and above.

While the law to impose stamp duty on receipts has always been in existence, the relevant authorities have not been able to enforce compliance.

The Nigerian Postal Service (NIPOST) had tried in the past to deploy consultants to approach various businesses to carry out audits for the purpose of enforcing the provision of the law. However, on 1 December 2015, the Nigerian Employers Consultative Association (NECA) in an email advised its members not to comply as there is a pending appeal against a judgment which appears to grant NIPOST the powers to collect the stamp duties.

Now that the CBN has directed banks and financial institutions to comply, there is a new twist. In terms of the logic, enforcement of stamp duties would make sense under the current economic realities. However, there are some questions on legality, administration and alignment with cashless policy.

Economic rationale for imposing stamp duty on receipts
Crude oil has already dropped below the $38 benchmark in the original 2016 budget proposal. It is therefore not surprising that government wants to generate more revenue to fund the budget and reduce deficit.

One of the economic thrusts of the National Tax Policy is income redistribution such that tax earned from high revenue earners is used for the provision of infrastructure for the lowest income earners. The easiest way to achieve this is through indirect tax whereby consumption is taxed. Stamp duty is also an effective way of raising revenue under the current economic situation. It seems the burden of COT on customer recently removed is being partially replaced by stamp duty to generate revenue for government.

Challenges of enforcing stamp duty on receipts

#1 There are questions on whether the charge should be N50
Based on the law, the stamp duty on receipts is 20 kobo. However, 20 kobo stamps are not available from NIPOST. While the law allows for instruments to be stamped voluntarily using higher amount in the absence of 20 kobo stamps, taxpayers can argue that it is impossible to fulfil the requirements of the law without 20 kobo stamps. The law gives the discretion to taxpayers on whether or not to use a higher value of stamp on their documents. There is a Financial Regulation of 2009 that stipulates the N50 charge. However, increasing stamp duty can only happen by a resolution of the National Assembly or State House of Assembly. In addition, the Financial Regulations deal with internal administration and management of public funds and government and therefore, it is questionable whether the schedule in the Financial Regulations amounts to an amendment of the stamp duty on receipts for private businesses. It is also questionable whether the Financial Regulations can apply on private transactions without any government entity being involved.

#2 There are doubts on whether stamping applies to e-commerce transactions (including electronic transfers) and instances where there are no paper receipts
Section 3 of the Stamp Duties Act is the charging section of the Act. It imposes stamp duty on “instruments” listed in the schedule. Instrument is defined in the Act as every written document. “Writing” or written is also defined in the Act as every mode in which words or figures can be expressed upon material. This means that stamp duty should only apply on physical documents.

In the case between Kasmal International Services Limited vs. the Central Bank of Nigeria FHC/L/CS/1720/2013, the judgment stated that electronic transfers and tellers are receipts and therefore subject to stamp duty. However, the judgment did not address whether electronic transfers are instruments.
Some of the current realities of doing business electronically was not anticipated by the archaic Act. In respect of receipts, it anticipates situations where a physical receipt is issued to customers. It is therefore questionable whether electronic funds transfer or other electronic acknowledgment such as emails should be subject to stamp duty, rather than cheques, printed bank statements and paper receipts which are written on material.

#3 Other challenges
Challenges will come up later because nobody has thought about them. For example:
Are adhesive stamps postage stamps? Adhesive stamps in relation to stamp duties can be self-adhesive stamps which are the postage stamps or adhesive revenue stamps. The difference between the two is that the taxpayer can affix the postage stamps himself while the adhesive revenue stamps are affixed by the tax authorities. What happens when a state government provides its own stamps and insist that it should be used rather than postage stamps?
Are there no overlaps? In principle, a document relating to a transaction should be stamped once. However, enforcing stamp duty at the bank account level for a transaction that still needs to be receipted and stamped will amount to duplication of stamp duties.

What’s next for taxpayers?

For banks and financial institutions, there may be no option than to comply with the new directive while they engage the CBN on the legal aspects of the law and wait for the outcome of the Appeal because the two most recent cases on the matter are in favour of NIPOST in Kasmal International Services Limited vs. Access Bank and 23 others and the earlier case between Kasmal International Services Limited vs the Central bank of Nigeria.

However, as mentioned by NECA, the Banks have appealed. If the issues have been well articulated, the outcome of that judgment will provide clarity on some of the challenges highlighted. In the meantime, banks would need to configure their system to be able to capture the stamp duty and charge it to customers on relevant transactions.

The enforcement through the banks may be counter-productive for financial inclusion. Petty traders may prefer to keep their earnings under the pillow rather than deposit the money in a bank and lose N50. In addition, it may discourage businesses from supporting CBN’s cashless policy as businesses that deploy POS systems for sales and businesses that sell subscription or airtime electronically will lose N50 on each transaction compared to a situation where they sell to a bunch of customers in cash and deposit the money at the bank at the end of the day.

For other taxpayers, this may signal a new wave from the NIPOST to try to collect the stamp duties directly. Businesses should therefore begin to think of what their position should be in respect of the receipts issued to their customers.

What we are seeing now, is a trend. Representatives of the government at different levels have said that new taxes will not be introduced. However, one should expect that similar to this directive from the CBN, there will be more cases of the government trying to enforce tax laws which were previously “forgotten”.

Kenneth is an Associate Director at PwC Nigeria. He is an expert in tax reporting and strategy which is a unique service that aligns accounting and tax strategy for corporates.

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