Following the confusion over the recently reintroduced stamp duty, an expert clarifies what is expected.
The Federal Inland Revenue Service (FIRS) recently reintroduced stamp duties on Certificate of Occupancy and house rent charges.
The development has left Nigerians with many questions, as most citizens feel that their economic plights would be further complicated by the additional tax burden.
Subsequently, a tax expert has offered some more insights/explanations on the new stamp duty charges.
Albert Folorunsho, the managing consultant at Padebo Professional Services, gave the insights during an interview with Television Continental (TVC). Nairametrics monitored the interview session. See his explanations below.
A. What is stamp duty?
According to Folorunsho, stamp duty is not new; it has been a mode of instrument duty in the financial services space, especially in stockbroking and insurance. He described it as duties paid on instruments, which make the instruments legal while generating more revenue for the government.
He said that the major difference now is that the FIRS has decided to take it upon itself to generate duties on physical instruments.
B. Is it a flat 6% rate?
Due to the poor communication about the duty when it was announced, a lot of Nigerians confused it for a flat 6% rate on their rent/C of O charges. Mr Folorunsho however clarified that only payment of rent fees above 21 years got the 6% rate, while 7-21 years was at 3%. The rent for less than 7 years was dutiable by 0.78%.
C. Do you have to pay VAT after paying stamp duty?
Folorunsho said that if VAT were charged on a duty, there would be no need for stamp duties. He cited South Africa as an example, stating that the country removed stamp duties since 2009 as they did the work of VAT.
However, he added, “we need to ascertain what is dutiable by the government,” as stamp duties cause confusion, especially when there are exemptions.
The law states that any duty paid by a federal, state or local government is exempted from stamp duties, however, Nigerian banks still charge duties on duties paid these institutions. He called for further clarification on the subject.
D. Does stamp duty protect Nigerians?
Since stamp duty is basically proof of an agreed contract between a landlord and tenant, and a tenant who wishes to sue an erring landlord to court would have it easier with proof of stamp duty. It would reduce delay in the courts, Folorunsho explained.
E. Was the timing of the enforcement wrong?
“It’s the law,” he said, “But the government needs a human face. We are in a global pandemic and GDP per capita incomes have declined.” He advised the government to focus on companies owing, and charge where essential, because individuals may have issues paying their rents in an economic downturn.
F. Is the government going the right way in expanding the tax net?
Folorunsho is of the opinion that with the reduced revenue for Nigeria, due to a pandemic, it was rational for the government to bring policies to expand its tax net, as it could be too late by 2021.
“It’s all about government revenue, that’s why nonphysical and physical instruments would be charged…Nigeria runs the risk of reduced revenue by 2021, everything must be done within the law,” he said.
G. More insights
Stamp duties have always been around, though had not been broadly used till now. However, it could be beneficial to a tenant in a legal battle against a landlord, because it is legally binding proof of a contract between both parties. It also serves as a source of revenue generation for the government.
Charges that fall under VAT are exempted from stamp duties. Instruments paid by governments are exempted as well. In the same vein, only people paying rent up to 21 years fall under the 6% law