INTRODUCTION
This article wouldn’t have been put up at a better time than this, to address this issue currently at the front burner, as it affects renters and property owners. It is imperative to separate facts from myths, so as to allay fears in some quarters and also attempt to provide clarifications due to the ambiguity around the FIRS circular and how (Stamp Duty charge) it would be implemented.
Sometime in early July, 2020 when FIRS first made the announce on stamp duty charge on lease/tenancy agreement going forward in Nigeria, some Nigerians had interpreted it to mean going to Nigerian Postal Service (NIPOST) to obtain N50 postage stamp and affix same on the tenancy agreement, while some interpreted the regulation to mean 6% of professional fee for the preparation of the lease/tenancy agreement.
In this article, attempt would be made to answer certain questions, make some clarifications and separate facts from myths
IS STAMP DUTY SAME AS NIPOST POSTAGE STAMP?
No.
FIRS is charged with the collection of stamp duty on behalf of federal government and State IRS for the 36 states and FCT, not NIPOST. Hence the N50 postage stamp is not the same as what is provided in the Stamp Duty Act
IS STAMP DUTY ON TENANCY/LEASE AGREEMENT 6% OF PROFESSIONAL FEE?
No
Stamp duty on lease/tenancy agreement is charged ad valorem (i.e. in proportion to the value of the consideration)
WHO/WHAT IS FIRS.
FIRS is the acronym for Federal Inland Revenue Service.
Federal Inland Revenue Service (FIRS) was created in 1943. Prior to that time, its functions had been performed by the Inland Revenue Department of British West Africa.[2] The Board of Inland Revenue was created in 1958, and the service gained autonomy with the passing of the FIRS (Establishment) Act 13 of 2007
The Federal Inland Revenue Service (FIRS) statutory and administrative mandate is the responsibility for the assessment, collection and accounting of taxes to the Federal Government of Nigeria
TAXES IMPOSED BY FIRS
There are taxes in Nigeria under existing tax legislation that are imposed on companies and on individuals. Some of these taxes are to be collected on behalf of the federal government through FIRS and some others are to be collected by the States Internal Revenue Service (IRS).
Some taxes imposed and to be collected by FIRS includes: Companies Income Tax, Stamp Duty, Withholding Tax, Value Added Tax, National Information Technology Development Levy, (NITDL) Tertiary Education Tax, (EDT) Petroleum Profits Tax, (PPT) Capital Gains Tax, (CGT) etc
WHO/WHAT IS IRS
IRS is the acronym for Internal Revenue Service
IRS is responsible for tax administration in the 36 states of Nigeria and the Federal capital Territory. Just as the FIRS, States Internal Revenue Service (IRS) also imposes various taxes and levies on individuals and companies.
In Lagos State for instance, we have the LIRS, Lagos Inland Revenue Service (LIRS) is the major funding arm of the Lagos State Government charged with the responsibility of collecting taxes and other revenues
Some of the taxes imposed LIRS includes: Capital Gains Tax (Individuals only) Stamp duties, Business Premises levy, Hotel occupancy and Restaurant Consumption Tax, Withholding Taxes
WHAT IS STAMP DUTY?
Under the Stamp Duties Act, CAP S8, LFN 2004 (as amended), stamp duty is payable on any agreement executed in Nigeria or relating, whatsoever, to any property situated in or to any matter or thing done in Nigeria. Instruments that are required to be stamped under the Stamp Duties Act must be stamped within 40 days of first execution.
Stamp duty is chargeable either at fixed rates or ad valorem (i.e. in proportion to the value of the consideration), depending on the class of instrument. Stamp duty is imposed at the rate of 0.75% on the authorized share capital at incorporation of a company or on registration of new shares.
All deposit banks and financial institutions are required to charge stamp duties of NGN 50 on every eligible transaction above NGN 10,000. There are exemptions for transactions between accounts held by the same bank customer and for salary accounts. (Curled from PWC)
IS THERE ANY LAW ON STAMP DUTY IN NIGERIA?
There is the Stamp Duty Act (SDA) of Nigeria dated 31st December 2003, which can also be cited as Stamp Duties Act, CAP S8, LFN 2004 (as amended)
The act has three parts (Parts 1, 2 and 3) and 118 sections
WHAT DOES THE FINANCE ACT 2019/2020 SAY ABOUT STAMP DUTY?
The finance act 2019 is contained in the Federal Republic of Nigeria official Gazette No.6 of 14th January, 2020 Vol.107 in Government Notice 11. It has its commencement date as 13th Day of January, 2020
The finance Act 2019 has seven parts (Parts 1, to 7) with 57 sections/amendments and citation.
Part VII covers amendments of Stamp Duty Act from sections 52-57
INSTRUMENTS SUBJECT TO STAMP DUTY CHARGE IN NIGERIA
In consonance with the Stamp Duties Act, CAP S8, LFN 2004 (as amended), the following instruments are subject to stamp duty charge Deed of Assignment, Contract Agreement, Bonds (Mortgage) Memorandum and Articles of Association, (Alteration of memo), Legal Mortgage, Deeds of Conveyance or Transfer on Sale of Property, Tenancy/Lease and many more as contained in the act
Stamp duty act under section 4 Says: Stamping and collection of duties on corporate instruments (1) The Federal Government shall be the only competent authority to impose, charge and collect duties upon instruments specified in the Schedule to this Act if such instrument relates to matters executed between a company and an individual, group or body of individuals.
(2) The State Governments shall collect duties in respect of instruments executed between persons or individuals at such rates to be imposed or charged as may be agreed with the Federal Government.
What Section 4 (1) is simply saying is that, if the instrument or document is between a company and another company, or a company and an individual, then such stamp duty would be paid to FIRS directly.
Section 4 (2) implies that if the instrument or document is between an individual and another individual, the state IRS would be responsible for collection
See table below for clarification
| S/N | PARTIES INVOLVED | COLLECTION AGENCY |
| 1 | XYZ company and ABC company | FIRS |
| 2 | XYZ company and Mr Felix Demola Abubakar | FIRS |
| 3 | Mr Felix Demola Abubakar and ABC company | FIRS |
| 4 | Mr Felix Demola Abubakar and Mrs Juliet Yetunde Malami | State IRS |
WHY PAY STAMP DUTY ON LEASE AGREEMENT?
If one carefully study the Stamp Duties Act, CAP S8, LFN 2004 (as amended) and particularly part 2 and sections 68 to 71, it is clear that tenancy/lease agreements are required to be charged stamp duty. The challenge is that over the years, the tax authorities, FIRS/IRS may have failed to implement or enforce the law. Now during the pandemic and dwindling income/revenue accruable from sales of crude oil to the country, the FIRS passed a circular for the payment/collection of stamp duty to boost income to the federal and state government.
However, it is long settled in the SDA that tenancy/lease agreements are subject to stamp duty charge
IS THIS NOT ANOTHER PART OF MULTIPLE TAXATION NIGERIANS ARE COMPLAINING ABOUT? AND WHY MUST I PAY STAMP DUTY?
This depends entirely on the view point.
Paying taxes is part of civic responsibilities and there are various taxes that are imposed on individuals, goods and organizations. Stamp duty is one of those taxes and it should be paid on tenancy/lease agreements but the agencies responsible for collection may have failed to collect over the years or many Nigerians failed to pay
HOW IS STAMP DUTY CALCULATED AND HOW MUCH SHOULD I PAY AS A TENANT?
As stated above, Stamp duty is chargeable either at fixed rates or ad valorem (i.e. in proportion to the value of the consideration), depending on the class of instrument. In the case of tenancy/lease agreements, it falls under ad valorem (i.e. in proportion to the value of the consideration). This implies that whatever rent you pay as a tenant to your landlord, certain percentage of that rent is charged as stamp duty.
Earlier in July, 2020 when FIRS published the Stamp duty circular, it was as if the 6% charge is to be applied across board, irrespective of the lease tenure.
The tax agency (FIRS) gave a directive through a statement on Wednesday 22nd July, 2020 by Director, Communications and Liaison Department Abdullahi Ahmad that “Property-related transactions like tenancy or lease agreement fall under the Ad Valorem category of the stamp duty which attracts six per cent duty payable in percentage of the total value or sum of the tenancy or lease,”
If this statement is taking literally as it was, it simply means on every tenancy agreement prepared, 6% of the rental value contained therein is to be charged as stamp duty, without providing any clarification.
After so much protest by many Nigerians and posts by some chartered accounts on social media on how the SDA prescribe the charge, the Director, Tax Policy of the FIRS, Mr. Mathew Gbonjubola during a webinar conference put clarity to the rates on Saturday 25th July, 2020.
Mr. Gbonjubola explained that “the 6% stamp duty is for tenancy above 21 years while 7 to 21 years lease or tenancy attracts 3% and less than 7-year tenancy is below 1%.”
Mr. Femi Oluwaniyi, Coordinating Director, Tax Operations Group of the FIRS told The Nation that stamp duty on rent or lease only applies to new agreements and not to renewals
Similarly, on Monday 27th July, 2020 during a Live TV interview on TVC, the FIRS Chairman Mr Muhammad Nami corroborated the statement of Mr. Gbonjubola as regard the 6% stamp duty being for tenancy above 21 years while 7 to 21 years lease or tenancy attracts 3% and less than 7-year tenancy is below 1%.
See below table for clarification
| S/N | TENURE OF LEASE/TENANCY | AMOUNT PAYABLE AS STAMP DUTY |
| 1 | 0-7 years lease | 0.78%
If annual rent is N400,000 all you will pay is (N400,000*0.0078)= N3,120 |
| 2 | 8 to 21 years lease or tenancy | 3%
If annual rent or total value of the lease term combined is N4,000,000 all you will pay is (N4,000,000*0.03)= N120,000 |
| 3 | 21 years and above lease or tenancy | 6%
If annual rent or total value of the lease term combined is N40,000,000 all you will pay is (N40,000,000*0.06)= N2,400,000 |
WHO IS TO PAY STAMP DUTY?
The liability for payment is on the beneficiary of the service and in this case, it is the tenant.
WHO IS TO COLLECT?
The Director, Communications and Liason Department, FIRS, Mr Abdullahi Ahmad had said the responsibility of collection and remittance fall on the landlord or agent in charge of the property for lease or rent.
However, speaking on Monday 27th July, 2020 during a Live TV interview on TVC, the FIRS Chairman Mr Muhammad Nami said renters/tenants can walk to either the FIRS or State IRS and pay the applicable rate, holding the tenancy agreement for the adhesive stamp to the affixed on it.
WILL I BE PAYING STAMP DUTY ON LEASE AGREEMENT ANNUALLY?
No.
Mr. Femi Oluwaniyi, Coordinating Director, Tax Operations Group of the FIRS told The Nation that stamp duty on rent or lease only applies to new agreements and not to renewals. If you are a sitting tenant and your landlord signs a tenancy agreement with you once, the charge would apply only once, except if a fresh agreement is prepared annually for renewal.
According to Mr. Femi Oluwaniyi, “if a new agreement is drawn up at renewal, that document should be stamped, just like initial Agreement. If, however, the renewal terms are already in the initial Agreement such that no new document is prepared but just payment of the rent for renewal, then no stamping is required
AS A SITTING TENANT, WILL I PAY BACKLOG OF STAMP DUTY ON TENANCY/LEASE AGREEMENT?
No.
The charge according to the FIRS chairman begins henceforth. i.e from July, 2020 on any new tenancy agreement between a landlord and a tenant will be subject to stamp duty charge.
WHAT IF THERE IS NO AGREEMENT BETWEEN ME AND MY LANDLORD, DO I STILL NEED TO PAY?
If there is no written or electronic agreement and you are a tenant at will or verbal agreement was entered into by the parties (landlord and tenant) you would most likely not pay stamp duty on the tenancy or lease.
Stamp Duty is chargeable on both physical and electronic instruments in two ways i.e. Ad-valorem, where duty payable is a percentage of the consideration on an instrument; or Flat Rate, where a fixed sum is chargeable irrespective of the consideration on dutiable instrument or document.
PENALTIES FOR FAILURE TO COLLECT AND FAILURE TO REMIT
According to FIRS Chairman Mr Muhammad Nami 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)
For more on this, please read:
https://thenationonlineng.net/tenants-to-pay-0-78-percent-stamp-duty-firs-clarifies/?fbclid=IwAR1z5LEhuzwu1R6k98u602sL3GqXHshxygFBnF7HBqkJSSHmbLkRme_Idjs
https://thenationonlineng.net/tenants-now-to-pay-six-per-cent-stamp-duty-says-firs/?fbclid=IwAR1ZfbNogk0QWh4yX8PheGEjNboT1YhCkn9x24GnNOalGV0B05Qgv6sFc4Y
https://www.firs.gov.ng/TaxLaws
https://stampduty.gov.ng/stamp_duty_charges;jsessionid=20DCE462F2A81ABF67604875845886B2
http://lawsofnigeria.placng.org/laws/S8.pdf
This article expresses a personal opinion as well as the view of FIRS leadership and others pertaining to stamp duty charge on tenancy/lease agreement in Nigeria and does not in anyway substitute for such professional advice or services and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business, without consulting a qualified real estate or tax Advisor.
Ademola Ladega (ANIVS, RSV MNIM, FIMC) is the managing partner of AOL Consult (www.aolmanagementconsult.com.ng) He is a highly experienced real estate consultant with field/practical experience spanning over 9 years, having previously worked at Ismail and Partners, where he contributed a great deal to the success of the firm and rose to the position of the Head of Valuation and Senior Associate
Mr Ladega has extensive experience of providing valuation services in Nigeria to large public and private companies in many sectors including utilities, banking, insurance, financial services, agro-industrial, shipping, commercial and trading sectors. As well as experience in reporting in accordance with the regulatory requirements of Nigeria, in full compliance with ESVARBON Nigeria Valuation Standards (Green Book) 2018 IPSAS, IFRS, RICS, and IVS 2020
