Friday, July 02, 2020 / 01:50PM
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Overview
On April 29, 2020, the Federal Inland Revenue
Service (“FIRS”) published a circular titled Clarification on the Provisions of the Stamp
Duties Act (the “Information Circular”) in order to provide implementation
guidance to taxpayers on various provisions of the Stamp Duties Act (“SDA”) as amended by the Finance Act,
2019 (the “Finance Act”). The Finance Act amended the SDA by expanding
the scope of instruments liable to stamp duties to include ‘electronic
documents. Consequent upon the amendment, ‘electronic documents’ are now liable
to stamp duties such that stamp duties are required to be paid within 30 to 40
days after they have been executed or within 30 days after they have been
received in Nigeria (if executed outside Nigeria).
Although the Finance Act
expanded the scope of instruments to include ‘electronic documents’, the
Finance Act did not define the term ‘electronic documents’ and did not clarify
the meaning of the phrase ‘after they have been received in Nigeria’ with
respect to documents executed abroad.
Mindful of the aforementioned gaps in the Finance Act, the Information
Circular provides some clarity on what will constitute an ‘electronic document’ and provides for circumstances under which an electronic document, receipt or
instrument executed outside Nigeria will be deemed to be received in Nigeria
for stamping purposes.
In light of the above, this
article highlights relevant provisions of the SDA, Finance Act and Information
Circular with a view to analysing the impact of the expansion of the definition
of “instruments” to include “electronic documents”.
Pre-Finance ACT: Extant Stamp Duties
ACT Provisions
Section
22(4) of the SDA requires instruments executed in Nigeria (or relating to
anything to be done in Nigeria) to be stamped in order for same to be
admissible in evidence before Nigerian courts and to be enforceable by the said
courts in civil proceedings. In addition, the SDA provides for timelines within
which instruments should be stamped.
With respect to instruments chargeable with ad valorem stamp duties or
any instrument executed outside Nigeria, Section 23(3) and (4) of the SDA
provides that stamping of these instruments should be done within thirty (30)
days from the date they were first executed or after they have been received
in Nigeria (if executed outside Nigeria).
The SDA was also silent on the meaning of the phrase ‘after
they have been received in Nigeria’ with respect to chargeable instruments
executed abroad. Mindful that the SDA defined instruments to
include “written documents” and given that written documents could only be
stamped at that time by impressed stamps, market practitioners took the view that
documents were not deemed to be received in Nigeria until physical copies of
the documents (executed outside of Nigeria) were brought into Nigeria, at which
point it would become possible for stamps to be impressed thereon. Thus, it was
the market position that documents delivered via email to transaction parties
in Nigeria were not received in Nigeria and therefore, not liable to stamp
duties.
The Finance ACT
The
Finance Act amended certain provisions of the SDA (the “SDA Amendment”). Specifically, the definition of “instrument” under Section 2 of the SDA was amended to include “electronic documents”.
The SDA Amendment further introduced the concept of electronic stamps and
electronic acknowledgements to denote a duty in the definitions of “stamp” and “stamped” as follows:
- “stamp” means “an impressed pattern or mark by means of an engraved or inked block
die as an adhesive stamp or an electronic stamp or an electronic
acknowledgment for denoting any duty or fee.” - “stamped” means “with reference to instruments and material, applies to instruments
and material impressed with stamps by means of an engraved or inked block die,
adhesive stamp affixed thereto as well as to instruments and material
digitally tagged with electronic stamp or notional stamp on an electronic
receipt.”
Although,
the Finance Act introduced electronic documents and electronic stamping, it did
not: (i) define the term electronic documents; (ii) clarify when electronic
documents would be deemed to have been received in Nigeria for stamping
purposes; and (iii) provide the mechanics for electronic stamping or
acknowledgments.
Information Circular Clarifications
The Information Circular provides a generic
list of instruments which are required to be stamped, as follows:
(i)
all written or printed dutiable instruments or
receipts;
(ii) all electronic
dutiable instruments or receipts in the form of electronic media content,
electronic documents or files, emails, Short Message Services (“SMS”), Instant
Messages (“IM”), any internet-based messaging service, website or cloud-based
platform;
(iii) all printed
receipts (including Point-Of-Sale receipts, fiscalised device receipts, Automated Teller Machine (ATM) print-outs
and other written or printed acknowledgments) ; and
(iv) all
electronically generated receipts and any form of electronic acknowledgement of
money for dutiable transactions.
In
connection with items (ii) and (iv) above, the Information Circular, through
illustrations, provides further clarity on what electronic dutiable instruments
and electronically generated receipts mean.
With
respect to item (ii), the Information Circular illustrates that: (a) an informal
lease agreement whose terms and conditions are expressed via email
correspondence; and (b) a lease agreement drafted and executed online with no
physical document to evidence it, are both electronic dutiable instruments.
Based on this illustration, it would mean that any other chargeable instruments
such as contract agreements, loan agreements, all assets debentures, etc. that
are executed online or whose terms and conditions are expressed in an email,
would constitute electronic dutiable instruments.
With
respect to item (iv), the Information Circular illustrates that a WhatsApp
message acknowledging receipt of money constitutes a receipt for which stamp
duty is payable. Details of the underlying transaction for which the receipt
was issued are required to be disclosed to the FIRS for assessment and payment
of appropriate stamp duties.
The
Information Circular also reiterates the provisions of the Finance Act by
providing that in addition to the conventional modes of denoting stamp duties,
that is, by affixing adhesive stamps on the instrument and impressing a die on
the instrument, other modes include electronic stamping and impressions,
electronic tagging, issuance of stamp duties certificate and any form of
acknowledgment of payment for stamp duties. In this regard, the FIRS brought
the attention of the public to the automated stamp duties collection portal (www.stampduty.gov.ng) where paying citizens, government agencies,
institutions, private organisations and banks can log in and pay stamp duties
as well as receive an electronic acknowledgment that stamp duties have been
paid.
Furthermore,
the Information Circular acknowledges that an implication of the Finance Act is
that electronic documents executed outside Nigeria but received in Nigeria must be presented for stamping within 30
days of being so received. Importantly, the Information Circular provides that
an electronic document is deemed ‘received ‘ in Nigeria if:
(a) it is retrieved
or accessed in or from Nigeria;
(b) it (or an
electronic copy of it) is stored on a device (including a computer, magnetic
storage etc.) and brought into Nigeria; or
(c) it (or an
electronic copy of it) is stored on a device or computer in Nigeria.
The
illustrations provided in the Information Circular explain that where electronic records of
a transaction consummated outside Nigeria and stored on a server outside
Nigeria, are downloaded or viewed in Nigeria, the electronic instrument is said
to have been received in Nigeria. In
addition, where an electronic record of the transaction is stored on a computer
in Nigeria, the electronic instrument is deemed to have been received in
Nigeria.
Other Notable Provisions in the
Finance Act and the Information Circular
The
Finance Act also introduces Section 89(3) of the SDA and imposes a one-off
stamp duty of N50 on inter-bank and intra-bank deposits or transfers of the sum
of N10,000 (Ten Thousand Naira) and above except deposits or transfers between
accounts maintained by the same person in the same bank. In addition, the
Information Circular reiterates that all banks are to pay stamp duty on
particular dutiable transactions, including legal mortgages and loan
agreements.
Also,
the Information Circular reiterates the provisions of Sections 49 and 50 of the
SDA which require any person carrying out any sale or purchase of stock or
marketable security to make and execute a contract note which should state the
amount of stamp duties in the charge for brokerage or agency. A failure by any
broker or agent to charge the appropriate stamp duty will prevent such broker
or agent from claiming any charge for brokerage, commission or agency.
Furthermore,
the Information Circular provides that contracts with third party vendors are
chargeable ad valorem at a flat rate of 1% (excluding Value Added Tax). All
corporate entities, ministries, departments and agencies have an obligation to
charge and remit stamp duties on all such contracts.
Lastly,
a failure to comply with the SDA (as amended by the Finance Act) will attract
prosecution for offences under the SDA, payment of penalties, and inability to
admit chargeable but unstamped documents in evidence in civil proceedings.
Implications of the Provisions of
Finance ACT and the Information Circular on Stamp Duty Payments
Based
on the foregoing, it would appear that an electronic record of any dutiable
transaction is effectively an electronic document for which stamp duties must
be assessed and paid. This includes agreements concluded via email and over
messaging apps such as WhatsApp or IM, as well as contracts executed through
e-platforms like DocuSign or Adobe Sign.
In
addition, with respect to electronic instruments executed abroad, same would be
deemed to have been received into Nigeria when they are downloaded, viewed, or
stored on a computer in Nigeria. From our perspective, this means that once a
transaction is consummated and electronic copies of the transaction documents
are downloaded, viewed or stored on a computer in Nigeria (the “Receipt
Actions”), the documents must be assessed and stamped within applicable
timelines under the SDA from when such Receipt Action is taken. Undoubtedly,
this would have implications on any advice, based
on previous market practice, that documents be retained offshore to avoid the
payment of stamp duties.
Notwithstanding,
from a practical perspective, it remains unclear how the Stamp Duties Office (“SDO”) of the FIRS intends to ascertain
when an electronic document is received into Nigeria for the purpose of
triggering the payment of stamp duties and enforcing the payment of such
duties.
The
FIRS will also need to clarify whether all printed receipts, regardless of
whether or not they are in respect of dutiable transactions, will need to be
stamped. We do not believe that the intention is to impose stamp duties in
respect of non-chargeable instruments or transactions.
Footnotes
We note that Section 2,4, 89,
90 and the Schedule to the Stamp Duties Act, CAP S8, Laws of the Federation of
Nigeria (LFN) 2004 have been amended by the Finance Act 2020.
See Sections 7(3), 23(1), (3) & (4),
23(6) and 47 of the Stamp Duties Act.
Section 2 of the SDA
Section 5(1) & (2) of the SDA.
Nigerian courts had also not defined this
phrase.
Section 5(1) & (2) of the
SDA.
For further information on how
this works please see: https://stampduty.gov.ng/stamp_duty_process (Last accessed:
June 17, 2020).
This is in line with the
provisions of Section 23(3) of the SDA that requires the obligee or covenantee
to pay stamp duties on instruments of any kind.
The authors would like to
acknowledge the contributions of Seyi Bella (Partner) and the following
associates: Daniel Jayeoba, Ezomime Onimiya, and Oluwatosin Mudele to this
article.
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