Should The Stamp Duties Act Apply to House Rent Agreements?

July 6, 2020

Introduction

Recently, the Federal Inland Revenue Service (“the FIRS”) issued a circular reminding Nigerians to comply with Section 4 of the Stamp Duties Act. In another press release “House rent agreement, C of O, others must carry stamp duty, says FIRS”  dated July 2, 2020[1], the FIRS alerted the general public that documents relating to rent or lease agreements, Certificate of Occupancy (C of O) and a list of other common business-related transaction instruments are subject to the new FIRS Adhesive Stamp duty so that, they will be legally binding on parties involved in the transactions.

“The following are the chargeable transactions in the Fixed Duty Instruments category:  Power of Attorney (PoA); Certificate of Occupancy (C of O); Proxy form; Appointment of Receiver; Memorandum of Understanding (MoU); Joint Venture Agreements (JVA); Guarantor’s form; and Ordinary Agreements Receipts.”

“While ad-Valorem Instruments chargeable under the Stamp Duties Act are Deed of Assignment; Sales Agreement; Legal Mortgage or Debentures; Tenancy or Lease Agreements; Insurance Policies; Contract Agreements; Vending Agreement; Promissory Notes; Charter-Party; and Contract Notes.

 “Stamp duty is basically charged in two forms, either ad valorem where duty payable is a percentage of the consideration on an instrument or a fixed sum irrespective of the consideration on dutiable instrument or document.

“The FIRS enjoins members of the public to make sure that any of the above-listed instruments they give or receive in the course of their business or official transactions have the new FIRS Adhesive Stamp Duty affixed or stamped on them to authenticate or legalize such Instruments”.

Legal Analysis

Under Section 2 of the SDA, “stamp” means an impressed pattern or mark using 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” concerning instruments and material, applies to instruments and material impressed with stamps utilizing an engraved or inked block die, adhesive stamps affixed thereto as well as to instruments and material digitally tagged with an electronic stamp or notional stamp on an electronic receipt; and “instrument” includes every written document and electronic documents.

In Nigeria, stamp duties are chargeable on executed legal documents in the transfer of assets or property, and any electronic receipt or electronic transfer for money deposited in any bank or with any banker, on any type of account, to be accounted for and expressed to be received of the person to whom the same is to be accounted for of amounts from N10,000.00 upwards shall attract a singular and one-off duty of the sum of N50.00. [2]

As stipulated in the SDA[3], the FIRS is the only empowered body to impose, charge and collect duties on instruments that relate to matters executed between a company and a body of individuals; and any other relevant tax authority shall collect duties on instruments executed between persons or individuals at such rates as imposed by the Federal Government.

With the substitution of the “State Governments” with “relevant tax authority”, it is thinkable that such a phrase meant a State Inland Revenue Service (“SIRS”), bearing in mind that the State Government has the same power with the Federal Government to impose any tax or duty on documents or transactions by way of stamp duties.[4]

In effect, the FIRS is empowered collect stamp duties where one of the parties involved in a transaction is a company, and a SIRS will collect stamp duties where the parties involved are individuals only.

Statutorily, an agreement for a lease or tenement is subjected to stamp duty[5], and the same is required to be stamped under the Stamp Duties Act within 30 (thirty) days from the first execution.[6] Where the provision on stamping is not adhered to, the tenant/lessee shall be guilty of an offence and liable on conviction to a fine of twenty naira, with a further penalty equivalent to the unpaid duty thereon, unless a reasonable excuse for the delay in stamping or the omission to stamp, or the insufficiency of a stamp, is afforded to the satisfaction of the commissioner, or of the court, arbitrator or referee.

The implication of not remitting stamp duties on these transactions and having the instrument stamped accordingly renders such an instrument inadmissible in civil proceedings in Nigeria.[7]

Conclusion

While the FIRS and respective State’s SIRS are concerned with widening the tax net, there is no gainsaying that stamp duties on house rent agreements add to the numerous payments borne by financial hardship, a condiment with the unregulated pricing in the commercial housing market in Nigeria. Despite this, the extant law on this subject matter of this piece remains and undebatable, except an amendment takes effect.

The article is only intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information, please contact:

Farouk Obisanya  farouk.obisanya@roukco.com

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[1] https://www.firs.gov.ng/PressRelease/HouseRent

[2] Section 89(3) of the SDA.

[3] Section 4 of the SDA.

[4] Item 7, Part II of the Second Schedule of the Constitution of the Federal Republic of Nigeria 1999 (as amended).

[5] Section 6891) of the SDA.

[6] Section 23(3)(a) of the SDA.

[7] Section 22(4) of the SDA.