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FIRS’ 6% Stamp Duty Charge On Agreement. How It Affects You As Landlord/tenant

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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.
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

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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.

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

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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.

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.

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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.

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.

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

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)

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