Impact of 6 per cent charge on Stamp Duty

GLOBALLY, stamp duties are a lucrative source of government income, especially in crowded states. In 2019, the Federal Government made about N18bn from stamp duty. This year alone, the Federal Government through the Federal Inland Revenue Service (FIRS) has collected a total of N20 billion in stamp duty from money Deposit Banks (MDBs) between January and June of 2020.    As it is, the FG is looking at the direction of land to rake-in more revenue into its coffer.

To explore this issue in greater depth, the Federal Inland Revenue Service (FIRS) has directed landlords and property agents to charge six per cent stamp duty on all tenancy and lease agreements.  The landlords and property agents are to remit such collections to FIRS “so that they do not run foul of the Stamp Duty Act.”

If stamp duty were a human it would have been referred to as octogenarian having been enabled by the Stamp Duty Act (SDA) of 1939.  The act has metamorphosed through various stages but lately, the Finance Act 2019 is fresh in our memory.  This Act states that the “Federal Inland Revenue Service 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.’’

It means transactions like tenancy or lease agreement fall under the Ad Valorem category of stamp duty. Other stamp duty types and their rates are: appraisement or valuation of property, five per cent; Certificate of Occupancy and Partnership, N100 flat rate; gift of land, 1.5 per cent; legal mortgage and upstamping: 0.375 per cent; Deed of Conveyance or transfer on sale of property,  1.5 per cent; Memorandum of Understanding, land, sales, joint venture, surrender, subdivision agreements attract 1.5 per cent and sales agreement, 1.5 per cent

What is the effect of this increase in stamp duty? It means that you will be paying more for a roof over your head in the next couple of months. No doubt, the residential and commercial property sectors will be placed under severe strain and the overall transaction volumes will drop.

The effect of covid-19 crisis has added pressure on the government to act but more anxiety is now on the masses that will bear the final brunt. Yes, our tax is very low compared to neighboring countries’; yes, it is another cash cow for a dwindling income from oil but hiking stamp duty to six per cent at this period will deter a lot of investors who want to buy properties. Let’s remember that there are a lot of people who want to go into agriculture who will be deterred by this new increase in the Stamp Duty Act.

Economists evaluate taxes using five common tax policy criteria – growth, stability, simplicity, neutrality and equity. Can we say the six per cent stamp duty increase fulfilled these five criteria? I do hope in the near future, first home buyers do not have to pay for stamp duty on property transactions while also providing a waiver for lower household income, a kind of  removing a sliding scale.

• Olusanya Anjorin, Lagos.

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