Ayo Ola
A member of the Taxation Standards and Practice Monitoring Committee of the Chartered Institute of Taxation of Nigeria, (CITN), Mr. Francis U. Ubani, (FCTI), has petitioned the Minister for Justice and Attorney General of the Federation, MAbubakar Malamai (SAN), over some provisions of the Finance Bill 2022.
A copy of the petition which was acknowledged by the Ministry of Justice was made available to journalists.
Reproduced is a copy of the letter:
The Honourable Minister for Justice and Attorney General of the Federation
Federal Ministry of Justice
Federal Secretariat
Abuja
FCT.
Sir,
RE: UNCONSTITUTIONALITY OF SOME OF THE PROVISIONS OF THE FINANCE BILL 2022; UNLAWFUL AND ILLEGAL COLLECTION, RECOVERY AND DISTRIBUTION OF REVENUE FROM STAMP DUTIES/ELECTRONIC MONEY TRANSFER LEVY (EMTL) BY THE FEDERAL GOVERNMENT OF NIGERIA, CONTRARY TO AND IN TOTAL VIOLATION OF THE PROVISIONS OF SECTION 163 OF THE 1999 CONSTITUTION OF THE FRN, AS ALTERED, AND THE NEED FOR ALL FEDERAL GOVERNMENT INSTITUTIONS, MONEY DEPOSIT BANKS AND INDIVIDUALS INVOLVED TO BE MORE TRANSPERANT AND COME CLEAN AND OBEY THE RULE OF LAW ON STAMP DUTIES/EMTL COLLECTION, RECOVERY AND DISTRIBUTION, AS ENSHRINED IN THE RELEVANT PROVISIONS OF THE 1999, CONSTITUTION OF THE FRN, AS ALTERED, AND THE STAMP DUTIES ACT, 2004, AS AMENDED.
“HUMBLE APPEAL FOR JUSTICE”
We respectfully write to bring to your attention and inform you that the amendment to the sharing formula for revenue from stamp duties/electronic money transfer levy (EMTL) as proposed by the provisions of Section 23 of the Finance Bill 2022, which seeks to amend Section 89A of the Stamp Duties Act, by substituting for subsection (4), a new subsection (4) as follows – “Notwithstanding any formula that may be prescribed by any other law, the revenue accruing by virtue of the operation of this section, shall on the basis of derivation, be distributed as follow: –
(a) 15% to the Federal Government and the Federal Capital Territory, Abuja;
(b) 50% to the State Governments; and
(c) 35% to the Local Governments”.
This is clearly inconsistent with, and in violation of the provisions of Section 163 of the Constitution of the FRN, 1999, as altered, and therefore it is null, void and of no effect whatsoever, since the distribution of the Stamp Duties/Electronic Money Transfer Levy (EMTL) revenue is based on DERIVATION, pursuant to the provisions of Section 163 of the said Constitution, and should not be shared through “the Federation Account” pursuant to Section 162 of the said Constitution, without proper Constitutional amendment.
It is in fact, very clear that the provisions of Section 163 of the Constitution under reference, that Capital Gains Tax and Stamp Duties are supposed to be paid, when applicable to the States from which they are derived and not for the benefit, inter alia, of ALL the States, which will be the case, were the tax and duties are to be paid into the Federation Account, pursuant to Section 162 subsection (3) of the Constitution).
LET US LOOK AT SECTIONS 162 AND 163 OF THE CONSTITUTION OF THE FEDERAL REPUBLIC OF NIGERIA, 1999, AS ALTERED, TO SEE WHY THE PROPOSED SECTION 23 OF THE FINANCE BILL, 2022, IS NEEDLESS:
PUBLIC REVENUE/DISTRIBUTABLE POOL ACCOUNT
Section 162 (1) of the Constitution of the Federal Republic of Nigeria, 1999, as amended, enjoins the Federation to maintain a special account to be called “Federation Account” into which shall be paid ALL revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the Armed Forces of the Federation, the Nigerian Police Force, the Ministry or Department of government charged with the responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.
Section 162 (10) (a) of the said Constitution provides thus:
162 (10) “For the purposes of subsection (1) of this section “revenue” means any income or return accruing to or derived by the Government of the Federation from any source and includes –
(a) any receipt, however described, arising from the operation of any law…”. Thus, stamp duties/EMTL could be said to constitute “revenue” within the meaning of this section.
However:
Section 163 of the Constitution of the Federal Republic of Nigeria, 1999, as altered, provides thus:
“Where under an Act of the National Assembly, tax or duty is imposed in respect of matters specified in item D of Part II of the Second Schedule to this Constitution, the net proceeds of such tax or duty shall be distributed among the States on the basis of derivation and accordingly –
(a) where such tax or duty is collected by the Government of a State or other authority of the State, (such as SIRS) the net proceeds shall be treated as part of the Consolidated Revenue Fund of the State; (in line with Section 4 (2) of the Stamp Duties Act)
(b) where such tax or duty is collected by the Government of the Federation or other authority of the Federation, (such as FIRS) there shall be paid to each State, at such times as the National Assembly may prescribe, a sum equal to the proportion of the net proceeds of such tax or duty that are derived from the State”. (In line with Section 4 (1) of the Stamp Duties Act)
Paragraph 7 (i.e. Item D) of Part II of the Second Schedule to the Constitution of the Federal Republic of Nigeria, 1999, as altered, which is on Concurrent Legislative List provides thus:
“In the exercise of its powers to impose any tax or duty on –
(a) Capital gains incomes or profit of persons other than companies; and
(b) Documents or transactions by way of stamp duties
The National Assembly may, subject to such conditions as it may prescribe, provide that the collection of any such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State”. (Such as State IRS).
It appears that the provisions of Section 162 Subsections (1) and (10) of the 1999 Constitution are general in nature, while those of Section 163 of the Constitution, which deal in particular with Capital Gains Tax and Stamp Duties, are specific. Uwais, CJN (as he then was) in interpreting the above cited provisions of the 1999 Constitution, in the case of Attorney-General of Ogun State & Ors. Vs. Attorney-General of the Federation (2010) 2 N.T.L.R. 902 at 943 para. F 944 para. B) held:
“It seems to me that the provisions of Section 162 Subsections (1) and (10) of the 1999 Constitution, are general in nature, while those of Section 163 of the Constitution, which deal in particular with Capital Gains Tax and Stamp Duties are specific. Therefore, the latter provisions, override the former, for generalibusspecialia derogant (i.e. special things derogate from general things). There are the Capital Gains Tax Act, Cap 42 of the Laws of the Federation of Nigeria, 1990, as amended and Stamp Duties Act, Cap. 411 which are “existing laws” under Section 315 of the 1999 Constitution. However, the Acts, do not contain provisions, pursuant to Section 163 of the 1999 Constitution, and as at now, the National Assembly has not prescribed how the net proceeds of such tax or duty are to be distributed among the States on the basis of derivation”.
DISTRIBUTION OF PROCEEDS FROM STAMP DUTIES/EMTL:
The National Assembly has put the requisite legislation for the distribution of proceeds from Stamp Duties/EMTL among the various States of the Federation on the basis of derivation under Section 48 (4) of the Finance Act, 2020.
Therefore, how the net proceeds of such tax or duty are to be distributed among the different States of the Federation is now provided under Section 48 (4) of the Finance Act, 2020. It therefore, follows that there is no basis for the provisions, as currently provided under Section 27 of the Finance Act, 2021, and Section 23 of the Finance Bill, 2022, and should therefore be voided and not allowed to subsist.
From the provisions of the Stamp Duties Act, 2004, as amended, particularly Sections 4 (1) of the Stamp Duties Act, as amended by Section 53 (a) of the Finance Act, 2019, empower the Federal Government of Nigeria, through the Federal Inland Revenue Service (FIRS) to collect duties derivable from instruments initiated and executed or transactions initiated and carried out between a company and an individual, group or body of individuals i.e. corporate bodies. While, Sections 4 (2) of the said Act, as amended by Section 53 (b) of the Finance Act, 2019, empower the State Governments through their respective State Tax Authorities, to impose and collect duties on instruments initiated and executed or transactions initiated and carried out between persons or individuals whether electronically done or otherwise by Bank Tellers or other documents within the territory of each State.
It is pertinent to point out that Section 4 (1) and 4 (2) of the Stamp Duties Act, 2004, as amended, clearly provided for what is to be collected between the Federal Government and State Governments. Therefore, it is only the stamp duties and electronic money transfer levy (EMTL) that is collected by the Federal Government through FIRS, pursuant to Section 4 (1) of the said Stamp Duties Act, that should be distributed according to derivation, pursuant to Section 163 (b) of the Constitution, while the different States of the Federation should collect stamp duties and EMTL, pursuant to Section 4 (2) of the Stamp Duties Act, and Section 163 (a) of the Constitution, which currently, the Deposit Money Banks (DMBs) and Financial Institutions have not been complying with, based on the purported Federal Inland Revenue Service (FIRS) Press Release captioned “Clarification of Administration of Stamp Duties in Nigeria” and Central Bank of Nigeria (CBN) Circulars referenced CBN/GEN/DMB/02/006, dated 15/1/2016, and PSM/DIR/CON/CWO/07/066, dated 8/5/2020, that are not laws and having no binding effect whatsoever.
It is therefore not right as directed in paragraphs 5 (iii) and (iv) of the FIRS Press Release on Clarification on Administration of Stamp Duties in Nigeria, which states that the FIRS is vested with powers to collect stamp duties on all banking transactions, as the powers given to the State Governments through their respective Revenue Authorities to administer stamp duties by ensuring the assessment, collection and accounting for stamp duties between individuals into the State Governments Revenue Accounts, does not include banking transactions, Deposit Money Banks and Financial Institutions relied on, in not remitting qualified chargeable stamp duties to the State Governments, pursuant to Section 4 (2) of the Stamp Duties Act, 2004, as amended, is a very wrong clarification that is not supported by the applicable laws on the issue, based on the facts stated herein.
Also, the proviso to paragraph 7 of the said FIRS Press Release on Remittances of Stamp Duties, states thus:
“… Please note that stamp duties chargeable on all electronic transfers of money (including those initiated by an individual and received by another individual) through any Money Deposit Bank in Nigeria, shall be remitted into the FIRS Stamp Duty Account only. This account is a Federation Account; the revenue accruing therein is distributed monthly to the three tiers of government in Nigeria (i.e. Federal, State and Local Governments) at the Federation Account Allocation Committee (FAAC) meeting”.
It is therefore, our contention that stamp duties collected by the Government of the Federation, through FIRS, under Section 4 (1) cannot be paid into the Federation Account as directed by the FIRS, in paragraph 7 of the Press Release on collection and remittances of stamp duties dated 20/7/2020, and the CBN’s circulars, as doing so would be inconsistent with, and in violation of the provisions of Section 163 of the Constitution of the Federal Republic of Nigeria, 1999, as altered.
It is pertinent to point out that in the Finance Acts, 2019 and 2020, the definition of stamp, instrument and receipt was enhanced to include electronic transactions and receipts and specifically imposed a charge of N50.00 on electronic transfer of N10, 000.00 and above made through any bank platform. Under the Finance Act, 2020, Electronic Stamp Duty was replaced with Electronic Money Transfer Levy, but there is nothing in the provisions of the Finance Act, 2020, that renders Section 4 (2) of the Stamp Duties Act, 2004, as amended, ineffective. The Finance Act, 2020, further amended the Stamp Duties Act, 2004, by the introduction of a new Section 89A, which introduced an Electronic Money Transfer Levy on electronic receipts or transfers in banks or financial institutions. It did not abrogate the original Section 89, which is still effective and subsisting. The new Section 89A of the Finance Act, 2020, also did not render the provisions of Section 4 (2) of the said Stamp Duties Act, 2004, as amended, ineffective, any “Transfer Levy” paid by individuals on transfers between persons or individuals is still collectible by the relevant Tax Authorities in the various States of the Federation.
So where did the FIRS derived the power to collect all the qualified chargeable stamp duties on all transactions made through the banking platform from then?
The change of nomenclature from Duty to Levy does not in any way remove the powers of the relevant Tax Authorities in the States of the Federation, to charge and administer duties/levies paid by individuals on qualified chargeable instruments initiated and executed or transactions initiated and carried out between persons or individuals in the various States of the Federation, under Section 4 (2) of the Stamp Duties Act, 2004, as amended.
It therefore, follows that the various States of the Federation are clearly entitled, pursuant to Section 4 (2) of the Stamp Duties Act, CAP S8, LFN, 2004, as amended by Section 53 (b) of the Finance Act, 2019, and Section 89, as amended by Section 54 of the Finance Act, 2019, as well as the new Section 89A of Finance Act, 2020, to demand from Deposit Money Banks and Financial Institution’s remittance of stamp duties on qualified chargeable electronic transfers, teller deposits and other qualified dutiable instruments initiated and executed between persons or individuals, whose accounts are domiciled within the territory of each of the various States of the Federation.
As currently constituted and administered, the Stamp Duties Act, did not permit the infringement by the Federal Government, through the FIRS, into an area which, under the precise and well-spelt out separation of taxing powers enshrined in Section 4 (1) and 4 (2) of the SDA, as amended, are within the exclusive preserve of the States.
Section 8 subsection (1) (c) of the Federal Inland Revenue (Establishment) Act, 2007, provide thus: The Service shall:
(c) Collect, recover and pay to the designated account, any tax under the provision of this Act, or other enactment or law. (including the Stamp Duties law).
In the light of the foregoing therefore, we are of the opinion that the Federal Government, through the FIRS, should return the sum equal to the proportion of the net proceeds of all the stamp duties that are derived and collected under Section 4 (1) of the Stamp Duties Act, to the respective “Stamp Duties Account” of the various States of the Federation in accordance with the provisions of Section 163 (b) of the Constitution of the FRN, 1999, as altered.
Deposit Money Banks and Financial Institutions should henceforth stop remitting qualified chargeable stamp duties/EMTL accruable to the different States of the Federation, pursuant to Section 4 (2) of the Stamp Duties Act, 2004, as amended to FIRS.
The different States of the Federation have a duty to explore and track the recovery of stamp duties/EMTL that accrue to both the Federal and State Governments, pursuant to Section 4 (1) and 4 (2) of the Stamp Duties Act, and Section 163 (a) and (b) of the 1999 Constitution, as altered and to recover back years of unremitted stamp duties from banks and other companies in the various sectors of the economy.
It is obvious that the activities of the Federal Government, through the FIRS, CBN, and Deposit Money Banks, in the collection, remittance and distribution of stamp duties/EMTL is shrouded with a lot to be desired, and calls to question as to the motive behind the unwholesome actions of the Federal Government, and its agencies (FIRS) and (CBN) in this regard.
Section 4 (1) and 4 (2) of the Stamp Duties Act, and Section 163 (a) and (b) of the 1999 Nigerian Constitution, as altered, is very clear and unambiguous on Taxing Powers of the Federal and State Governments on issues of stamp duties and capital gains tax in Nigeria. Therefore, the unnecessary controversies surrounding stamp duties/EMTL are clearly caused by the lack of transparency in the collection, remittance and distribution of stamp duties/electronic money transfer levies on the part of the Federal Government, and its agencies, (FIRS and (CBN). There is currently, no clear position on the part of the Federal Government, and its agencies, (FIRS and (CBN), on how much stamp duties/EMTL that has been generated, pursuant to Section 4 (1) and/or 4 (2) of the Stamp Duties Act. It would be a welcome idea, and we hereby call on the Federal Government, and its agencies, (FIRS and (CBN), to create a dashboard that shows daily stamp duties/EMTL collections by banks and other financial institutions, under Section 4 (1) and 4 (2) of the Stamp Duties Act, so that all concerned, including the FIRS, CBN, and the various State Relevant Tax Authorities, can access and view them real-time, so as to overcome the secrecy surrounding the collection of the stamp duties/EMTL.
We urge all Federal Government Institutions, Money Deposit Banks and Individuals involved, to be more transparent and come clean, and obey the Rule of Law on stamp duties/EMTL collection, recovery and distribution, as enshrined in the relevant provisions of the 1999 Nigerian Constitution as altered, and the Stamp Duties Act, 2004, as amended, as when INJUSTICE becomes LAW; RESISTANCE becomes a DUTY.
In conclusion therefore, the current proposed amendment of the Stamp Duties Act, through the Finance Bill, 2022 cannot stand, without the proper amendment of the relevant provisions of the Constitution of the Federal Republic of Nigeria, 1999, as altered.
Thank you
Francis U. Ubani, FCTI
Member, Taxation Standards and Practice Monitoring Committee of the Chartered Institute of Taxation of Nigeria, CITN.