Stamp Duty Under the Banking System

Friday, July 08, 2016 2.43PM / June 24, 2016 Contributed by TRLPLAW

Stamp duty charges
Under the Stamp Duties Act (Cap S8, Laws of the Federation of Nigeria 2004) and the Federal Government Financial Regulations 2009, deposit money banks must charge their customers stamp duty on eligible transactions.

Under the relevant legislation, eligible transactions are to be charged N50 as stamp duty. Eligible transactions are amounts of N1,000 or more deposited into current accounts. The N50 charge must be borne by the receiving bank account.

In a January 15 2016 circular the Central Bank of Nigeria (CBN) directed all deposit money banks to commence charging their customers N50 in stamp duty charges per eligible transaction. This followed the landmark judgment in Suit FHC/L/CS/1710/2013.

Each deposit money bank must open a Nigeria Postal Service (NIPOST) stamp duty account into which it can pay all charges collected. The balance from the account is to be transferred on a monthly basis into a CBN NIPOST stamp duty collection account. Other financial institutions must remit stamp duty collection to a deposit money bank of their choice.

Stamp duty payments are due to NIPOST under the Stamp Duties Act. The moneys generated from the charges are to be remitted to NIPOST through Kasmal International Services Ltd, a private company.

Due to dwindling revenues as a result of the decline in the price of oil, the federal government is looking at new avenues to raise money. During 2016 the government is expected to raise N66 billion ($331 million) from stamp duty charges, and this revenue is expected to grow to around N71.8 billion in 2017 and N78.5 billion in 2018.

Exemptions
The following transactions are exempt from stamp duty charges:

• deposits into and transfers from savings accounts; and
• self-to-self intra or inter-bank transfers involving current accounts.

Comment
Many Nigerians are unhappy with the stamp duty charge, as it represents an additional charge for banking transactions. Bank customers expected to enjoy relief from bank charges when the CBN ordered banks to stop charging commission on turnover for bank transactions as of January 2016. However, the new stamp duty charge now applies to banking transactions alongside the account maintenance fee.

The combined effect of Section 89 of the Stamp Duties Act and Section 620 of the Financial Regulations 2009 appears to give legitimacy to the collection of stamp duty charges. However, the deposit money banks challenged the matter in court through an appeal to the Court of Appeal.

The Court of Appeal delivered its judgment in April 2016, holding that:

• Kasmal International Services Ltd did not have the standing to institute the action in the lower court;
• Kasmal could not by itself institute and maintain an action aimed at protecting the interest and rights of its principal (NIPOST) without bringing the action in the name and on behalf of that principal; and
• electronic fund transfers and tellers are not 'receipts' under the Stamp Duties Act.

The case is poised to go all the way to the Supreme Court. Kasmal has challenged the Court of Appeal's decision, seeking an order setting aside its judgment and affirming the trial court's judgment on the following grounds:

• The Court of Appeal erred in allowing the appeal on the grounds that NIPOST had no right under the NIPOST Act and the Stamp Duties Act to collect stamp duty when Kasmal's claim was predicated not on any right vested in NIPOST to collect stamp duty, but on its power under the NIPOST Act to collect funds accruing from its sale of postage stamps to the public, irrespective of the use to which those stamps were put.
• The Court of Appeal assumed incorrectly that the N50 per eligible transaction to be deducted and remitted to NIPOST was part of federal government revenue, in respect of which only the attorney general could bring an action under Section 111 of the Stamp Duties Act.
• The Court of Appeal erred in construing Kasmal's suit as a private lawsuit based on an agency relationship between Kasmal and NIPOST, rather than a public law action aimed at securing the performance of a public duty owed by the deposit money danks under the NIPOST Act and the Stamp Duties Act.
• The Court of Appeal erred in holding that there was no obligation on the deposit money banks to deduct N50 in respect of deposits and electronic transfers contrary to the express provisions of the Stamp Duties Act.

The Supreme Court case will test existing statutes and the federal government's need to raise revenue in a difficult economy. The final outcome will be a watershed moment in the Nigerian banking and financial services sector.

For further information on this topic please contact Victor Olabode Munis at TRLPLAW by email (victor.munis@trlplaw.com).  

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