THE IMPOSITION OF STAMP DUTY ON TENANCY AGREEMENTS AND CERTIFICATES OF OCCUPANCY: HAS THE LAW CHANGED?

Introduction

The Federal
Inland Revenue Service (“FIRS”) on Thursday, 2^nd July, 2020 “introduced”
the imposition of stamp duty payment on documents pertaining to tenancy or
lease agreements for homes and offices, certificates of occupancy, as well as a
host of other common business-related transaction instruments. According to the
press release, this introduction requires these documents to be subjected to
authentication with the new FIRS Adhesive Stamp duty, “in order to give
these instruments the force of law and make them legally binding on all parties
involved in such transactions”[1].

[1] The Daily Trust Newspaper’s publication, “FG introduces stamp duty
on house rent agreement, c of o, others’, published on July 2, 2020 (available
at https://www.dailytrust.com.ng/fg-introduces-stamp-duty-on-house-rent-agreement-c-of-o-others.html)

The Imposition and the Position of the Law

Stamp duties
are taxes imposed, chargeable or payable to the Government on written
documents, referred to as ‘instruments’ in the Stamp Duties Act[1]  (“SDA”). 
It is important to note that the Finance Act, 2019 (“Finance Act”) amended
Section 2 of the SDA by redefining ‘instruments’ to mean every written and electronic
document[2].

“Stamp” is
defined by the Finance Act as an impressed pattern or mark by means of an
impressed or inked block die as an adhesive stamp or an electronic stamp or an
electronic acknowledgment for denoting any duty or fee[3].

By virtue
of the SDA (as amended by the Finance Act), the FIRS is the sole authority with
statutory competence to impose, charge and collect duties upon an instrument subject
to stamp duty, as specified in the Schedule to the Act, where such instrument
relates to matters executed between a company and an individual, group or body
of individuals[4].

The relevant
tax authority in a State, on the other hand, is empowered to collect duties in
respect of instruments executed between persons or individuals at such rates to
be imposed or charged, as may be agreed with the Federal Government[5].

The SDA provides for the imposition and
payment of stamp duty on an agreement for a lease or with respect to the
letting of any land or tenements[6]. Thus,
all lease and tenancy agreements are subject to stamp duty and these documents
are required to be duly stamped and should denote the duty paid[7].  In this light, we are of the considered view,
that the term ‘introduction’ as used, may appear to be a misnomer in
respect of the imposition of stamp duty on a lease agreement, as same could rather
be more aptly described as an ‘enforcement of’ or ‘a drive to enforce’ the
extant provisions of an existing law, the imposition not being novel.

This position of an enforcement drive and
not an actual introduction of a new stamp duty regime, applies to almost all
the business documents mentioned in the press release, which also includes power of attorney, certificates
of occupancy, proxy form, appointment of receiver, memorandum of understanding,
joint venture agreements, guarantor’s form, and ordinary agreements receipts
(under the Fixed Duty Instruments category), and deeds of assignment, , sales
agreement, legal mortgage or debentures, tenancy and lease agreements,
insurance policies, contract agreements, vending agreement, promissory notes, charter-party
and contract notes (under the ad-Valorem Instruments category).

Nevertheless,
it should be noted that with respect to lease agreements, no stamp duty is to
be charged on[8]:

(i)              penal rents; or

(ii)           on a further consideration of a covenant by
the lessee to make or to have made any substantial improvement on the property
demised to him, or of any covenant relating to the matter of the lease; provided
that if the further consideration in the lease consists of a covenant which if
it were contained in a separate deed would be charged with ad valorem duty, the lease shall in any such case be charged with
duty in respect of any such further consideration under section 8 of the SDA; or

(iii)             on an instrument whereby the rent reserved by
any other instrument chargeable with duty and duly stamped as a lease, is
increased, except as a lease in consideration of the additional rent thereby
made payable.

It is to be
further noted that the SDA requires an instrument to disclose all facts and
circumstances which subject such instrument to duty, as well as the amount
chargeable, and every person who, with intent to defraud the Government of the
Federation or of any State, executes or is concerned in the preparation of such
instrument which fails to fully and truly set forth such facts and
circumstances (whether by neglect or omission), shall be guilty of an offence
and liable on conviction to a fine of forty naira[9].

With
respect to the vocalized ‘new imposition of’ stamp duty payment on a
certificate of occupancy, again, we firmly consider that this imposition is not
new, and has been in operation since commencement of the law. This is one of
the payments usually required by the appropriate land ministry at the Federal
or State levels, to be made, in applying for a certificate of occupancy. Thus,
the announcement is a bit perplexing, as this seems to already have been a
mandatory requirement at the State and Federal levels. The SDA provides for the
payment of stamp duty on every conveyance or transfer (on sale, or by way of
security, voluntary disposition, or of any kind not mentioned within the SDA or
its schedule), and every instrument or order of any Court, whereby any property
on any occasion is transferred to or vested in any person, is required to be
charged with duty as a conveyance or transfer of property[10].
This appears to be the provision by which the Government has consistently imposed
and collected stamp duty on a certificate of occupancy, same being a grant or
lease of a statutory right of occupancy by the government for 99 years, subject
to renewal or revocation.  

Enforceability of Documents

Every
instrument bearing a certificate of a commissioner of stamp duties which states
that it is not chargeable with duty or that it is duly stamped, or which is stamped
with the amount of duty assessed and certified by him, shall be admissible in
evidence and available for all purposes, notwithstanding any objection relating
to the duty[11].

The SDA
also provides an opportunity for redemption and regularization where an
instrument chargeable with a duty (but which duty has not been paid) is
produced as evidence in any civil court in Nigeria (or before any arbitrator or
referee). In such instance, the SDA empowers the judge, magistrate, arbitrator,
or referee, to take notice of any omission or insufficiency of the stamps
thereon, and if the instrument is one which may legally be stamped after its execution,
such document may be received in evidence, upon payment of the amount of the
unpaid duty and the penalty payable on stamping the same, to the officer of the
Court whose duty it is to read the instrument, or to the arbitrator or referee,
of the amount of the unpaid duty[12].

The
officer, arbitrator, or referee receiving the duty and penalty, further to the
foregoing paragraph, is required to give a receipt for such duty paid and to
make an entry in the proper book kept for the purpose of showing receipts of
money and of the amount thereof and shall communicate to a commissioner the
name or title of the proceedings in which and of the part from whom he received
the duty and penalty and the date and description of the instrument, and
thereafter pay over to the Accountant-General the money so received by him for
the duty and penalty[13].

It is to be
noted that the SDA prohibits the admission into evidence of any instrument
executed in, or relating to any property or matter or thing done or to be done
in, Nigeria (no matter where such instrument was executed), or the availability
of such instrument for any purpose, except in criminal proceedings, unless such
instrument is duly stamped in accordance with the law in force in Nigeria at
the time when it was first executed.

The SDA
also provides that except where an express provision has been made in the Act, an
unstamped or insufficiently stamped instrument may be stamped with an impressed
stamp at any time within forty days from the first execution thereof (which may
be reduced by an order under subsection (7) of Section 23) upon payment of the
duty or unpaid duty only, but after that time, the said instrument may only be
stamped upon payment of the unpaid duty and a penalty of twenty naira and also
by way of further penalty, where the unpaid duty exceeds twenty naira, of
interest on such duty, at the rate of ten per cent per annum, from the day upon
which the instrument was first executed up to the time when the amount of
interest is equal to the unpaid duty[14].

The
importance of stamp duty cannot be over-emphasized, as it is an offence for any
person whose office it is to enroll, register or enter in or upon any rolls,
books or records any instrument chargeable with duty, to go ahead to enroll,
register or enter any such instrument not being duly stamped, and such person
is liable on conviction to a fine of twenty naira. Duty and debts due to the Government
of the Federation under the Stamp Duties Act are also recoverable with fines
and penalties[15]
and are recoverable in a summary manner in the name of the Attorney-General of
the Federation or of the State[16].
However, all proceedings for the recovery of any duty, fine, penalty and debt
due to the Government of the Federation is required to be commenced or
prosecuted at any time within five years after the offence committed.

The
just-introduced new adhesive stamp duty of the Federal Inland Revenue Service,
is permitted by the SDA[17] and
may also be used for agreements[18].

It should however
be noted that the non-stamping of any document which is required to be stamped
in law, does not render such document void or unenforceable between the Parties
to it. The non-stamping of such document merely affects the admissibility of
such document as evidence in a Civil Court and renders such documents generally
inadmissible as evidence in Court. However, there are exceptions to this rule,
as such documents are admissible at the discretion of the Court, such as on the
condition that the stamp duty will be immediately or subsequently paid for by
the party seeking to rely on it, payment of which could be made to the Court or
arbitrator or referee (as the case may be) and thereafter remitted to the
appropriate Accountant-General, as provided by Sections 22 (1)-(3) of the SDA[19].

In the case
of R.
G. Okuwobi v. Jimoh Ishola[20],
the Supreme Court held that unstamped documents could be admitted in evidence, since
the main purpose of stamp duties is to get revenue for the Government. The apex
Court in setting aside the judgment of the trial Court and ordering a re-trial,
held that it was wrong of the Chief Magistrate to have held a document
inadmissible merely on the ground of non-stamping, since the purpose of the
requirement of stamping is to ensure that Government does not lose revenue. This
position of the law has been reiterated in a plethora of cases, including Etokhana v NDIC & Anor, and Prince Will Eyo Asuquo & Ors. v. Mrs.
Grace Godfrey Eyo & Anor[21],
where the Courts have similarly held that a document cannot be rejected on the
ground that it was not stamped. Consequently, it is settled law that the lack
of stamping thereof on a document required for stamping, does not render the
document inadmissible in Court[22].

Conclusion

In closing, the mandatory requirement for
payment of stamp duties on named transactional documents like Tenancy and Lease
Agreements as well as Certificate of Occupancy has been part of our laws. Hence
there is no new law made in this regard. The Finance Act amendment merely
introduced the adhesive stamp of the FIRS and a new enforcement regime.

While the outcry is understandable considering
the timing and the effects of the Covid-19 pandemic on taxpayers, it is
re-emphasized that the law was not radically changed. The present drive is
propelled by the dwindling bottom-line figures of the government and the need
to create multiple streams of income to shore up the revenue.

It is expected that the government of the day,
while it continues to drive revenue through non-oil streams, should also create
incentives and tax holidays that will continue to motivate the tax payer.

[1] Section 2 Stamp Duties Act (“SDA”), Cap S8, Laws of the Federation
of Nigeria, 2004

[2] Section 52 of the Finance Act 2019.

[3] Section 52, Finance Act (Supra); Federal Inland Revenue Service
Circular No.2020/05, dated April 29, 2020.

[4] Section 4 (1) SDA (as amended by Section 53 of the Finance Act)

[5] Section 4 (2) SDA

[6] Section 68 SDA

[7] Section 5 (1) and (2) SDA

[8] Section 70 (1) SDA

[9] Section 9 SDA

[10] Section 65 SDA

[11] Section 19 SDA

[12] Section 22 (1) SDA

[13] Section 22 (2) SDA

[14] Section 23 (1) SDA

[15] Section 110 SDA

[16] Section 111 SDA

[17] Sections 11, 12 SDA

[18] Section 28, 71 SDA

[19] Section 22 (1)-(3) SDA

[20] (1973) All NLR 233; (1973) 3 S.C 31

[21] (2013) LPELR-20199 (CA)

[22] (2016) LEPLR-41169 (CA)

For further information on the foregoing
(none of which should be construed to be an actual legal advice), please
contact:

Anaje Chinedu, MCIArb

Managing Partner

Chinedu.anaje@ao2law.com

Ekene Ugbede

Associate

Ekene.ugbede@ao2law.com

Chinedu Anaje

Managing Partner

Contact

Ekene Ugbede

Associate

Contact

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