What a Small business needs to know about the amended Stamp Duty Act and Value Added Tax Act in relation to finance act 2019

Stamp Duty Act and Value Added Tax Act in relation to finance act 2019

Stamp Duty

Stamp duty is generally known as tax that is levied on single property purchase or documents. For instance, stamp duty includes legal customers such as receipts, land transactions, cheques and so on.

Stamp duty is the tax that government placed on legal documents, usually in the form of transfer of assets or property.  However, the act established in order to determine how the tax will be treated and collected is called Stamp duty Act LFN 2004 (as amended) and this has also been further amended in the recent Finance Act 2019.  And this act came into effect as a result of Ordinance 41 of 1939.

 

It is a tax payable in respect of dutiable instrument as provided under the Stamp Duties Act, CAP S8, LFN 2004 (as amended). Those instruments include Agreements, Contracts, Receipts, Memorandum of Understanding (MOU), Promissory notes, Insurance policies and others stipulated in the Schedule to the Stamp Duties Act.

 

In the new amendment, Section 2 of the Stamp duties Act has been amended to inculcate a new scope of instrument liable to stamp duties. Among those new instrument inculcated into the act is Electronic Documents. This implies that, Electronic stamping and electronic denoting of documents are now recognized as to be taxable. The effect of this is that, Instruments under Stamp duty act now comprises of every written document and electronic documents.

 

By the way of buttressing what made up an instruments and receipts that will be liable to stamp duties and it’s necessary for small business owner to know comprises of:-

  • Any form of instruments or receipts, either written or printed
  • Any forms of written or printed acknowledgment or receipts; for instance, Point-of-sales receipts, print-outs from ATM, Monetaralized device receipts etc.
  • Electronic dutiable receipts or receipts which might be in the form of electronic documents          or files, e-mails, Short message service (SMS), Electronic media content, as well as any          other internet based messaging service etc.
  • Lastly, any form of receipts or acknowledgement of money generated electronically for dutiable transactions.

So, all the instruments and receipts listed above are liable to stamp duties according to the New Financial Act 2019.

Major implication of the above new amendment in relation to instruments means that; for instance if a business owner received a payment from another business owner and the receiver replied the sender via whatsapp or phone messages that he has received the money. The new Stamp duty Act says that the acknowledgement of that money is liable to tax. Because, if he was asked for the evidence of the payment, what he have to show as evidence of receiving the money in case there is need for it is the text message of whatsapp message.

 

The new stamp duty Act as amended in Finance Act 2019 further explained that, if a business transaction was carried out online without any physical documents been exchanged; that once the electronic documents has been exchange online and agreement has been made on the business deal; then that document is liable to stamp duty.  Even if documents were not exchange but email conversation shows that they are carrying on a particular business agreement, that conversation among in relation to the business will serve as proof that there is business agreement between the two party and the only thing they have to do to perfect the instrument is for them to take necessary steps in ensuring that the email conversation is properly stamped and they can only do this by paying the necessary duties  and getting the relevant acknowledgement  that the duties have been paid.

 

Furthermore, in the case of documents, receipts or instruments performed outside  the shore of Nigeria but received in Nigeria,  Sections 7(3)(a), 23 (3) and 47 of the Stamp Duty Act says that they must be presented for stamping in Nigeria within:-

  • The first 10 days of getting to Nigeria, in the case of Charter Parties
  • The first 30 days in the case of Instruments where are subject of ad valorem stamp duties or
  • 21 days in any other instances.

 

An electronic document, receipt or instruments performed outside the shore of Nigeria is said to be received in Nigeria if it is:-

  • Retrieved or accessed in or from Nigeria
  • Stored on a device and brought into Nigeria
  • Stored on a device or computer in Nigeria.
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Another amendment to Stamp duty Act in the Finance Act 2020 is the duty placed on Bank Deposits or Transfers of ₦10,000 or more. In this instance, banks and other financial institutions are required to charge appropriate stamp duties on transactions that are qualified. Therefore, the stamp duties charged shall be remitted to the body that are authorized to receive the duty.  Furthermore, Section 89 of the Act made it compulsory for banks and other financial institutions to charge N50 stamp duties on the following transactions:-

  • All intra-bank deposits and transfers that ranges from ₦10,000 and above except in a situation where the deposit or transfer happen between two accounts which are maintained by the same person in the same bank.
  • All inter-bank deposits and transfers from ₦10,000 and above which involve accounts owned by the same person in different banks
  • All inter-bank deposits and transfers from ₦10,000 and above which involves accounts owned by different persons.

Meanwhile, the banks and other financial institutions are mandated to remit the 50 stamp duties to the authority by making use of automated Stamp duty process

 

Moreover, small businesses and individual are more affected by the stamp duties on Loans and credit facilities due to the fact that they will have to borrow loans and other credit facilities. The dutiable transactions are as follows:-

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  • Guarantor’s Form (For Loan Application), at a flat rate of 500
  • Loan Agreement, which is Ad Valorem at a fee of 0.125% of the Loan value i.e. N25 for every N1,000.
  • Loan Agreement (as supplementary document to a mortgage or debenture), at a flat rate of ₦500
  • Legal Mortgage, which is Ad Valorem at a fee of 0.375% of the Mortgage value i.e. N75 for every N1,000
  • Legal Mortgage (up-stamping), which is Ad Valorem at a fee of 0.375% of the up- stamped value i.e. N75 for every N1,000
  • Bonds (Mortgage) which is Ad Valorem at a fee of 0.375% of the bond value i.e. N75 for every N1,000
  • Tenancy or Lease, which is Ad Valorem at a fee of 6% of the Tenancy or Lease value e. N6 for every N100
  • Bank Cheque per leaflet (Premium) at a flat rate of 0 per leaflet
  • Other dutiable transactions are listed on the Stamp duty

However, the service authorize to receive stamp duties according to Section 4 of Stamp duty Act are:-

  • The Federal Inland Revenue Service:- They collect duties that are relating to transactions or matters that is carried out between corporate bodies or between a corporate body and an individual or within group of bodies
  • The relevant state tax authority: – they collect duties that is in respect of instruments performed between individuals at a rate that is to be imposed or charged in agreement with    the Federal Government.

Basically, stamp duty is chargeable in two ways:-

  • Ad Valorem Rate:- Stamp duty is said to be charged on the basis of Ad valorem in a situation whereby the duty payable is a percentage of the consideration on an instrument

Flat Rate: – Stamp duty is said to be charged on the flat rate in a situation whereby a fixed          sum is chargeable irrespective of the consideration on durable

Furthermore, below is the table of rates for Stamp duties Small business owner must be aware of:-

Name of Transactions Type Rate (₦) Extra Copy(₦)
Appointment of Receiver Flat Rate 500 50
Bank Cheque Per Leaflet N1.00 per leaflet (Premium) Flat Rate 1.00  
Appointment of Trustee or of Attorney Flat Rate 50.00 50.00
Bank Deposit/Transfer Flat Rate 50.00 100.00
Bill of Sale Ad Valorem 1.5% 50.00
Appraisement or Valuation of Property Ad Valorem 1.5% 50.00
Certificate of Occupancy, Partnership Flat Rate 1000.00 50.00
Contract Agreement Ad Valorem 1.0% 50.00
Contract Notes Ad Valorem 0.08% 50.00
Deed of Assignment Ad valorem 1.5% 50.00
Deed of Gift Ad Valorem 1.5% 50.00
Deed of Discharge/Release/Surrender Ad Valorem 0.075% 50.00
Deeds of Conveyance or Transfer on Sales or Property Ad Valorem 1.5% 50.00
Discharge or Release Ad Valorem 0.075% 50.00
Documents from Ministries and Parastatals Non-Chargeable Free 0.00
Gift (land) Ad Valorem 1.5%  50.00
Guarantor’s Form (For Loan Application) Flat Rate 500.00 50.00
Insurance Policy/Policies Ad Valorem 0.075% 50.00
Joint Venture Agreements Flat Rate 500.00 50.00
Loan Agreement Ad Valorem 0.125% 50.00
Memorandum and Articles of Association (Alteration of memo) Flat Rate 500.00 500.00
Memorandum of Understanding (related to Land, Sales, Joint venture, surrender, subdivision Agreements) Ad Valorem 1.5%  50.00
Memorandum of Understanding (Related to Ordinary agreements) Flat Rate 500.00 50.00
       
Oaths, Affidavit-Affirmation, Statutory Declaration, Agreement (Memo of Handwritten) Ordinary Flat Rate 500.00 50.00
Ordinary or Open Agreement Underhand Articles Flat Rate 500.00 50.00
Power of Attorney – Revocable/not land related Flat Rate 500.00 50.00
Power of Attorney (Irrevocable/Land Related) Ad Valorem 1.5% 50.00
Power of Attorney (POA not related to sales, conveyance, transfers of any landed property) Flat Rate 500.00 50.00
Promissory Notes of Ordinary Documents/I.O.U. Ad Valorem 0.1% 50.00
Proxy Form Flat Rate 500.00 50.00
Sales Agreement Ad Valorem 1.5% 50.00
Settlement of any Instrument Ad Valorem 0.375% 50.00
Shipping Agreement Non Chargeable Free  0.00
Tenancy/Lease Ad Valorem 6.0% 50.00
Vending Agreement Ad Valorem 1.0% 50.00
Will Flat Rate 500.00 50.00
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Finally, If you fail to comply the Stamp Duties Act, you may encounter the following penalties:-

  • Enforcement actions might be raised against you.
  • You will be prosecuted for offences under the Act
  • You will asked to pay penalties of various degrees
  • You will not be able to use the relevant instrument as an evidence in court or other judicial or quasi-judicial proceedings.

Please Read: Taxes for Small Business in Nigeria

Value Added Tax Act

This is a consumption tax that is chargeable on products at each phase of the production process. For instance, from labour and raw materials to the sale of the finished product. However, it tends to be indirect tax; in the sense that, it is been borne by the consumer not the seller.

However, the Act governing the Tax is called Value Added Tax Act Cap V1, LFN 2004 (as amended) and recently some amendment were made on some of the provision of this act via the Finance Act 2019.

Recently, some amendment was made in relation this tax and majority of them has effect on small business owners. Below are the analysis of the changes:-

A new section was inserted for Section 2 of this act which states that “The tax shall be charged and payable on the supply of all goods and services in Nigeria other than those listed in the first schedule to this Act”.

The act has now restructured the basic food items to be included as appropriate foods and their variances. Furthermore, new items has been added to exemption “local manufactured pads and sanitary towels, mortgage institutions people’s banks and microfinance banks services. Also, intangible properties has been added to the definition of ‘goods’. Intangible properties like license, copyright, patent etc in which a person derives income and has rights upon

Section 4 of the Value Added Tax Act was amended in line 1 by replacing for the expression 5%, the expression, 7.5%, which implies that VAT will now be computed at the rate of 7.5% instead of 5% that is been used before.

Section 8 was replaced with another provision, which relate to registration and deregistration requirements of a trade or business. It states that, a taxable person shall upon commencement of business, register with the service for the purpose of the tax and any taxable person who fails or refuses to register with the service within the time specified time will be liable to pay a penalty amount of #50,000 for the first month in which the failure occurs and #25,000 for each subsequent month in which the failure continues. Finally, where a taxable person permanently ceases to carry on a trade or business in Nigeria, the taxable person shall notify the service of its plan to deregister for tax purposes within 90 days of such cessation of the trade or business.

A new Section 10 was brought in and it stated that (1) “a non-resident company that carries on business in Nigeria shall register for the tax with the service, using the address of the person with whom it has an existing contract, as        its address for the determination of tax correspondence (2) “the service will notice, determine and direct the         companies operating in the oil and gas sector which shall deduct VAT at source and remit it to the service. 

Section 14 of VAT Act was amended, where it was stated that “Non-resident companies (NRCs) to include VAT on their invoices to Nigerian clients/customers and Nigerian companies also must remit VAT on contrary charge not          minding maybe foreign companies add VAT on their invoices or not.

Section 15 of the VAT Act was substituted with a new section 15, this section talked about threshold to be meets by a        company before it can exempt tax and also that             the company must render to the service on or before the 21st day of           every month in which this threshold is achieved and on or before the same day in an output tax          collected by him in the preceding month in such a manner as the Service may prescribe. The threshold refers to here is #25,000,000 either singularly or cumulatively. Also, in determining whether a person meets the threshold in subsection (1) (b) of this      act, the value of the following taxable supplies shall be omitted:-  (a) a taxable supply of a capital asset of the person and (b) a taxable supply made solely as a consequence of the person selling the whole or a part of its business or permanently ceasing to carry on business..

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In buttressing the issue of threshold above, as a business owner you need to be know more about the determination of N25 Million turnover threshold and this is breakdown further below:-

  • If you are a taxable person and you have not made taxable supplies of N25 million before the introduction of the VAT threshold, you will continue to charge, collect, remit the tax        and file monthly returns even if you have not made N25million taxable supplies in the          present year.
  • If you are a taxable person who did not attain the N25 million taxable supplies before 1st of February 2020 (which is the date of commencement of the new VAT rate of 7.5%), you shall immediately commence to charge, collect, remit the tax and file monthly returns upon attaining the threshold of N25million taxable supplies at any time within the
  • As a taxable person, you may voluntarily register, charge, collect, remit the tax and file     monthly returns to the FIRS at any time even if you don’t attain the N25 million      You will have to notify the FIRS prior to doing so and you shall be subject to          all the provisions of the VAT Act applicable to persons above the threshold.
  • If you are a taxable person who has not attained the N25million threshold but you have   the expectation to attain the threshold at a future date within the calendar year shall    immediately commence to charge, collect, remit the tax and file monthly returns to the
  • If you are a taxable person who makes taxable supplies amounting to N25million and above             within a calendar year, you are required to file monthly VAT returns to the FIRS, even if part or the whole of such supplies are exempt from VAT.
Section Offence Penalty
    Initial (₦) Subsequent (₦)
Section 8 of VAT Act  Failure to Register 50,000 25,000
Section 28 VAT Act Failure to notify change of address or permanent cessation of trade or business. 50,000 25,000
Section 35 VAT Act Failure to submit returns 50,000 25,000
Section 19 VAT Act Failure to remit tax Tax + 10% of tax + interest at CBN MRR

Finally, Section 8, 28 and 35 of Value Added Tax Act imposes a penalty of N50, 000 for the first month in which the failure to comply occurs and N25,000 for each subsequent month in which the failure to comply continues.

 See also : Taxation of Unincorporated Business in Nigeria        

Furthermore, the new penalty provisions for those who fails to comply with the VAT Act  are tabularized below:-

To learn more about the implication of these new legislation on your business, please call 08023200801, Email: enquiry@matogconsulting.com or complete our enquiry form

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