Akinmade Ajibola

Bola Ajibola & Co, Lagos, Nigeria

akinajibola@bolaajibolaandco.com

A levy on electronic money transfers has been introduced in Nigeria by various amendments to its stamp duty regime. But questions and concerns have been raised as to whether these amendments are good law, particularly the rationale behind the Electronic Money Transfer Levy (EMTL), its scope, applicability and legality, and how it fits into the existing constitutional framework.^[1]

Stamp duty is chargeable in Nigeria by virtue of section 3(1) of the Stamp Duties Act (SDA).^[2]  On 14 January 2020, the Finance Act 2019 introduced amendments to the SDA to make it apply to ‘electronic receipts’. The following year, the Finance Act 2020 further amended the 2019 Act and introduced the Electronic Money Transfer Levy (EMTL) into the stamp duties regime.  

Electronic Money Transfer Levy under the Finance Act 2020

Most notable amongst the changes implemented by the Finance Act 2020 was the provision that effectively isolated the tax chargeable for electronic transactions and created the new tax: the EMTL (Section 48 of the Finance Act 2020 amended the SDA by inserting a new Section 89A). The new Section 89A provides:

1. There is imposed a levy, to be referred to as the Electronic Money Transfer Levy, on electronic receipts or electronic transfer for money deposited in any deposit money bank or financial institution, on any type of account, to be accounted for and expressed to be received by the person to whom the transfer or deposit is made;
2. The levy shall be imposed as a singular and one-off charge of N50 on electronic receipts or electronic transfer in the sum of N10,000.00 or more;
3. The Minister of Finance shall, subject to the approval of the National Assembly, make regulations for the impositions, administration, collection and remittance of the Levy;
4. 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 follows - (a) 15 per cent to the Federal Government and the Federal Capital Territory, Abuja; and (b) 85 per cent to the state governments.

Are ‘receipts’ now different from ‘electronic receipts’ as contained in section 89A of the Finance Act 2020?

Section 89 of the SDA had been amended by the Finance Act 2019 to include a species of transactions whose receipts became dutiable, that is, electronic receipts for electronic transfer of money.^[3] The amendment also carved out this specie of receipt from the general definition of receipts as was contained in the original section 89(1) of the SDA (prior to the 2019 amendment) and also prescribed a new applicable duty rate from that found in the Schedule to the SDA.

Then, in 2021, by the further amendment to section 89 as a result of the Finance Act 2020, the electronic receipt category that had only just been introduced the year before was completely deleted and the tax regime for ‘electronic receipts’ was transmuted into a novel section 89A, which created the new levy known as the EMTL as set out in the paragraph above.

What is the EMTL?

The new section 89A(1) set out above states that it is a levy to be charged: ‘…on electronic receipts or electronic transfer for money deposited in any deposit money bank or financial institution etc.…’. What is unclear is whether the levy payable under the EMTL in the new section 89A and the existing duty payable on general receipts (read: ‘non-electronic’) as provided under section 89 are similar or do they create separate taxation, which could lead to double taxation for the taxpayers?

The provisions in the Finance Act 2020 did not delete the existing section 89 (1) and (2) of the SDA as amended by the Finance Act 2019. Only section 89(3) was deleted.

Whilst the drafters of the Finance Act 2020 may argue that the EMTL was only meant to be a distinct levy as far as being separate from the rate of duty on general receipts, there is nowhere within the letter of the legislation where this is expressly stated. They may also argue that this does not need to be expressly stated given the previous amendments to the SDA.

However, a cursory look at the provisions of the original Section 89 of the SDA before the Finance Act 2019 amendment only describes what a receipt would include;^[4] it does not clearly classify these receipts into either paper or written or electronic receipts. One interpretation of the provision, therefore, may be that prior to the amendments, the Section already sufficiently accommodated electronic receipts, and the introduction of a new EMTL is a surplusage. If this is the case, why burden taxpayers with another regime of a levy through the EMTL?

An anecdotal analogy of the point above is with the word ‘instruments’ as contained in Section 52 of the Finance Act 2019, which amended Section 2 of the SDA to redefine instruments to include, ‘written documents and electronic documents’. This amendment, just like the amendments to Section 89, is unnecessary because the word ‘instrument’ already contemplates all forms of instruments whether electronic or written; and the fact that digital transactions have become the new order of the day need not be, in this case, a reason to revisit an already robust provision of the law.

A further illustration of this point is, for example, where a law states that, ‘no person shall perform the act of …’. A simple reading of this is that the law contemplates both male and female, and either may be liable for performing the proscribed act, even if, at the time of the creation of the law, the proscribed act was only committed by males. The question to then ask is whether there would be a subsequent requirement to amend this law in the event of an emergence of female offenders? The answer is probably not.

We are of the view that the provisions of section 89 of the SDA, as it was before the Finance Act 2019 was amended, already covered receipts for electronic transactions. Further, the introduction of a new stamp duty rate was sufficiently covered by the amendment to section 89 of the SDA under the Finance Act 2019, where a new section 89(3) was then introduced. The Finance Act 2020’s amendment to section 89 and the creation of the EMTL under the new section 89(A) was not necessary, and has created a levy that exists in parallel to the stamp duty on receipts.

What about stamp duties on transactions below N10,000?

The provision of section 89A(2) as introduced by the Finance Act 2020 (set out above) states that the levy will be imposed ‘on electronic receipts or electronic transfer in the sum of N10,000.00 or more’. This begs the question as to what is to be chargeable as stamp duty on receipts of transactions below that sum?

Historically, the Schedule to the SDA provided for the applicable duty chargeable on receipts for different transactions to the effect that two kobo will be charged on receipts for transactions of sums of four naira upwards.

The Central Bank of Nigeria’s initial attempt to modify this position came when it announced the commencement of a charge of stamp duty of N50 on transactions above N1,000, via its Circular to banks in 2016 entitled ‘Collection and remittance of statutory charges on receipts to Nigeria postal service under the Stamp Duties Act’.^[5] The Finance Act 2019 then set the rate at N50 on electronic receipts for transactions above N10,000. The current provisions of section 89A(2) as amended through the Finance Act 2020 provide for the same rate of N50 on transactions above N10,000, albeit now called an EMTL.

Given the above, is it correct to assume that the tax authorities are forfeiting duties and levies below N10,000? Or can it be said that since the law has expressly made provision for what is applicable to transactions above the N10,000 benchmark, the old SDA position will continue to apply to transactions above N4 but below N10,000? Or would it be the case that the lawmakers have deliberately left it out because of the negligible revenue that the stamp duty will attract, of just two kobo?

Looking at it in respect of the approach taken by the banks and tax authorities, it appears that they might be of the view that enforcing two kobo on transactions between N4 and N10,000 will be commercially futile: it would probably cost more to enforce than what may be recovered from such efforts. Whilst we wait for the lawmakers to shed further light on this point, businesses and individuals could gamble on the fact that the stamp duty applicable on transactions below N10,000 may not be enforced, but it has been left open-ended by the Finance Act 2020. It may appear that the duty has become extinct, but what happens if the tax authorities, in their ever-increasing appetite to widen the tax net, decide to unearth this revenue in the future? Would banks need to account for historical and uncollected stamp duty?

Who receives the EMTL?

Ordinarily, by virtue of the provisions of Section 4(2)^[6] of the SDA, it is the relevant tax authority in a state that is entitled to collect stamp duties on receipts for transactions ‘between persons or individuals’, and to retain 100 per cent of these duties.^[7] Nothing in the Finance Act 2019 affected this position.

But the Finance Act 2020 purports a change to this position and sets out a new sharing formula between the Federal Government and the state governments. Section 89A(4) of the SDA states that there is distribution of: '15% to the Federal Government and the Federal Capital Territory, Abuja; and 85% to the State Governments'.

In our view, the above provision contradicts the provision for the sharing formula under section 4(1) and (2) of the SDA and section 163(3) of the Constitution of the Federal Republic of Nigeria 1999 (as amended), which, if read together, effectively provide for states to be paid 100 per cent of such stamp duty revenues based on derivation. The law on the supremacy of the Constitution means that any provision of a statute that is inconsistent with that of the Constitution will be rendered void to the extent of such inconsistency.^[8] Therefore, this provision will most likely be deemed unconstitutional if and when it is challenged by states at the Supreme Court. 

A fortiori, if we accept:

1. that the provisions of the old SDA which are still extant including its definition of receipts covers electronic receipts; and
2. that the stamp duty regime under the SDA which makes ‘receipts’ (including electronic) to be chargeable to stamp duty (section 3(1), 89(1)), as well as the provisions of the Schedule to the SDA), which prescribes a rate of two kobo for all transactions above N4 (whether below or above N10,000) are all still extant provisions of the law;

then, it is arguable that the two kobo rate for all amounts above N4 (or at the very least, for amounts above N4 and below N10,000) is still applicable as stamp duty in Nigeria.

Therefore, the EMTL, which is said to be applicable to amounts above N10,000 is a separate and additional tax on the same transaction to which the two kobo stamp duty is chargeable, will make the EMTL susceptible to being deemed as double taxation, being a levy on the same transaction that is chargeable to stamp duty under the SDA. This may make the EMTL susceptible to being declared unconstitutional, were it to be challenged before the courts.

In sum, given that we have provisions in a law imposing a levy, which may potentially create double taxation, as well as provisions imposing a sharing formula for its proceeds, which may be deemed unconstitutional, we can conclude that the EMTL may be short-lived as a tax, if challenged successfully.

In the event that these challenges are successful, the stamp duty regime in Nigeria may revert to where it was and remain as provided under the original provisions of the SDA. Until such time, however, our current laws on stamp duty assert the following:

• There is a requirement for the payment of stamp duty on receipts;
• A duty of two kobo is chargeable on receipts for transactions between four naira and below N10,000 as stamp duty;
• A levy of N50 is chargeable on receipts for electronic transactions above N10,000 as EMTL;
• Stamp duty on receipts is collectible by the Federal Internal Revenue Service where it involves transactions between companies or companies and individuals, while the relevant tax authority of a state collects stamp duty in transaction between individuals; and
• EMTL on receipts is collectible by the Federal Inland Revenue Service while the revenue-sharing formula is, on the basis of derivation, to be distributed as follows: (a) 15 per cent to the Federal Government and the Federal Capital Territory, Abuja; and (b) 85 per cent to the state governments.