The Federal Government is on the march again, looking for money. Days ago, it charged the Federal Inland Revenue Service (FIRS) to mandate all property owners and agents in the country to begin to charge six per cent stamp duty on all tenancy and lease transactions. Proceeds of such transaction, the agency said, have to be remitted promptly.
As expected, this latest directive is generating ripples across the land. It is leaving stakeholders with a tough nut to crack. For instance, a stakeholder described the policy as “legally right, but morally wrong.”
The Director, Communications and Liaison Department of FIRS, Mr. Abdullahi Ahmad, on July 22 in Abuja, explained that the move was necessary so that individuals and corporate organisations do not run contrary to the Stamp Duty Act.
Ahmad stated that six per cent duty will be payable on the total value of all tenancy or lease transactions. And the payment of the said stamp duty would be made by the benefiting party, that is the tenant or renter, while the collection of the duty will be the responsibility of the landlord or agent who is in charge of the said property leased or rented.
While explaining further, Ahmad said: “In any case, the party making the payment shall have the obligation to account for the applicable stamp duties.
“Some other stamp duty types and their rates are Appraisement or Valuation of Property, 1.5 per cent; Certificate of Occupancy, Partnership N1,000 flat rate; Gift of Land, 1.5 per cent Legal Mortgage, 0.375 per cent, Legal Mortgage (Upstamping) and 0.375 per cent.”
Other areas the same stamp duty would be paid, broken down include Deed of Conveyance or Transfer on Sale of Property, 1.5 per cent, Gift of Land, 1.5 per cent, Memorandum of Understanding which relates to land sales, joint venture, surrender, subdivision agreements, 1.5 per cent, power of attorney, 1.5 per cent and sales agreement, 1.5 per cent.
Organised labour reacts
First to condemn this latest directive is the Nigeria Labour Congress (NLC) which said through its President, Ayuba Wabba, that it “rejects this new stamp duty policy on rents and leases as it would worsen the deplorable situation faced by Nigerian workers, most of whom, unfortunately, are tenants.
“It is also alarming that we are having a rash of hike in taxes and user-access fees when other countries are offering palliatives to their citizens.”
He further described the move as a “harsh fiscal measure as it is boldly insensitive to the material condition of Nigerians which has been compounded by the COVID-19 health insurgency.”
Wabba said that nobody would want to be a tenant if they had an alternative, adding that tenants, which this new policy is targeting, are some of the most vulnerable people in the society.
He, therefore, contended that “it would be illogical, insensitive and inhumane to churn out laws that make our poor go to bed at night with tears in their eyes.
“The principle of public taxation, especially progressive taxation all over the world, is that the rich subsidise for the poor. Every tax policy that would be enforceable must create a safety net for the poor. Recent policies of government indicate otherwise.”
Its Trade Union Congress (TUC) counterpart has equally lashed out at the move, describing it as “another ploy to further impoverish Nigerians.”
Speaking through its President, Quadri Olaleye, and the Secretary-General, Musa-Lawal Ozigi, the agency lamented that the move was coming at “a time the country is experiencing housing deficit and millions of Nigerians have lost their jobs.”
TUC noted that “it is shameful that FIRS is asking for such at a time the taxpayers’ money is being mismanaged by agencies of government. The Niger Delta Development Commission (NDDC) and others are currently being probed by the National Assembly over alleged financial impropriety. The questions are: have they managed the trillions of naira that daily accrue to the federation account well; why must the poor be squeezed to enrich those in government?
“Till date, there are countries that are still giving out palliatives to cushion the effect of the Coronavirus pandemic. Some countries, apart from giving out palliatives, also took responsibility for the utility bills. We read that Ghanaians will not be paying for power throughout this year. Why is our case always different? Why increase our burden now?
“There are many bills Nigerians pay without enjoying commensurate services. Already, tenants pay rent, agreement, caution, maintenance, LAWMA, electricity, and security, among others.
“If they, again, add six per cent charge on rent, it makes nonsense of the new minimum wage which many states are not paying. How do we feed our families and pay school fees? The country needs money, no doubt, but do you cut the nose to spite your face?” TUC queried.
Tax impact on property
A property, consultant, Daniel Apealeokha said: “This tax in some way has the capacity to retard the progress of the real estate industry. People will not be happy to part with their money on stamp duty, especially if the sum involved is high.
“Government said to put a clause that landlord should not increase rent, but I don’t know how that one is going to work out. Some landlords will say okay go to the house government has built. For instance, during the time of Buba Marwa as military administrator of Lagos, he put out a law that landlords in certain places whose houses were not more than three years old should not increase their rent by more than 20 per cent.
Then, landlords started telling people to go to houses government built. They told people to go to where they could afford the rent.
“If I built my house and say this is the rent I’m going to collect, how will government tell me not to?”
It’s right tax
But a tax expert, Mr. Ben Kpaduwa says the Muhammadu Buhari government has no option than to do what it had done.
“At this time, government is experiencing dwindling fortunes from oil revenue. That is government’s only major source of income. But now oil is down; this was not caused by Nigeria. It is a global issue. Nigeria is affected because it is an exporter of oil. For government to keep running its business, it has to fall back to taxes. It has to look for other means of getting money and that is through taxation.
“Government of UK, for instance, depends largely on such tax. Some other countries in Europe which do not produce oil fall heavily on taxes to run their governments adequately. Even VAT in UK is about 30 per cent.
“The fact is that people have not been paying taxes adequately. But truly speaking, every sovereign nation has to determine what it wants to tax.
“If you look at it morally, one will be right in arguing that now is not the right time to come out with that type of tax. But if you look at it from the governance point of view, you will see that government is not run on moral basis. The business of government has to continue. So, the policy is legally right but morally wrong.”
Still justifying that the government has to task the citizens, he said: “The people government wants to tax have some other things on which they spend money carelessly without being taxed. Sometimes you see someone at beer palours drinking several bottles of beer.
“It is unfortunate that the Nigerian government is not making judicious use of the income it is getting.
“But go to major motor parks, you will see that people are loading their vehicles without paying tax. In some more organised countries, you might be compelled to pay a significant part of tax on the proceeds from the loading of a bus.
“Truth is that there are too many leakages here and there. Money which is supposed to accrue to government is not coming in at all. It goes into individual purses. That is why you see motor park touts becoming millionaires. No one taxes them. So government has to raise money from taxes from where ever it can to building infrastructure.”
He contended that “government cannot say because there is COVID-19 pandemic and not tax the people.
“In the real sense, if government does not embark on infrastructural development, it will further impoverish the people. People’s earnings will not be there again. There will be no income for distribution.
“The economy will pick up when people pay taxes and the money judiciously utilised; people’s income will then increase. People will have money to spend; and government too will have money to spend.”
He, therefore, said that “on a positive note, the tax will ensure that government’s expected income to finance its budget is there.”
But on the flip side, he noted that “the people’s expected income will decrease. Part of what we earn will be going out from us. If someone is saving say N10, that saving will decrease.”
Mr. Apealeokha said that he was not in a position to determine the morality of the new tax policy, “but I know that some professional bodies in the real estate industry might have made some input in this. So, there must have been a ‘little to the left and a little to the right’ in their understanding. Government will continue to have its way because the law is already in place.”
Difficulties in collecting tax
According to Kpaduwa, there won’t be any difficulty collecting the tax in the sense that the deduction will be made from source.
“Once people make some deposit in the bank, the bank charges the depositor by making a deduction from their account.
“But people will always have their way because if Mr. A wants to buy a house from Mr. B, the house might worth N10 million. But Mr. A might think that six per cent on it might be difficult for him; he might ask Mr. B to agree to a paper price of N5 million so that the stamp duty will be reduced. That is the difficulty government might have in getting the benefit of this policy.
“So, the challenge is likely going to be improper valuation of the amount on purchase. People might want to start dogging paying the proper amount payable,” he pointed out.
Mr. Apealeokha while also speaking on the difficulty in collecting the tax agreed that “the transaction will be routed through the bank. From there, the banks will charge stamp duty on behalf of the government.
“If you are paying an amount, they will ask questions. If it is rent, they have a way of having stamp duty deducted. Many transactions go through the bank, so there is no way they will not know what the transaction is meant for unless the transaction is made across the counter.
“But by and large, people will still have a way of dodging payment. But I think that government will have its way at last.
“Those paying for a one-room apartment might be in the minority, so getting them to pay might not apply. But the majority will still go through the bank.
“Yes, there will be loopholes. Some people will be caught evading payment, some will escape it, but there will be scape goats. Yet some people will still play by the rules. Bye and large, the law is there.”