The Stamp Duty on property, rental, land purchases and related matters introduced by the Federal Inland Revenue Service (FIRS) has come with various implications. Some operators say, among other things, that it will cause property rental to increase, as well cause a hike in land purchase and documentation. Some others feel the tax is necessary for the growth of the economy.
The Federal Inland Revenue Services (FIRS) is seeking to shore up its tax base, especially the non-oil revenue, in its bid to ramp up revenue from non-oil sector following the sharp drop in oil revenue.
The government has been intensifing efforts to raise earnings from taxes and specifically through Stamp Duty.
Currently, it is targeting the real estate sector, but some operators say the new 0.78 per cent Stamp Duty is an overkill, especially in the face of the Covid-19 pandemic. The agency has insisted that the tax is mandatory.
Earlier, FIRS Director, Director of Communications and Liaison, Abdullahi Ahmad, warned that refusal to remit the charges by landlords or their agents would amount to a breach of the Stamp Duty Act.
According to the Medium-Term Economic Framework (MTEF) sub-mitted by the government to the National Assembly for approval on lastTuesday, the government is targeting about N1trillion revenue yearly from stamp duties.
The Federal Ministry of Finance and Budget said to widen the revenue base if the country, it has activated stamp duty collection which has been neglected for more than 20 years.
The statement stated: “Towards this end, the Federal Inland Revenue Service Adhesive Stamp was recently introduced and the Inter-Ministerial Committee on Audit and Recovery of Back Years Stamp Duties has been inaugurated.
The admonition came following the recent release and wide circulation of a stamp duty clarification guide by FIRS Executive Chairman, Muhammad Nami.
‘’The property-related transactions like tenancy or lease agreement fell under the Ad Valorem category of the stamp duty, which attracted six percent duty payable in the percentage of the total value or sum of the tenancy or lease.
The burden of payment of the 0.78 percent lies on the beneficiary of the tenancy or lease agreement, whom the Stamp Duty Act identified as the tenant or renter.”
He also said the responsibility of collection and remittance falls on the landlord or his agent.
“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 percent; Certificate of Occupancy, Partnership, N1,000 flat rate; Gift of Land, 1.5 percent Legal Mortgage, 0.375 percent, Legal Mortgage (Upstamping) and 0.375 percent.
Others are deed of Conveyance or Transfer on Sale of Property, 1.5 percent: Gift of Land, 1.5 percent Memorandum of Understanding (Related to Land, Sales, Joint Venture, Surrender, Subdivision Agreements, 1.5 percent, Power of Attorney (Irrevocable/Land Related), 1.5 percent and Sales Agreement, 1.5 percent,” he added.
The new tax, experts said, would increase the costs of rental for property and land purchases.
An estate surveyor & valuer, Olusola Solomon Enitan, explained that taxation is a channel by the government of drawing revenue to enable the poor receive social services which they cannot afford by themselves.
According to him, taxation is an instrument for wealth distribution used by the government to provide public infrastructure like roads, hospitals and other social services. He added that when taxes are properly structured, they help everyone achieve more.
He said: “Be that as it may, the new tax dispensation by the FIRS on tenancies and lease agreements is an effort by the government towards ameliorating the impacts of the global economic downturn.
The economy is stretched by oil market glut which brought the ability of government to derive revenue from oil to a pittance, followed by the global pandemic which pulled the global economy into an unprecedented recession thereby depleting without recompense, the revenue streams of government.’’
He recalled that the government had to continue to spend to provide palliatives and social support to citizens and other arms of government across the federation and, therefore, it is imperative for it to create new sources of revenue.
He noted that rents and sales prices of properties of commercial entities had previously been taxed, but extending it to residential houses tells of the gross inadequacies of our internally generated revenue (IGR) system.
On its implications, he said it has the propensity to raise the rents and, of course, affecting tenancies negatively.
A property consultant and lawyer Nkem Ogonsiegbe, wondered how the new policy would operate.
He said: “How will they keep record of the tenants paying for the agreements and the leases? How will they track the money collected?
They’re just exposing the tenants for exploitation by agents and landlords. They (agents and landlords) will use it as excuses to collect more money from the prospective tenants and pocket same. The policy and directive is not well-thought out,” he added.
Ogonsiegbe asked if any agency of government could boast of having the number of houses on rent or sale and wondered how FIRs could collect the tax planned.
According to him, most landlords could, for instance, charge their tenants N5000, 000 and declare N100, 000. Do they have the software package to check that across the nation?
He said: “For years, we have always been regalled with 17 million housing gap, but how true is this? There are no data or statistics to support it.
There are so many things the government should do in this time, which they have left undone. This particular decision of government smacked of stark insensitivity and misunderstanding of the realities in the property market.
‘’Stamp duty on rents and Certificate of Occupany (C of O) is not one of the most important things to fix and, therefore, not appropriate for now because the people they gave C of O pay ground rents. Property owners cannot pay ground rent and, at the same time, pay stamp duty on rents that they collect, because it amounts to double taxation.
The truth is that the government will eventually be defrauded by agents and landlords because there are no parameters.”
He expressed his dismay on the policy. And that the decision is strange, ill-timed, unacceptable and an unwelcome development. He maintained that it will bring hardship to the already-impoverished Nigerians, as they are still unable to pay their rents at even at very low price. He recalled the number of court cases he had prosecuted against tenancy defaulters.
The property consultant expressed worry over the government’s inability to lessen people’s burden. He said the government should be concerned with policies to curb skyrocketing prices of building materials, than subjecting Nigerians to more hardship by asking them to pay tax rent.
Former National Secretary, the Nigeria Institution of Estate Surveyors & Valuers (NIESV), Sam Ottong Ukpong regretted that while other countries are giving grants, our government is increasing taxes.
He said inflation is high, no salaries but taxes are being increased on a continuously. He said: “It is very sad that the administration is so obstinate and scorns good advice. There is VAT on rent, withholding tax on rent, capital transfer tax on property, capital gains tax on property, development levies on properties, land use charge on property. It is an endless list of taxation on hapless citizens,” he added.
Chairman, NIESV Lagos State Branch, Dotun Bamigbola said the new stamp duty would have a major impact on the cost of leasing properties as it is an additional burden on the property end users or lessees/tenants.
He said: “This is not encouraging, especially in this economy, which has already stretched the finances of the citizenry. Don’t forget that a legal fee, which, in some cases may be about 10 per cent, will be paid to prepare the lease agreement, before you can affix or pay a stamp duty on it again, by this regulation.
That is already 10 per cent plus of the consideration on a year’s tenancy or lease, just to have a legal document on the transaction.
This will more likely create a setback for transactions and the tenants/lessees. The government should note that its responsibility is to make life easier for the people in this critical time when businesses are still trying to find their feet.
In fact, people should be getting tax breaks for the taxes they paid in the past. I will advise a review and reversal of this policy in the interest of the end users and Nigerians.”
A public analyst Emeka Mbagu said the stamp duty on property is an overkill on the hapless citizens that are already over taxed without commensurate infrastructure and remuneration.
He said most landlords are pitched against their tenants as a result of rental defaults. “It is most inconsiderate of the government at this time with the highest lopsided emolument in the polity,’’ he added.
He regretted that daily the public is regalled with reports of recovered loots from public servants and politically-exposed persons and wondered the use such recovered funds are put into.
He also said the new policy amounts to multiple taxation and should not have been made mandatory, especially this period the real estate sector is in comatose.
“How insensitive can a government be. The banks are busy charging for spurious items unchecked by the government.
We hear and see the rape of public funds from agencies of government, such as Niger Delta Development Commission (NDDC) and National Pension Commission (PENCOM), among others.
‘’A benevolent government should have known that the time is not auspicious for such a policy bearing in mind that housing remains a necessity.
One of the downside of Covid-19 is mass job losses, with high rate of rental defaults, but unfortunately, the government think it’s the right time to raise N1trilion at the expense of over 98 per cent of the citizenry.
‘’If the government cannot provide housing for Nigerians, it should at least encourage people, who are struggling to provide housing for them and not to tax those paying rents,’’ he added.
