Last June, the Federation Accounts Allocation Committee (FAAC) shared a total of N696 billion to the three tiers of the Government of Nigeria, the bulk of which was generated from taxes paid by citizens.
For government’s chief tax collector, paying taxes to sustain the machinery of state is an age -long practice that had contributed to the development of many nations which he would like Nigerians to emulate especially now that the COVID-19 pandemic has disrupted revenues from crude oil sales.
Executive Chairman of Federal Inland Revenue Service (FIRS), Muhammad Nami, who at a recent media interaction lamented the negative impact of the COVID-19 pandemic on government’s revenue sources disclosed that the FIRS alone accounted for 70 per cent of the amount shared while other revenue generating agencies collectively contributed the remaining 30 per cent.
He pointed out that government would not be able to fund its programmes and activities without revenue from taxes, while shedding more light on why paying Stamp Duty on tenancy agreement shouldn’t lead to increase house rentals
Well, so far so good. I give glory to God. I am not in a new terrain. Before I was appointed the Executive Chairman of the Federal Inland Revenue Service (FIRS), I had practised tax for 26 years. So, in the tax terrain, this should be my 27th year. This fact confirms what I have been engaged in since 1991 when I graduated from the University. I started tax practice in 1993, some few months after I completed my National Youth Service. This is the path God has carved for me; little did I know that I would be talking to you today as the Executive Chairman of the FIRS.
Stamp duty controversies
We are in a period of economic downturn occasioned by the COVID-19 pandemic. However, let me clarify that Stamp Duties are not new in Nigeria. Stamp Duties came into effect in Nigeria as a result of Ordinance 41 of 1939. There have been several amendments to the Stamp Duties law over the years up to the Finance Act of 2019. The most recent amendment recognised technology, e-commerce and cross border transactions in line with global best practices and current economic realities. Stamp Duty is a tax payable in respect of dutiable instrument as provided under the Stamp Duties Act, CAP S8, LFN 2004 (as amended). Such instruments include agreements, contracts, receipts, Memorandum of Understanding (MOU), promissory notes, insurance policies and others stipulated in the schedule to the Stamp Duties Act. What is happening now is that we are looking into the tax laws and implementing the Stamp Duties Act, which is a form of indirect tax that is more viable in the economic situation we find ourselves today. It may interest you to know that the economic situation has increased the Government’s demand for funding.
The annual target for Stamp Duties that was pegged at N17billion has been revised up to N446billion for FIRS to collect. Please note that this happened before the pandemic. We collected as much as N18 billion in 2019. Presently, the Finance Act, 2019 has taken away 60 per cent of our tax base. That is, 60 per cent of the people who are supposed to pay Companies Income Tax will not do so. Sixty per cent of the people who are supposed to act as agents and pay Value Added Tax monthly will also not do so because their annual turnover is not more than N25million. So, a large number of Small and Micro Enterprises in Nigeria today do not pay taxes. What this means is that these companies will no longer act as agents for collecting VAT. The implication of this is that 60 per cent of Nigerian taxpayers will neither pay VAT nor CIT. Nigerians may note that the Federal Government is so mindful of the taxpayers that the Finance Act, 2019 was passed long before the COVID-19 lockdown in Nigeria. It seemed that the government foresaw the pandemic and quickly passed the Act to give the palliatives contained in the Act. Now that our target on Stamp Duties is about 3000 per cent more than the previous years’, we have to inform taxpayers that Stamp Duties are not only payable at the point of incorporating companies but also on other items that are chargeable. Chargeable items are more than a hundred. This is what we have done. We did not take these decisions from a communiqué after a management meeting. This is in the tax law. People keep asking, what is Stamp Duties, what are the rates, who are they paid to? We consulted the tax law to be able to explain and clarify to Nigerians what it is all about.
Stamp Duty on tenancy agreement
Our public notice on tenancy agreement captured only the last band which is 6 per cent It does not mean that it has a flat rate of 6 per cent. It was a publication error and we sincerely apologise for that. The Stamp Duty on Tenancy is charged on a graduated rate, so that if your rent is from one year to seven years, the Stamp Duty payable is 0.78 percent This is not up to 1 percent The implication of what I have said is that if your rent is N100,000 per annum, the stamp duty due at 0.78 per cent is just N780.00. The second category is the Tenant whose agreement is above seven years and up to 21 years. If an individual can afford to pay rent for 21 years, the Stamp Duty chargeable is three per cent Such a person is not going to pay rent for a long time, so, three per cent is deducted to provide social amenities and fund infrastructure. There are people who would comfortably pay rent for above 21 years; for 22 or 25 years, such people will not go back to their landlords to pay rent again. Therefore, the law states that such people should pay 6 percent of the rent as Stamp Duty. That is the information that generated controversy across board. This is another opportunity we have to clarify it.
Who remits the Stamp Duty?
In VAT administration, the service provider collects the VAT component from the consumer. For ease of administration of Stamp Duties, in the case of individual to individual agreement, the tenant is the agent of collection. The tenant is not expected to pay the Stamp Duty component of rent to the landlord who is also an individual. What the tenant is expected to do is, once an agreement is reached with the landlord or agent, he takes 0.78 per cent of the rent sum to the bank and pays into the Stamp Duties account (for instance, 0.78 percent of 100,000 is N780.00). The bank gives him a teller or an e-ticket as evidence of payment. The tenant presents the payment evidence to the landlord, before he is entitled to the copy of the rental agreement.
For emphasis, the tenant does not pay to the individual landlord; he must insist on going to a bank nearby to remit the Stamp Duty element of the rent. It is equally the responsibility of the landlord to ensure that the Stamp Duty element of the rent is paid to the bank before he issues receipt or a copy of the agreement to the tenant. The evidence of payment of the Stamp Duty should be made available to him. This decision is taken because if an individual landlord is asked to collect the money and pay into the Stamp Duty account, some of them can take the money from the tenants and fail to remit same to the Stamp Duty account in the bank. If a landlord fails to ensure that the Stamp Duty element is remitted before an agreement is signed, such a landlord will bear the burden of payment.
If the transaction is between entities or between entities and an individual or a body of individuals, the landlord is the agent of collection and should ensure that the tenant pays to the FIRS account which is a Federation Account. That money is collected and shared among the three tiers of Government. If the rent is between me (an individual) and another individual, the Stamp Duty element will be paid to the State Government where the property is situated. If I am a tenant living in Suleija, Niger State, the Stamp Duty element of my rent will be paid to the Niger State Stamp Duty account. This has nothing to do with someone who is living in his own house even if it is a ten-storey building. You are not going to pay Stamp Duty on your own house. The essence of it is to legalise the agreement between you and the landlord.
Utilisation of tax revenues
The responsibility of the FIRS is to assess, collect and account for the taxes it has collected. What happens to the money that has been collected is unknown to me. But the little I can assure you is that the money we collect does not belong to the Federal Government alone. The revenue collected by the FIRS is paid into the Federation Account.
The Federation Account belongs to the three tiers of Government: the Local Government where you come from, the State Government where your colleague comes from and the Federal Government that has its headquarters in Abuja. What happens to such money; for instance, the N18 billion collected as Stamp Duties in 2019, is that, certain percentage of the money is paid to the Local Government, a certain percentage is paid to the State Government and the Federal Government takes the balance. It is possible that out of the N18 billion you made reference to, only about N700 million or less than that goes to the Federal Government.
Nigeria @ 60: Footprints of banking sector in national development
Since the establishment of the Central Bank of Nigeria (CBN) in 1959, the events that shaped the development of the banking sector in the country have been pockmarked by the good, the bad and the ugly.
For instance, banking failure, which preceded the nation’s independence and trigerred various reforms post independenc, occurred in 1930. And between that year and 1959, 21 out of the 25 indigenous banks and nine foreign banks collapsed.
That incident cut down the number of banks in the country to 12 by 1960. And between 1960 and 1986, the number of commercial banks in the country mushroomed to 29, due to the deregulation of September 16, 1986, and peaked at 66 in 1992. However, owing to the liquidation of 15 banks over the years, the number declined to 51 at the end of 1998 and rose again to 89 by 2003.
In the year 2000, the universal banking system was introduced to bridge the gap between merchant and commercial banks, and proffer solutions to the problems of declining ethics, huge non-performing loans, low capital base, over-dependence on public sector funds and weak corporate governance.
During this period, the minimum capital base stipulated for banks was pegged at N2 billion, as against the initial N500 million capital base. It became operational in January 2001.
As at December 2006, owing to the consolidation of the banking system, the number went down to 25, later to 24 at the end of 2007 following the merger of Stanbic Bank and IBTC-Chartered Bank. It is pertinent to mention that the number of banks which closed shop stood at 48 between 1994 and 2006.
On July 6, 2004, the banking system witnessed what was called the ‘Soludo Solution’, when the then CBN Governor, Professor Charles Soludo, announced a comprehensive reform programme. The minimum capital base for universal banks rose to N25 billion. This was far above the initial capital base of N2billion, with full compliance by December 31, 2005. Many banks that could not meet the requirement were either acquired or merged with other banks.
The Mergers and Acquisitions involved 76 banks, out of the initial 89 banks. This brought down the number of banks to 25. Moreso, all the banks mobilised funds through Initial Public Offering (IPO) and 14 bank licences were revoked. The 76 banks “represents 93.5 per cent of the deposit share of the market, while the 13 banks that failed to meet the recapitalization requirement accounts for 6.5 per cent of the deposit share of the industry. At the end of the 18-month consolidation/recapitalization exercise, the capital market witnessed a boost of N406 billion in its market capitalization and N360 billion was accepted by the CBN in addition to foreign capital inflow of US$654 million and £161,993. Later, IBTC and Stanbic merged. This brought the total numbers of banks operating in the country to 24. Bankers and financial experts all over the world expressed satisfaction at the success of the policy which eliminated an old fashioned banking style for one that would move the economy forward.
In 2009, the apex bank announced that five Nigerian bank CEOs were dismissed and replaced with immediate effect. The affected banks were Intercontinental Bank, Oceanic Bank, Finbank, Spring Bank Union Bank and Afribank. In the same year, the Assets Management Corporation of Nigeria (AMCON) was established. To soak up the non-performing loans (NPLs) in the sector. The financing of AMCON is composed of a N50 billion CBN fund and 0.3 per cent of total assets of participating commercial banks. It also supports the implementation of International Financial Reporting Standards (IFRS) of for global reporting compliance in terms of reporting. This reform reviewed the universal banking model by restricting commercial banks to banking activities only. The reform also addresses excessive banking interest by the creation of a non-interest bank.
The apex bank adopted the National Financial Inclusion Strategy (NFIS) in 2012. The Strategy articulated the demand-side, supply-side and regulatory barriers to financial inclusion, identified areas of focus, set targets, determined key performance indicators (KPIs) and established the implementation structure. The NFIS was built on four strategic areas of agency banking, mobile banking/mobile payments, linkage models and client empowerment. Four priority areas were identified for guideline and framework development namely, Tiered Know-yourCustomer (T-KYC) regulations, Agent Banking regulations, National Financial Literacy Strategy and Consumer Protection. The Central Bank of Nigeria (CBN) and other stakeholders intend to implement a National Financial Inclusion Strategy that will reduce the percentage of adult Nigerians that are excluded from financial services from 46.3 per cent in 2010 to 20 per cent by 2020.
The number of Nigerians included in the formal sector will increase from 36.3 per cent in 2010 to 70 per cent by 2020.
But Enhancing Financial Innovation and Access (EFInA) said the target by CBN to ensure 80 per cent of Nigerian adults have access to financial services by end of 2020 is unlikely to happen.
EFInA) is the organisation that conducts biennial report on Nigeria’s financial inclusion. The organisation explained that, having covered Nigeria’s financial inclusion space in the last 12 years, the 20 per cent exclusion target is unlikely to be achieved as its data show that Nigeria’s exclusion gap was widening.
It said even though its 20218 data showed that more people became financially included the financial inclusion pace was however not matching the country’s population growth rate.
“What we saw between the 2016 and 2018 data was that more people were becoming financially included but not at the same pace as the population growth rate which is why the 80 percent target of financial inclusion for this year or conversely the 20 percent exclusion target is unlikely to be met if we are all particularly realistic,” Dayo Odulate-Ademola, Head of innovation at EFInA said recently.
Financial System Strategy (FSS) 2020
The CBN launched the FSS2020 in August 2006 to fast track the achievement of the country’s vision 2020. The FSS2020 is based on the recognition of the linkage between financial deepening/growth and economic developments.
The Financial System Strategy (FSS) 2020 is a national reform program aimed at developing and transforming Nigeria’s financial sector into a growth catalyst to fast track the achievement of the Vision 20:2020 and engineer Nigeria’s evolution into an International Financial Centre. The strategic objectives of FSS2020 are to strengthen and deepen the domestic financial markets, enhance the integration of domestic financial markets with the external financial markets and supporting the real sector.
To attain these objectives, the key regulators of the Nigerian financial system came together under the leadership of the Central Bank of Nigeria and crafted the vision to make Nigeria the safest and most diversified growing economy among emerging markets. The key institutions are: CBN, SEC, NAICOM, PENCOM, DMO, FMBN, SMEDAN, NSE, NDIC, FIRS and FRC.
FSS2020 aims to transform Nigeria’s financial system into a catalyst for growth, develop Nigeria into an international financial centre, and transform the economy into one of the twenty largest economies in the world by the year 2020.
The overall goals of FSS 2020 Financial Markets Sector are derived from the Money and Foreign exchange markets and the capital market. Money Market refers to the segment of the Nigerian financial system comprising both the money market and the foreign exchange markets activities. The Central Bank of Nigeria is the regulator of the money market. The capital market is the segment of the financial system where medium to long term funds are mobilised. The Securities and Exchange Commission is the apex regulatory authority of the Nigerian capital market charged with the dual responsibilities of regulating and developing the market.
Naira steady amid #EndSARS mayhem
The naira last week traded at the parallel market for N463 against the dollar, a slightly weaker ratio from the N462 exchange rate the previous week. Naira’s exchange rate remains at N379 to the dollar at the official market.
The local currency, however, sustained its stability despite the impact of the #EndSARS protests across major cities in the country and reduced business activities triggered by the protests. The deadly clashes between protestors and security forces escalated and led to number of deaths. Analysts said that negative sentiment against the naira slowed as rioting, blazes and round-the-clock curfews slowed economic activity and shuttered many businesses.
Investors in the equities market also earned N19.7 billion profit as market capitalisation rose to N15 trillion, putting the year-to-date returns at 6.9 per cent.
Speaking on the development, Murega Mungai, Trading Desk Manager, AZA, global currency dealing leader, said the Naira remains in a risk-averse state, with Amnesty International (AI) saying at least 56 people have been killed since the #EndSARS protests began earlier this month.
The Central Bank of Nigeria (CBN) projected that lower oil export revenue and the economic impact from the pandemic would cause external reserves to sink to between $29.9 billion and $34.3 billion by year-end, with the development expected to further add to naira’s pressure.
Even though speculative buying has been lower than normal, anticipation of naira depreciation has driven hoarding of dollars, while demand for forex from manufacturers persists.
CBN to promote zero balance account opening
The Central Bank of Nigeria (CBN) says it will promote the opening of new accounts with zero balance.
This was contained in its report, Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2020/2021.
According to the report, the apex bank gave this directive to deposit money banks (DMBs) to ensure greater financial inclusion in the country.
The banks are expected to simplify their account opening processes, while adhering to Know-Your-Customer (KYC) requirements.
CBN further urged the banks to develop new products that would provide greater access to credit.
“As part of its effort towards promoting greater financial inclusion in the country, the bank shall continue to encourage banks to intensify deposit mobilisation during the 2020/2021 fiscal years,” the report read.
“Accordingly, banks shall allow zero balances for opening new bank accounts and simplify their account opening processes, while adhering to Know-Your-Customer requirements.
“Banks are also encouraged to develop new products that would provide greater access to credit.”
The report added that the shared agency network expansion facility (SANEF), established to enhance the provision of financial services access points in under-served and unserved locations will continue in the 2020/2021 fiscal years.
Banks, mobile money operators, and super-agents shall continue to render returns in the prescribed formats and frequency to the CBN.
The apex bank said the national financial inclusion strategy (NFIS) was devised to enable adults in Nigeria have access to a broad range of formal financial services that are affordable, meet their needs, and provided at an affordable cost.
The strategy was revised in 2018 with focus on five targets: females; youth within the age bracket of 18-25 years; rural dwellers; North-West and North-East regions; and micro, small and medium enterprises (MSMEs).
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