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Why states must be wary of Finance Bill
IT was Paul Samuelson who said governments have four main functions in a market economy: to increase efficiency, to provide infrastructure, to promote equity, and to foster macroeconomic stability and growth. These functions have been expanded to include provision of security for lives and properties and creation of an enabling environment for the realisation by citizens of their best potentials. The truth is that in performing any of these functions in any country, Governments need funds. For countries practising a federal system of government, the afore-mentioned functions are required to be performed by the governments of both the central and federating units to the extent to which powers have been constitutionally delineated between the two levels of government. In the same vein, the central government as well as the governments of the component units of the federation need money to perform the functions constitutionally allotted to each. This fact is as true of the United States as it is of Nigeria and Australia as they belong to the same family of federal countries. In all these states, of paramount importance is the issue of the financial relationship between the levels of government. This is what fiscal federalism is all about. And it is at the core of the survival, the viability of each of these tiers of government.
In the Nigerian federal set up, the tiers of government are three namely federation, states and local government areas, as established by sections 2, 3 and 7, respectively of the Constitution of the Federal Republic of Nigeria 1999 as amended. It has been said times without number that a number of the states in Nigeria are not viable. Meanwhile, viability is a function of the relationship between the costs of running the states and the incomes they realise. Each federating state in Nigeria has two broad sources of income namely money from the Federation Accounts and Internally Generated Revenue (“IGR”). The survival of over 90 per cent of Nigeria’s 36 states is dependent on the incomes they receive from the Federation Accounts. Even though many states have expanded their scope of IGR collection within their respective territories, there is a still a huge gap, except for Lagos and a few other states, between the expenditures and revenues of these states. This is why in the spirit of fiscal federalism, it is in the interest of the states to guide against usurpation of their financial powers.
Let’s face it, in the era of increasing governance challenges and being mono-cultural economy affected by fluctuations in global oil prices, the Federal Government and its agencies are daily seeking new ways to generate incomes. A statement credited to the Accountant General of the Federation last month, while addressing the Council of Legal Education, seems to confirm the belief in certain circles that the Federal Government has commercialised its MDAs and all of them are expected to generate incomes.
This quest for funds appears to be pushing the different tiers of government to encroach on one another’s financial territories. In the meantime, the Constitution spells out the financial relationship that must exist between the tiers of Government in Nigeria such that any incursion by one into the financial space of another is liable to be successfully challenged in the court. If truly we are in a constitutional democracy, an aggrieved tier of government should feel free to challenge any perceived usurpation of its powers before the appropriate court of law. Sometimes, incursion by a tier of government is silently done and some other times, it is brazen. Whatever way it is done, one will advise that vigilance is required on the part of the states if the problem of their viability as a result of paucity of funds is not to be worsened.It is in the light of the above narratives that one views the recent events surrounding the passage of the Finance Bill 2019 by the National Assembly, particularly the part of that Bill having to do with the administration of the Stamp Duty Act, with serious concern and worries for the states of Nigeria. I decided to write this article as a Nigerian citizen of Oyo State extraction who appreciates the seriousness which the new governor has brought to confront the myriad of challenges facing the state and knowing that the state needs as much funds as it can get.
This write up is a wake up call for all the state governors, but in the spirit of self interest, for my governor, Engr. Seyi Makinde. Last week, some workers of the Nigerian Postal Services (“NIPOST”) protested at the National Assembly. Their grouse was that the Federal Inland Revenue Services (“FIRS”) and not NIPOST was given the powers to collect Stamp Duties in Nigeria. A representative of the Senate President who addressed them on behalf of his boss was reported to have informed the protesting workers that their Director General had earlier visited the Senate and he had been assured that the Finance Bill had been made to accommodate NIPOST’s wish to be tasked with the responsibility of collecting stamp duties. This report implied that the content of the Finance Bill published to members of the public may have been surreptitiously tinkered with and the final Act coming out of the legislative mill might be different from what Nigerians read. To pass into law a Bill different in substance from what was made known to the public is an unthinkable act but in Nigeria of today, you will be mistaken if you think what is unthinkable cannot and/or will not happen.
I am convinced that so many people, especially our distinguished senators and hounourable members of the House of Representatives do not have sufficient information on the issue of administration of the Stamp Duty Act. Ditto for many Nigerians as we have seen some articles pushing for empowering NIPOST to be the collection agency of stamp duties in Nigeria. The misconception is further fuelled by the use of the word ‘stamp’ as a prefix in the term ‘stamp duty’. It is important to first clear this misconception. The law governing issues relating to stamp duties is the Stamp Duty Act Cap S8 LFN 2004. This law was first enacted in 1939 and has since then gone through a number of amendments and reviews respectively in 1941, 1942, 1946, 1950 and 1953. The purpose of the law is to make Government give its recognition to documents which serve as evidence of transactions between persons (human or legal (juristic or non-juristic)). Government does this by requiring that a stamp is placed on such documents which when seen on the documents, it symbolises awareness of the existence of same by Government; and as consideration for placing the stamp, Government collects a duty from the party who has brought the document for recognition.
Section 2 of the law defines ‘stamp’ to mean a stamp impressed by means of a die or as an adhesive stamp for denoting any duty or fee. By this definition of ‘stamp’ in the Stamp Duty Act, a stamp may be impressed on a document through either of two means: (1) means of a die; or (2) as an adhesive’ stamp. This law does not define ‘stamp’ anywhere to mean or include ‘postage’ stamp. What it envisaged was that instruments which will be presented for stamp duty will fall into two categories. These are documents evidencing transactions between a company and any one (companies, individuals and governments) and those between individuals. With this distinction, the law factored in fiscal federalism when in Section 4 it provides as follows:
(2) The State Governments shall collect duties in respect of instruments executed between persons or individuals at such rates to be imposed or charged as may be agreed with the Federal Government.”
The lesson from the above is that stamp duties are not incomes collectible by the Federal Government alone. The States, by right, have vested interests in who collects stamp duties. Again, this law did not contemplate the Nigerian Postal Services or whatever name it had then as this agency had been in existence before the enactment of the Stamp Duty Act. It is therefore unfortunate that NIPOST is bent on arrogating to itself the powers that it does not have. Sometime this year, a Bill sponsored by NIPOST and passed by the National Assembly was presented to President Muhammadu Buhari for assent. The President, upon advice by Mr. Shehu Malami, his Attorney General, refused to sign the Bill into law. The advice was anchored on a reading of the Stamp Duty Act which the Attorney General rightly interpreted as revenue legislation having nothing to do with postage stamps.
In fact, this is not the first time that NIPOST’s leadership would show a determination to hijack the administration of the Stamp Duty Act at all cost. They has deployed administrative and judicial means in the past to arrive at the same end but these had failed woefully. Nigerians would remember that sometime in 2016, Nigerian commercial banks sent out electronic letters informing their customers that with effect from January 15, 2016, as directed by the Central Bank of Nigeria (CBN) for Nigerian banks to comply with the Stamp Duty Act LFN 2004 and Federal Government Financial Regulations 2009, they would commence collection of stamp duty charges on electronic transfer and teller deposits from N1,000.00 and above. It is instructive to note that the promoters of the efforts that culminated in the CBN’s directive to commercial banks appear to be mere ‘merchants’ interested only in how to make money rather than the due process of implementing the Stamp Duty Act in respect of electronic banking transfer. Kasmal International Services Limited, a company owned by a Nigerian politician was reportedly approached by the School of Banking Honours to facilitate contact with the Presidency under President Goodluck Jonathan for the purpose of securing an agency contract with NIPOST for the purpose of collecting stamp duties on banking transactions on behalf of the latter. Kasmal International Services Limited was alleged to have cornered the NIPOST agency for itself.
The company followed it up by filing a suit at the Federal High Court, as an agent of NIPOST’s, seeking various declaratory, monetary and injunctive reliefs against all the commercial banks in Nigeria. The grounds relied upon by Kasmal International were that the NIPOST Act was amended in 2004 to confer upon NIPOST, the power to manage some of the stamp duties chargeable under the SDA and that the Federal Government of Nigeria, through the Financial Regulations 2009, imposed upon banks in Nigeria an obligation to deduct and remit the sum of N50 as stamp duty on all receipts by electronic transfer and/or teller deposit or funds in the sum of N1,000.00 and above and that the failure of the banks in Nigeria, to collect and remit the amount rendered the banks liable to a penalty in the sum of N20 for each eligible transaction since 2004.
Standard Chartered Bank of Nigeria Ltd filed a Notice of Preliminary Objection to challenge the competence of the action but the trial court dismissed its objection and granted all the reliefs sought by Kasmal International. Standard Chartered Bank Limited proceeded to the Court of Appeal. While the appeal was pending, Kasmal International filed a fresh suit at the Federal High Court against the Central Bank of Nigeria which directed CBN to issue guidelines to all financial institutions including all banks to comply with the provisions of the SDA and the Financial Regulations 2009 by remitting to NIPOST through the agency of Kasmal International the sum of N50 as stamp duty on all receipts issued of monies from N1000. At the Court of Appeal in STANDARD CHARTERED BANK OF NIGERIA LIMITED v. KASMAL INTERNATIONAL SERVICES LTD & ORS (CA.L.437L/2014), Kasmal International sought to tie the court’s hands by arguing that the judgement against CBN had overtaken the appeal and had therefore become academic and hypothetical.
The Court of Appeal had no difficulty upholding the appeal and declaring that Kasmal International lacked the locus standi to bring an action as an agent and on behalf of NIPOST and that NIPOST itself cannot institute a suit to recover stamp duties collected and unremitted in view of the provisions of section 111 of the Stamp Duty Act. The court also held that since there was no amendment to the relevant laws to the NIPOST and SDA on which Kasmal International’s case was heavily predicated, the company did not disclose a cause of action against the Appellant. The next step taken by NIPOST was to engineer an amendment of the SDA which was essentially to empower NIPOST to collect stamp duties. After it was passed by the National Assembly, President Muhammadu Buhari refused to give his assent to the Bill on the advice of the Attorney General of the Federation. We thought that the ghost of the attempted hijack of statutory powers had been laid to rest until the recent drama over the Finance Bill 2019.
An important issue that must be quickly settled is whether or not NIPOST has the power to collect stamp duties. My respectful position is that it does not. As an agency established by law, the functions and powers of NIPOST are as stated under Sections 4 and 5 of its establishment Act Cap N127 LFN 2004, respectively. None has any relationship with stamp duties. To those who equate the ‘stamp’ in the Stamp Duty Act with the ‘stamp’ which NIPOST sells, I wish to state that they are not the same. NIPOST sells ‘postage’ stamps while the Stamp Duty Act provides for the use of ‘adhesive’ stamps. Section 5 of the Stamp Duty Act provides that all duties chargeable under the Act shall be paid and denoted, except where express provision is made to the contrary, by impressed stamps only. Subsection 2 provides that “Where the duty may be denoted by adhesive stamps, postage stamps may, subject to the provisions of any Act or regulation, be used for the purpose.” In essence, impressed stamp is generally the only means of denoting a stamp duty. It is only where the law expressly provides for the use of adhesive stamps that adhesive stamps are permitted and even in that case where adhesive stamps are expressly permitted, postage stamps MAY be used as adhesive stamps, subject to the provisions of any Act or regulation. This is a clear indication that adhesive stamps are not the same as postage stamps and in the scheme of things under the Stamp Duty Act, NIPOST is a complete stranger.
Unlike NIPOST which is trying to grab powers to itself under the Stamp Duty Act, the law recognises states as stakeholders in its administration. Besides the provisions of Section 4 earlier mentioned, Section 6 grants state Governors powers to appoint Commissioners of Stamp Duties who are charged with the collection of stamp duties due to their States just as the President appoints Federal Commissioner of Stamp Duties. Still where does NIPOST come in in this matter? What we are now seeing is that NIPOST has isolated only electronic bank transfers as what it is supposed to charge a stamp duty on. Let my Governor hear this: stamp duties cover instruments issued in respect of all transactions. There is no law which separates electronic transfers from the rest. And it is the same law that governs them all. One appreciates the stubborn frenzy with which NIPOST leadership is going about its unjustifiable claim. This is a lot of money we are talking about here and NIPOST is facing a threat of extinction due to its almost total irrelevance in the modern day Nigeria. Mr. Everest Amaefule writng in the Punch newspaper edition of May 9, 2016 stated that: “The Federal Government had projected that the deduction of N50 on every banking deposit into a current account with a value of N1000 and above would give the nation as much as N2.5tn per annum. This translates to N206.33bn a month and N833,33bn for the first four months of the year.”
Until now, there is no law that provides for payment of stamp duty on electronic transfer and so when the Finance Bill is enacted and stamp duty on electronic transfers is legalised, and if the above projection is true, then a huge amount of money would have been generated through this means. What happens to the money, which by the provsisions of the Stamp Duty Act is collectible by the Federal Commissioner of Stamp Duties? An answer to this big question should interest all State Governors. Section 163 of the Constitution provides thus:
“Where under an Act of the National Assembly, tax or duty is imposed in respect of any of the matters specified in item D of Part II of the Second Schedule to this Constitution, the net proceeds of such tax or duty shall be distributed among the States on the basis of derivation and accordingly –
(a) where such tax or duty is collected by the Government of a State or other authority of the State, the net proceeds shall be treated as part of the Consolidated Revenue Fund of that State;
(b) where such tax or duty is collected by the Government of the Federation or other authority of the Federation, there shall be paid to each State at such times as the National Assembly may prescribe a sum equal to the proportion of the net proceeds of such tax or duty that are derived from that State.”
For all intents and purposes, imposition of duty on documents or transactions by way of stamp duty is on item D of Part II of the Second Schedule to the Constitution. What the Constitution provides is that stamp duties, though collected by the Federal Government, are incomes for the States. They are not incomes of the Federal Government. It must be understood by relevant authorities that allowing NIPOST to collect stamp duties on any document evidencing transactions will amount to an act of unjust enrichment at the expense of the citizens of the states from where the duties are derived.
Let it be understood that by virtue of Section 52 of the NIPOST Act, the agency is allowed to keep all its income and apply same for its own purposes. No kobo coming into NIPOST goes anywhere else, certainly not even to the Federation Account, thereby denying the states which are the rightful owners of the money from benefitting from it. Thought it is legitimate for those in NIPOST to seek ways of saving the agency from total collapse, it will be repugnant to natural justice to seek to achieve this goal at the expense of struggling states which have a legitimate constitutional claim to the proceeds of stamp duties. Any attempt to grant powers to NIPOST to collect stamp duties on any transaction whatsoever will tantamount to robbing Peter to pay Paul and will surely lead to a constitutional crisis.
My prayer is that at least my own State Governor, Engr. Seyi Makinde, will rise up and alert members of the National Assembly from Oyo State on the danger of the tinkering with the Finance Bill as it is an ill wind that will blow our State no good. However, should the National Assembly succeed in vesting NIPOST with powers to collect stamp duties and the President assents to the Bill, my candid advice is for my Governor to direct his Attorney General to challenge this constitutional travesty without any delay.
- Aponmade, a legal practitioner, writes in from Lagos
Why states must be wary of Finance Bill
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