A Review of the New FIRS Directive of 6% Stamp Duty Remittance by Landlords and Property Agents on Tenancy, Lease Agreement.

The Federal Inland Revenue Service (FIRS), as part of measures to reduce disputes in real estate related transactions and generate more revenue, has announced that stamp duty will be paid on house rent and Certificate of Occupancy (C of O), in line with its new adhesive duty.

This was disclosed in a press statement by the FIRS Director for Communication and Liaison Department, Mr Abdullahi Ahmad, in Abuja, on Thursday, July 2, 2020, as reported by the News Agency of Nigeria (NAN). He explained that the new policy was necessary so as to give the instruments the legal backing required, and make them legally binding on all parties involved in such transactions.

Consequently, Mr. Ahmad asked Nigerians to ensure that documents that relate to rent and lease agreements for homes or offices, C of O, and other common business-related transaction instruments were authenticated with the new FIRS Adhesive Stamp Duty.

Stamp duty is basically charged in two forms, either ad valorem where duty payable is a percentage of the consideration on an instrument or a fixed sum irrespective of the consideration on dutiable instrument or document.

The following are the chargeable transactions in the Fixed Duty Instruments category: Power of Attorney (PoA), Certificate of Occupancy (C of O), Proxy form, Appointment of Receiver, Memorandum of Understanding (MOU), Joint Venture Agreements (JVA), Guarantor’s form, and Ordinary Agreements Receipts.

While ad-Valor em Instruments chargeable under the Stamp Duties Act are: Deed of Assignment, Sales Agreement, Legal Mortgage or Debentures, Tenancy or Lease Agreement, Insurance Policies, Contract Agreements, Vending Agreement, Promissory Notes, Charter-Party and Contract Notes.

To this effect, property related transactions like tenancy or lease agreement fall under the Ad Valorem category of the stamp duty which attracts six per cent duty payable in percentage of the total value or sum of the tenancy or lease. The FIRS has among other things, ordered all property owners and their agents to charge 6% stamp duty on all tenancy and lease agreement they enter into with all leases and remit promptly to the Service.

We will look at the operation of this new development within the context majorly of the Abuja Metropolis.  In Abuja, where the collection of Tenement Rates is addressed to Occupiers of properties, the new FIRS Directive has strong undertones of multiple taxation especially where Occupiers in these scenarios are also tenants.

What are Tenement Rates

This is a tax imposed on occupiers of developed properties within a locality by the Local Government Authority. In other words, it is a tax that the Local Government Authorities charge on properties that are developed and occupied within their respective domain. This goes to say that Tenement Rate can’t be charged on undeveloped land and unoccupied properties anywhere in Nigeria.

Tenement rates vary in different states as there is no uniformity in the rates as charges by various local governments in various states. For example, rates as charged by the Area Councils in the Federal Capital Territory, varies from that of Ogun state and Rivers State respectively. Our focus here is on the Abuja Jurisdiction.

What are the similarities and differences of Tenement rates and the 6% Stamp duty charge on rent by the FIRS?

The 6% tax imposed on the payment of rent by the FIRS and the payment of tenement rates by various occupiers who are mostly tenants, are all referred to as property taxes. This is because in both cases, they (Tenants in the case of stamp duty and landlord and tenant in the case of tenement rate) are charged on the property they occupy. The similarity in this case is that both can be regarded as property taxes.

The difference on the other hand, is that the payment of the stamp duty is administered by the Federal Inland Revenue Services and is to apply nationwide, whereas in the case of tenement rate, it is the local government councils that administer the payment of tenement rates.

Also, the sum to be paid as stamp duties by tenants or lessees, is a 6% of the rental sum and this percentage applies nationwide. But in the case of tenement rates, the rates paid by the occupiers of the properties differs.

Does the payment of both the new 6% stamp duties by tenant or lessees and tenement rates in cases where applicable, amount to multiplicity of taxes?

Ordinarily, the landlord is the person that is expected to pay the tenement rate to the local government council or the occupier. The term “the occupier” may also refer to the landlord where he is also the occupant of the building and has not let or leased same out or sadly, the tenant in occupation. However as is usually the case, the landlord often lets out the premises to a tenant or group of tenants and thereafter takes no responsibility for the payment of the property taxes, especially in such cases that he does not reside in the premises and since the request for payment is always addressed to the occupier, the responsibility to pay always falls on the tenant or tenants.

Naturally, when the landlord is inaccessible or lives outside the jurisdiction of the local government, he cannot be reached and served with the appropriate demand notices and or summons. However, the use of the word occupier enables the revenue officials to hold the tenant responsible for the assessed rates in respect of the property. This is often the case in Tenement Rates.

For the novel 6% stamp duty payment, landlords or agents are out-rightly instructed to collect taxes on the annual rent from tenants which in turn is to be remitted to the FIRS. In cases where a tenant is held responsible for the assessed tenement rates in respect of a property he occupies and also mandated to pay stamp duties on a leased property he occupies would readily amount to multiplicity of taxes borne out of the occupation of that property. Both taxes are to be paid yearly as Tenement rate is usually demanded and paid yearly and the amount payable each year is assessed based on the annual value of the subject property. The payment on a lease agreement will be yearly where the agreement is sought to be renewed after the initial assessed lease agreement expires. This is the plight of Occupants in Abuja Metropolis who now will be subjected to pay property related taxes twice on the same property they occupy via the operation of the FIRS Stamp Duties and Tenement Rates.

Whatever way the operation of the new Stamp Duties Remittance will take, it must be done in a way that will not be oppressive to the numerous Nigerian masses who are always at the receiving end of the operation of such laws.