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Following the recent signing into law of the Electronic Money Transfer Levy Regulations, 2022 by the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, a finance and economic expert at KPMG, a management and financial advisory services company, Adewale Ajayi, has observed that some provisions of the regulations may require revisions to ensure consistency with the extant laws and avoid unnecessary disputes with the stakeholders.
The Stamp Duty Act was pursuant to the Minister’s powers under Section 89A(3) of the Stamp Duties Act Cap. S8 Laws of the Federation of Nigeria, 2004 (SDA), as amended by Finance Act, 2021.
The regulations were issued to provide guidance for the imposition, administration, collection and remittance of the Electronic Money Transfer Levy (“the Levy”) introduced by the Finance Act, 2020.
Just as the Central Bank of Nigeria (CBN) encourages the banking public to use alternative channels such as internet banking, mobile banking apps, USSD cards/POS, eNaira, among others to conduct their banking transactions in the wake of 100 per cent cashless policy, the Stamp Duty Act entails that users of these channels would be paying more in taxes by way of stamp duty.
Explaining this to Nigerian Tribune, a top banking executive who prefers anonymity said, “When you transfer money, a receipt is generated by your bank as proof of that transfer. That receipt, albeit electronically generated, is regarded as liable to stamp duties. But the person to pay the stamp duty is not you, the sender, but the recipient of such funds.”
According to a Federal Inland Revenue Service (FIRS) circular, banks and other financial institutions are to charge a N50 levy on: all intra-bank deposits and transfers from N10,000 and above except where the deposit or transfer occur between two accounts maintained by the same person in the same bank; all inter-bank deposits and transfers from N10,000 and above involving accounts owned by the same person in different banks; and all inter-bank deposits and transfers from N10,000 and above involving accounts owned by different persons.
However, Ajayi, in a position paper published in KPMG Newsletter, stated that the requirement for the FIRS to deploy technology for the collection of the levy would help to reduce collection cost and provide reasonable assurance on the correctness of the amounts due, thereby reducing the tax gap.
Most importantly, the levy, he added, would be collected in real time to minimise the incidence of tax debt that normally arises when there is a long timing difference between the collection of tax and the taxable event giving rise to the tax or levy.
“However, as observed with recent Regulations issued by the Minister, some provisions of the Regulations may require revisions to ensure consistency with the extant laws and avoid unnecessary disputes with the stakeholders.
“The requirement for banks to keep records of all electronic transfers in relation to the levy for a minimum of seven years appears contrary to the provisions of Section 375 of the Companies and Allied Matters Act, 2020 (CAMA), which requires companies to keep accounting records for not more than six years.
“CAMA defines accounting records to include ‘entries from day-to-day of all sums of money received and expended by the company, and the matters in respect of which the receipt and expenditure took place’. It will be difficult to argue that records of all electronic transfers and/or receipts will not constitute accounting records in this case. It is, therefore, imperative that the provision of the Regulations be amended to align with CAMA provisions,” Ajayi stated.
Paragraph 10 of the Regulations introduces specific penalties and interest for non-compliance with some provisions of the Regulations that differ from that of the FIRS (Establishment) Act (FIRSEA).
Specifically, Section 40 of the FIRSEA imposes a penalty of 10 per cent and interest at CBN Monetary Policy rate of the principal amount where a taxpayer fails to deduct tax and/or remit the tax deducted to the FIRS within the specified time.
Further, Section 68 of the FIRSEA provides that where the provisions of any other law, including the SDA, are inconsistent with the FIRSEA, the provisions of the FIRSEA would prevail. Consequently, the penalty and interest imposed by the FIRSEA for non-compliance with tax deduction and remittance would supersede that introduced by the Regulations.
Ajayi said it is, therefore, necessary to update the Regulations to ensure consistency with the extant laws.
“It is indisputable that any instrument, such as Regulations, issued by the Minister or any administrative agency of government pursuant to a legislation, can only be upheld if its provisions are consistent with the provisions of that law, and cannot be used as a tool to amend, vary or alter it.
“Therefore, the Minister may need to review the Regulations vis-à-vis the extant provisions of the SDA, CAMA and FIRSEA to ensure consistency and avoid imposing unnecessary obligations on taxpayers,” he stated.
On June 3, 2021, the Federal Inland Revenue Service (FIRS) released a circular to clarify the provisions of the Stamp Duties Act (SDA).
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In the circular, the Service explained that electronically generated receipts are liable for stamp duties. It admonished banks and other financial institutions to charge appropriate stamp duties on qualifying transactions.
“The stamp duties so charged shall be remitted to the Federal Inland Revenue Service,” the circular read.
Perhaps, a more formal definition of stamp duty on electronic funds transfer is what they call the Electronic Money Transfer Levy (EMTL). “The Electronic Money Transfer Levy is imposed on electronic receipts or electronic transfer of money deposited in any deposit money bank or financial institution, on any type of account, to be accounted for and expressed to be received by the person to whom the transfer or deposit is made.”
The Regulations mandate the receiving bank to collect and remit the Levy to the FIRS by the next working day after the transaction date or on such other date as prescribed by the FIRS. In addition, the receiving bank is required to deduct the levy from the amount payable where the receiver is a walk-in customer that does not have an account with the bank.
Finally, where a bank fails to render returns of the levies collected or reversed transactions, or renders incomplete or inaccurate returns to the FIRS, it shall be liable to a penalty of 10 per cent of the value of the returns not rendered or incorrectly rendered.
Paragraph 11 defines banks as “a deposit money bank or financial institution referred to under Section 89A of the SDA and includes all banks and other financial institutions as defined under the Banks and Other Financial Institutions Act, 2020.”
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