A Fellow of the Chartered Institute of Taxation of Nigeria, (CITN), Mr. Francis Uzoma Ubani, has opined that some provisions of Finance Acts 2021 and 2022 are unconstitutional.
He also said the collection, recovery, and distribution of revenue from stamp duties/electronic money transfer (EMTL) by the Federal Inland Revenue Service, (FIRS) is unlawful and contrary to the provisions of Sections 2(2) and 163 of the 1999 Constitution of the Federal Republic of Nigeria as amended.
He stated these in his letter to the Executive Chairman, FIRS, Dr Zacch Adedeji, which was made available to journalists on Tuesday.
He pleaded with the FIRS boss to direct the deposit money banks and other financial institutions to immediately begin to remit qualified chargeable stamp duties/EMTL accruable to the different federating States of the Federation, pursuant to Section 4 (2) of the Stamp Duties Act, as amended, to the โRelevant Tax Authorities in the various States of the Federation as applicable please.โ
He also argued that it is not right as directed in paragraphs 5 (iii) and (iv) of the FIRS Press Release on Clarification on Administration of Stamp Duties in Nigeria, which stated that the FIRS is vested with powers to collect stamp duties on all banking transactions.
According to him, the powers given to the State Governments through their respective Revenue Authorities to administer stamp duties by ensuring the assessment, collection, and accounting for stamp duties between individuals into the State government revenue Accounts do not include banking transactions, Deposit Money Banks and Financial Institutions relied on in not remitting qualified chargeable stamp duties to the federating State Governments pursuant to Section 4 (2) of the Stamp Duties Act, as amended.
He opined that it is a very wrong clarification that is not supported by the applicable laws on the issue, based on the facts stated above.
He therefore urges Adedeji to use his good offices to withdraw the perceived obnoxious FIRS press release on clarification on the administration of stamp duties in Nigeria dated 20/7/2020 and replace it with a version that is consistent with the provisions of the 1999 Constitution.
Ubani wrote: We respectfully write to bring to your attention and inform you that the amendment to the sharing formula for revenue from stamp duties/Electronic Money Transfer Levy (EMTL) as enacted in the provisions of Section 23 of the Finance Act, 2022, which amends Section 89A of the Stamp Duties Act, by substituting for subsection (4), a new subsection (4) as follows: โ
โNotwithstanding any formula that may be prescribed by any other law, the revenue accruing under the operation of this section, shall based on derivation, be distributed as follows: – (a) 15% to the Federal Government and the Federal Capital Territory, Abuja; (b) 50% to the State Governments; and (c)35% to the Local Governmentsโ.
โThis is inconsistent with the provisions of Sections 2(2) and 163 of the Constitution of the Federal Republic of Nigeria, 1999, as altered, and therefore, should be voided, alongside any regulation made by the Minister, according to thereof, since the distribution of Stamp Duties/Electronic Money Transfer Levy (EMTL) revenue is statutorily based on DERIVATION, under the provisions of Section 163 of the said Constitution and should not be shared through โthe Federation Accountโ under Section 162 of the said Constitution, without Constitutional amendment.
โIt is pertinent to point out that the โDivision of Taxing Powersโ is contained in the Constitution of the Federal Republic of Nigeria, 1999, as altered. It appears that the prolonged military rule in Nigeria has bequeathed a highly centralized system of government as evident under our said Constitution. Under the 1999 Constitution, the Federal Government alone has the power to legislate exclusively on 68 items or matters; hence the demand for decentralization or devolution of powers to States, particularly on taxation, but our tax system appears to remain in the firm grip of centralization.
โThis is borne out by the provision of the Federal Inland Revenue (Establishment) Act, 2007, which attempts to centralize the administration of personal income tax, capital gains tax, and stamp duties, these are the three most important taxes currently being administered by the States, including Withholding tax, even though with the Federal government. However, the โFederal Government Taxing Powerโ in respect of these taxes is limited to residents within the Federal Capital Territory, members of the armed forces, diplomatic corps, and non-residents and companies. However, the revenue collected by the Federal government from these taxes is constitutionally required to be distributed to the States based on derivation according to Section 163 (b) of the 1999 Constitution, as altered.โ
He added: โThe adoption of a FEDERATION in Nigeria, (see Section 2 subsection 2 of the 1999 Constitution) has far-reaching consequences for the structure of the countryโs tax system, including the allocation of โTaxing Powersโ between the different levels of government, the interaction between the different governments and their tax authorities, among other things.
“Therefore, Taxing Power is the ability or power of any government to levy tax or raise revenue through taxation, which may, however, be retained by express constitutional limitations or in situations where its exercise may render nugatory some express constitutional powers.
โAfter a tax has been allocated to a particular level of government, it is important to determine the meaning of the said tax, as envisaged by the Constitution. Once a tax is allocated to a level of government, in the absence of an express provision to the contrary, all taxable persons will automatically come within the power of the particular level of government. It is obvious from the allocation of Taxing Powers under the 1999 Constitution that a โtaxable personโ may be taxed by any of the levels in the Federation, following the respective powers under the Constitution, and nothing more. Each government requires that its powers cannot be taken away, altered, or controlled by the Federal government.
โLikewise, all the States acting in concert cannot take away, alter or control the power of the Federal government. Therefore, within the context of taxation, both the Federal government and each of the States should have their separate tax administrative machinery established under their respective laws by their legislature.
โIt is important and very necessary to understand the constitutional basis of โDivision of Taxing Powersโ in Nigeria. โ
Ubani also said that the National Assembly has exclusive powers concerning all subject matters in the Exclusive Legislative List under Section 4 (2) of the 1999 Constitution, as altered.
According to him, in this regard Item 59 of the Exclusive Legislative List vests the National Assembly with power in respect of โtaxation of incomes, profits, and capital gains, except as otherwise provided by this Constitutionโ, making these taxes โFederal Taxes.โ
He further opined that the National Assembly is vested with powers to make laws on any matter included in the Concurrent Legislative List to the exclusion of the Houses of Assembly of States.
He argued that Item โD7โ or D, paragraph 7 of the Concurrent Legislative List (bearing โCollection of Taxesโ as the marginal note) authorizes the National Assembly to delegate the administration of the taxes to the States โsubject to such conditionsโ as the National Assembly prescribes.โ
“We, therefore, urge you, Executive Chairman, to use your good offices and withdraw the obnoxious FIRS Press Release on Clarification on Administration of Stamp Duties in Nigeria dated 20/7/2020 and replace it with a version that is consistent with the provisions of the 1999 Constitution
Ubani said: โWe therefore call on you, the Executive Chairman to do the right thing and strictly follow the relevant provisions of the Constitution of the Federal Republic of Nigeria, 1999, and the Stamp Duties Act, and ensure that, going forward, the provisions of the Nigerian Tax Laws are strictly followed in respect of collection, recovery and distribution of stamp duties/EMTL revenue in Nigeria.
โEnsuring, that Deposit Money Banks and Financial Institutions start remitting stamp duties/EMTL in respect of instruments initiated and executed, and/or transactions initiated and carried out, between persons or individuals, according to Section 4 (2) of the Stamp Duties Act, to the Relevant Tax Authorities in the different federating States of the Federation where they are derived/generated.
โWe finally urge you, Executive Chairman Sir, to please write and direct the Deposit Money Banks and other Financial Institutions to immediately begin to remit qualified chargeable stamp duties/EMTL accruable to the different federating States of the Federation, pursuant to Section 4 (2) of the Stamp Duties Act, as amended, to the โRelevant Tax Authorities in the various States of the Federation as applicable please.โ
