Over 50 million active accounts in the banking sector will be enlisted in the new revenue drive of the Federal Government with the takeoff of the N50 stamp duty on financial transactions.
The Central Bank of Nigeria (CBN) has already communicated the commencement of the N50 stamp duty deduction on receipt of financial value of N1000 and above from bank accounts to financial institutions.
However, only transfers from personal account to another personal account, both at the same bank or another bank are exempted from the charge.
With the act already in force, there are projections that the total number of direct cash lodgements in various accounts in banks, the transfer of cash arising from Point of Sale, Automated Teller Machines and mobile money transactions, among others, may hit 50 million in volume per day, with an estimated value of about N2.5 billion daily.
The recently concluded phase of the Bank Verification Number (BVN) project had identified 22 million unique identities in bank accounts, which own over 30 million other accounts spread across the banking sector.
According to the CBN, the stamp duties are deductible on deposits into accounts and borne by the receiving accounts. Yet, another reliable source in the banking sector argued that the revenue earnings capacity of the stamp duties – when estimated moderately, given the improved payments system environment of the country, both in public and private sectors of the economy – shows that there will be no fewer than 25 million deductible transactions per day, which will amount to N1.25 billion daily.
While expressing optimism on the potential return of effective taxation, a professor of entrepreneurship and political economy, Pat Utomi, said that there would be the need for caution to ensure that the pace of tax expansion does not depress consumption and growth.
“Nigeria,” he said, “has a challenge with no easy answers. For a long time, oil receipts made taxes an irritation to those who govern. The result was that the citizen was disconnected from holding the public official accountable. Costs in government went crazy. As oil revenue declines and taxation is rediscovered, the needful will be challenged in two directions.
“In one direction, from policy makers we must take care in ensuring the pace of tax incidence expansion does not depress consumption and growth. Still, the financing gap needs to be bridged by an optimal level of borrowing and new taxes.”
Utomi continued: “At the same time, deep cost-cutting in a wasteful system needs to be implemented. In the other direction, citizens need to know that a return of dependence on taxation for governing will reduce uncertainty in the budget process. When Value Added Tax (VAT) was introduced years ago there were issues raised about it but it has been a useful tax.”
The Managing Director and Chief Economist, Africa Global Research, Standard Chartered Bank, Razia Khan, said the N50 stamp duty enforcement was necessary, given the urgent need to drive higher revenue collection of the country. He said there was no foreseeable “detrimental effect on financial access in the long-term.”
Stakeholders have also commended the move, advising however, that to get the best of the policy, the authorities should strengthen the payment system to ensure that most transactions in the economy are routed through the banking system.
According to the Head of Investment Research at Sterling Capital Limited, Sewa Wusu, the move is legal and now adopted due to the circumstances the country is going through, which have heightened macroeconomic issues.
“This is another fiscal strategy to meet budget spending. Transactions are going on everyday in the financial system and this is the more reason to believe that the Nigerian economy is capable of financing itself. Though some will complain, but for me, this is a fiscal response. The act has been there and this shows that there are other opportunities in the economy. This type of law is also obtainable in other jurisdiction.
“No matter what pains we may feel from this policy, we can take it in good faith, at least as a sacrifice to the nation. N50 is money, but it is not too much to pay,” he said.
On his part, Shehu Mallam Mikail, the National President of Constance Shareholders’ Association of Nigeria, in an electronic mail, said although Nigerians would ordinarily expect a more vibrant tax regime, a flat N50 flat charge on any receipt whatsoever from third-party deposits or transfers would work against the spirit of the apex bank’s banking inclusion policy.
“These charges will not encourage Nigerians to have interest in the banking system any longer because people will prefer to do their transaction on cash basis without going to the bank. Moreover, the cashless policy will no longer be effective leading to low-profit margins for banks.
“Therefore, government is now saying that Nigerians should not imbibe the culture of banking. Low-income farmers and artisans might not bother about using the banking system when it comes to financial transactions. If bankers are no longer getting enough inflow of currency transactions, how can there be a dividend for shareholders of banks?”
Mikail posited that should the stamp duty be implemented the way government wished to go about it, it should have been a flat rate charged on yearly basis.
“I am worried about the interest of Nigerians in the banking system, operators’ drive for customers and returns for shareholders in the sector through enhanced economic activities,” he said.
A civil society activist, Jide Ojo, also agreed that the enforcement of the stamp duty law is a welcome development, but only raised concern about the remittances of the deducted values.
“Will the banks pay these N50 deductions to the coffers of the Federal Government? It should be noted that government is having serious issues getting organisations collecting Value Added Tax on its behalf to remit the five per cent collected to government.
“Transparent and accountable mechanisms must therefore be in place so that the public is duly informed about income from this source and what it is being used for. There should also be adequate sensitisation of the banking public on this law,” he said.
The Executive Director, Corporate Finance, BGL Capital Limited, Femi Ademola, affirmed that the stamp duty has a legal backing by the Stamp Duty Act of 2004, noting that it is just that Nigeria has not been enforcing most of the revenue generating laws and thus, not collecting the necessary revenue.
“Although the amount of N50 per transaction appears to be small, the cumulative total of revenue in a year could be very significant. It is estimated that over 400 million banking transactions through Automated Teller Machines (ATMs), Over The Counter (OTC) cash transactions, POS and Internet transfers took place in 2014. Since half of that involves receipts of money, we could infer that a sum of N10 billion could be generated from banking transactions alone this year,” he said.
On the immediate impact of the enforcement, he admitted that it could negatively affect the financial inclusion and cash-less policy of the Central Bank of Nigeria (CBN).
“This is because the bulk of banking transactions are below N100,000, according to the CBN. A further analysis could show that the largest proportion of the transactions is between N1,000 and N10,000 to which a charge of N50 per transaction could be significant. This would, therefore, mean that a large population of the people that we are trying to include in the formal financial system may be discouraged from using the banks.
“However, we must understand that tough times require tough measures as the enforcement of the stamp duty is necessary and also legal. Like it has been said at so many forums, managing Nigeria through the current crisis is not the responsibility of the government alone.
“We, the citizens, all have to contribute to our economic survival. Due to the prolonged oil price decline, our economic stability is being threatened. To survive the current crisis will require very painful decisions to be made and implemented and the pain will be felt across board,” he said.
Already, CBN has opened an account with the name “CBN NIPOST Stamp Duty Account No. 3000047517” where banks will offload the total monthly deductions from a designated account operated by respective banks.
