As stamp duty collection begins

The Central Bank of Nigeria [CBN] recently directed all Deposit Money Banks [DMBs] in the country to commence the collection of a N50 stamp duty on all bank transactions from N1,000 upwards. This measure is in compliance with the provisions of the Stamp Duty Act 2004 and the Federal Government of Nigeria (FGN) Financial Regulation […]

The Central Bank of Nigeria [CBN] recently directed all Deposit Money Banks [DMBs] in the country to commence the collection of a N50 stamp duty on all bank transactions from N1,000 upwards. This measure is in compliance with the provisions of the Stamp Duty Act 2004 and the Federal Government of Nigeria (FGN) Financial Regulation of 2009. A court had ordered CBN to compel banks to collect the duty for onward transmission to the Nigeria Postal Service, NIPOST.
 This tax, to be paid by receivers in the designated transactions, is leveraging on the recently launched Bank Verification Number (BVN) and is applicable to the 50 million active bank accounts that are operated by 22 million customers nationwide. While stamp duty has been the law for more than a decade, it has been collected mostly in the breach while the oil boom era lasted. This time around circumstances have forced the government to take a harder look at revenue sources that have been lying fallow. 
The measure is expected to earn for the government about N2.5 billion on a daily basis from about 50 million transactions as it will operate on various platforms such as Point of Sale (POS), Automated Teller Machines (ATM) and mobile money transfers, among others. The policy however exempts transactions on personal accounts within a bank or from one bank to another. This proviso therefore confines it to purely transactions between two or more different parties, and by implication to those of purely exchange nature.
In the light of prevailing economic circumstances of the country, the depressed finances and the imperative to boost government finances, the initiative of the stamp duty on bank transactions is commendable. Its benign nature is also such that most bank customers will not feel its pinch. It is even more auspicious that several experts are of the opinion that due to the relatively small value of the tax, the measure will not impose any untoward pressure on the economy in terms of stifling growth.
Besides, given the poor tax culture of the country the measure is a masterly stroke for harnessing part of the revenue that is presently lost due to systemic weaknesses in the internally generated revenue regime of the government. In this respect the problems associated with tax administration in the informal sector remain a point of reference. Due to a deluge of systemic factors, the bulk of the nation’s informal sector which accounts for over 70 % of the nation’s Gross Domestic Product (GDP) is outside the tax net. It can therefore be imagined how much the government has been losing by not harnessing the tax potential of the informal sector.
Yet there is need for caution in the implementation of the stamp duty regime as its very success lies on the play-out of several factors. Firstly is the fact that the initiative is a fiscal measure that operates on the volume of banking transactions in the economy, which is a monetary dispensation. There will therefore be the need to facilitate a better synergy between the fiscal and monetary policy regimes, especially with respect to promoting an expansion of the money supply in the banking system, as non-bank transactions will fall outside its ambit. This will in turn require an improvement on the payment system in the economy.
Already the advances in speed and convenience in banking transactions have proven to be most beneficial to the banking community. Yet the fact that the country still remains an under banked country needs to be reversed to provide optimum dividends from the initiative. Several planned innovations such as the progression in the cashless policy of the government needs to be fast-tracked while a general re-organisation of the entire financial system is not out of place.
Another area of caution is the administration of the programme throughout the nation’s banking sector, which at the best of times is not problem free. The need therefore exists to review the sector with a view to identifying the various legal loopholes that may be exploited by elements that are intent on compromising the promise of this viable and rewarding initiative.