Stamp Duty: A Regressive Tax On The Poor?

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orphan-1139042_960_720The new Federal Government stamp duty in my opinion is poorly structured and might end up hurting the very same Economy it claims to save.

While the Federal Government has focused largely on the financial benefits to themselves N66.1 Billion, they have basically ignored the detrimental impact to its citizens … especially the poor.

Per CBN (reference circular, the stamp duty charge is described as follows:

“For electronic transfer or deposits above N1000.00 into any account (excluding savings account), they must be charged N50.00 as stamp duty.”

Which essentially is a TAX on our nations poor. Because the poor will suffer, not the middle class or the upper class, but the poor. Here’s why …

The N50.00 charge is per transaction, regardless of the amount. Focus on the word “regardless.”

Because “regardless” means that no matter what amount (as long as it is above N1000.00) is deposited in your account you still get charged the same N50.00 as the person that gets a N1,000,000.00 deposit.

To understand this better imagine that you get N20,000.00 deposited in your account you will get charged N50, which results in a 0.25% tax rate (50/20000*100) and if you receive N1000.00 you still get charged the same exact N50, but instead of 0.25% tax rate your stamp duty tax rate will be a much higher 5% … a tax rate difference of 4.25%!

Which essentially means that people receiving lower deposits (the lower class in most cases) in their accounts will see a higher percentage of their monies taxed. In Economic terms, this is simply known as a form of regressive tax which is defined as …

“A tax imposed in such a manner that the tax rate increases as the amount subject to taxation decreases.”

This sort of reverse tax, where the poor suffers more relative to the rich is ill-advised and unfair. Because the poor is not who put us in this situation, it is the upper class.

Which takes me back to stamp duties.

Stamp duty is a tax that was originally levied on physical documents. Today it is typically levied across the globe on special documents/transactions such as stocks, real estate, etc. But it is rarely applied on everyday micro-transactions, as you can see below:

  1. Singapore: Stamp duty applies to documents relating to immovable property, stocks and shares.
  2. USA: Stamp tax, is collected for registration of mortgage or deed of trust.
  3. Sweden: Stamp duty collected on property deeds, at 1.5% of the purchase value.
  4. Hong Kong: Stamp duty applies to immovable property, stocks and shares.
  5. Denmark: Stamp duties on insurance policies. Stamp duties on land registration
  6. Ireland: Stamp duty on Mortgages and Leases.

In all the examples above, the stamp duties are levied on primarily middle class to upper class transactions such as real estate and the stock market.

And in most cases there is a numerical limit to shield lower income earners, for example in the UK “first-time buyers purchasing a property under £250,000 have their stamp duty waived for two years.” while in Ireland “the transfer of stocks and marketable securities is taxed at 1% if over €1,000.” But in Nigeria we taxing for as low as $3.33 to $4.00 and for everyday transactions!

And let’s not forget that stamp duty will all but reverse the efforts at getting Nigeria to CASHLESS society. This is because people the very same ones we were trying to move to CASHLESS will be discouraged from putting their money in any bank account because of the fear of stamp duties. Instead people will require that their money be given to them in CASH.

But that’s not the only reason I find fault with this stamp duty …

As if to make us feel better, the CBN stated in its circular that:

“For the avoidance of doubt, any form of withdrawals or transfers from SAVINGS accounts are exempted from the imposition of Stamp Duties.”

But if there is anything worse than Regressive Taxation in an economy sliding towards a recession, then it is making it more beneficial to SAVE than to SPEND. Which is what the government will end up doing with the above CBN statement. Here’s why …

To avoid stamp duties people will end up putting money in their SAVINGS accounts versus CURRENT account (commonsense). And when this begins to happen, the CBN government will realize one of the CRAZIEST things about our banking system. And that is that the SAVINGS account is basically a CURRENT account with benefits!

And when they (CBN) realize that people are dodging stamp duties via savings account they will start to add spending restrictions on the SAVINGS accounts. Resulting in less and less spending.

And it will be ironic, because the Government has stated that its strategy to fight the pending recession is to spend its way out of it. So why would you create a rule that slows down spending amongst its citizens?

All in all I believe the stamp duty tax to be a poorly thought out mechanism for the government to generate funds because it punishes the very same people it is supposed to help and also stagnates the Economy.

The question is, will it last longer than the banning of FOREX cash deposits? Only time will tell, but I am afraid we don’t really have much time left …

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Words by Okechukwu Ofili of
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19 comments on “Stamp Duty: A Regressive Tax On The Poor?

  1. This is mind blowing and analytical of you to cover all grounds, on why the government is hell bent on sinking our economy at the detriment of its people. May God save us.

  2. Honest Offor on said:

    Much as I agree with some of your submissions, it is general knowledge that it is the middle class that basically run the current account. Also, there’s no empirical evidence to show that people will ditch current account for savings account forgetting its benefits just to avoid the #50 stamp duty.

    However, I agree that levying #50 across board will mean the poor will be paying more stamp duty than the rich. Levying #50 for an account credited with 1000 and the same #50 for another that receives #1 million, does not seem fair.

    • Ofili

      If the Government is depending on Nigeria’s non-existent middle class to raise 70 billion naira on a N50 stamp duty, then I think they will be disappointed.

      On the switch to savings account, it already happened with COT so I am quite sure it will likely happen with Stamp Duty.

  3. This is an eye opener to the adverse side of the stamp duty. They must have thought it through on who bears the greater burden and discover it wouldn’t affect the rich that can always prolong its implementation. It’s so so disappointing of the FG to implement this proposal. Generating money from the poor to support the poor that is if only they spend the money for the good of all.
    We hope they make amend to this parasitic act before it becomes a law. God bless Nigeria.

  4. Interesting… COT is causing major upheaval, combine that with this stamp duty, and it’s like Ofili is predicting the future. It’s simple economics though. I believe the government will modify just like they did with forex deposit but only after it hits hard and makes it obvious that the initial decision was in bad taste.
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    • Ofili

      @dollipeezle o thanks for the comment. I just pray that this Government knows what it is doing, I feel most of their policies are true trial and errorish.

  5. Omooba on said:

    Just to buttress your point… though I have accounts with 3 Nigerian banks, Current and Savings accounts with 2 of them and only savings account with the 3rd. I have since stopped operating my current accounts (COT-induced!), it doesn’t make any sense at all. Whenever I need to issue a cheque, I convince the recipient to accept a direct bank transfer, just to avoid crazy COT. I am happy to say, as much as I can avoid it, I won’t be paying the stamp duty for all the reasons you have highlighted above.

    Thanks for the very good analysis.

    • Ofili

      Thanks also for a very detailed response. You fully illustrate the issues we are facing … my worry is that the Government will soon start restricting savings accounts.

      • Exactly! I hope the managers of our treasury don’t get that desperate though (a guy can only hope!)

        As much as it doesn’t get said, I think this administration need some people they don’t seem to currently have, or may be they are not listening to their experts. I only hope we won’t enter bush too much before we find the path that leads home.

  6. Great submissions I must say!
    From the last Years,most of the CBN policies has been like child’s play. It quite shameful that our CBN will just release policies without carrying out standard economic research to test it’s initial hypothesis before coming out and mandating the public to abide to its policies.
    I mean is it not Obvious that the stamp duty idea is regressive? Why is CBN trying to make local transactions mundane?
    I do business yeah, I know how much of this stamp duty I will be charged daily, weekly not to mention annually.
    What do I get in return?? Nothing!! There’s no provision for Tax refund in this country. This is not a fair enough policy. I know some people will say ehn how much is N50, but if you do business, then do your calculations right ..
    This People don’t really care about Us!

  7. I can’t find the love button. When I first heard about the one thousand naira mark, I thought ‘this is daylight robbery’. Why not impose the said duty on a million naira and above? I have a current account and I use it solely for dividends (which are few and far between these days), savings account is the way to go; hopefully for much longer too. Thanks for taking time out to write this article.

  8. Pingback: Tax Churches and 4 Other Controversial Ideas To Rescue Our Economy #ofilispeaks | Ofilispeaks

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