Following the passage of the Finance Act of 2019, a new Stamp Duty regime took effect. The apex tax authority, Federal Inland Revenue Service (FIRS) released a series of circulars to that effect. An overview of that new Stamp Duty Act effectively widens the scope of items covered by the Act including transactions consummated via Instant Messaging applications like Whatsapp, iMessage, Telegram etc. It further and clearly states that the FIRS is the recognised and authorized institution with powers to collect these Duties.
However, like every policy initiative, there are sides to this one. Policies have unintended consequences as well. Let’s take a brief look at them.
Cryptocurrencies May Gain Acceptance
The Stamp Duty Act as amended could likely lead to an uptick in usage of cryptos in transactions as more people especially the young with adventurous taste for risk seek means to either totally avoid these charges or reduce their exposure. The Central Bank having made its position clear on cryptocurrencies may likely have to accommodate a few structured cryptocurrency platforms to avoid revenue loss on the part of the government via the FIRS.
It Could Defeat the Cashless Policy Initiatives
In the previous edition of the Weekly RoundUp, we considered how the low profit margin on some items could trigger an avoidance of this Duty. People would likely prefer cash transactions to avoid decimating their profit margins. What this means is the circulation of more cash and less on electronic channels.
As at 2012, the cost on cash management on banks was estimated to be about N192 billion.
This new Stamp Duty Act could take us back to this level thereby defeating the entire idea behind the Cashless Policy initiatives.
Insecurity and Poor Planning
Consequently, with more people handling cash for transactions, insecurity and counterfeiting would rise. This further stretches the security agencies in their attempt at preventing or solving crimes. The presence of or easy access to cash increases the tendency for crimes.
Poor Data Means Poor Planning
A hidden cost to this policy will be the absence of data for proper policy planning and projections by businesses. For the government, forecasts like number of SMEs, economy segments in need of loans and grants and employment figures may get grainy. By extension, foreign investors may avoid these segments as they avoid flying blind due to absence of data.
Need for Flexible Regulators
Inasmuch as governments are run with taxes and duties, a proper scenario planning becomes imperative especially in a fast changing economic landscape with disruptive ideas. Regulators need to take receptive position while being cautious with new ideas. A rigid regulator runs the risk of outright disruption or play never-ending catch-up. Neither is a good position to occupy. Sandboxes could help regulators test seemingly risky waters filled with new ideas. With sandboxes, inputs from these disruptors are heard and tested, with insights gained.