Stamp duty tax and consequences of non-compliance

In most cases when people think about taxes, the taxes that are easily remembered are income tax, import duty and value added tax. It is very rare to hear people talk about ‘stamp duty’ and yet unlike value added tax, stamp duty is one of the old taxes and has devastating effects in case of non-compliance. It is therefore important to discuss some important aspects of stamp duty.

Stamp duty is a tax that is levied on documents (instruments). Normally the stamp duty is evidenced to have been paid when the document is stamped by an impressed stamp or adhesive stamp. An impressed stamp may take the form of a rubber stamp stamped on the paper showing the amount paid, the date of payment and signature of an officer while adhesive stamps are similar to postage stamps applied to a letter and they are purchased at the Tanzania Revenue Authority for documents which attract small amount of duty and currently there are stamps of Tanzania shillings five hundred (Sh. 500).

The Stamp Duty Act, Cap. 189 (SDA) has a list of documents which are chargeable with stamp duty if those documents are executed on Tanzania Mainland. The document which is executed outside Tanzania Mainland is charged with stamp duty if that document relates to any property on Tanzania Mainland or to any matter or thing which will be performed or done on Tanzania Mainland. The list of instruments or documents chargeable with stamp duty is long but the common documents are the letters of credit, mortgage deed, deed poll, memorandum and articles of associations, cheques, debentures, lease or tenancy agreements, powers of attorney, documents to transfer ownership example shares in the company or interest in land and many more.

One may ask; in case of documents such as the tenancy agreement which involves two parties, who is supposed to pay stamp duty to Tanzania Revenue Authority (TRA)? Section 41 of the SDA gives room for the parties to agree on who will be liable to pay stamp duty.

In other words, at the time of negotiating an agreement, parties may agree and incorporate a term in the contract as to who will be liable to pay duty payable under the agreement or document at the rate provided against each document listed under the schedule to the SDA.

In the absence of the Agreement, the law imposes liability on the person whose stamp duty should be borne. For example in case of customs bond, debentures, bills of exchange, security bonds, etc, it is the person drawing the document who is supposed to pay.

In case of the tenancy agreement, it is the tenant who pays, in case of mortgage by the mortgagor (owner of the property), in case of certificate of sale, it is the purchaser of the property, and the list goes on.

The next question of interest is; what is the time of payment of stamp duty? Section 25 of the SDA requires that all chargeable instruments which have been executed by a person on Tanzania Mainland must be stamped within thirty (30) days of execution. If the document was executed out of Tanzania Mainland, it must be stamped within thirty (30) days of its first arrival on Tanzania Mainland.

It is important to note that if the document is taken to a stamp duty officer for adjudication on whether or not stamp duty is payable on that particular document, the period between submission of the document for adjudication and the date of notification of the decision is excluded from calculating the limitation period of thirty days.

The final question and which is worth noting is; what are the consequences of not paying stamp duty tax? There are a number of consequences but I will mention just a few. One of the consequences of non-payment of stamp duty on a document which is chargeable with stamp duty is that such a document cannot be admitted in evidence for any purpose in a court of law or judicial tribunal.

In other words, if there is any dispute between the parties for example about the tenancy agreement, that tenancy agreement cannot be accepted in evidence by the court or judicial tribunal or any public officer and cannot be acted upon. Parties having disputes in court or judicial tribunal have been exploiting section 47 of the SDA which provides for instruments not duly stamped to be inadmissible in evidence.

Another consequence is that the document which is not duly stamped can be impounded or confiscated by the stamp duty officer; in which case, the owner of the document will not have access to the document for the intended purpose. TRA may impose penalty on the impounded document or any chargeable document whose duty has not been paid. The penalty may be 25 per cent of the duty payable or not more than ten times the amount of the proper duty.

It is also important to note that TRA may initiate recovery measures against a person who was supposed to pay stamp duty; the recovery measures include issuing of agency notice to the third party who instead of paying money to the defaulter will be required to pay directly to TRA, or by the use of distress action whereby the assets of the defaulter are seized and sold in order to recover the unpaid stamp duty.

Also TRA can apply in court for the defaulter to be arrested and imprisoned for six months if there are reasonable grounds showing that the defaulter will likely leave the country without paying duties. As a conclusion, it is important for anyone entering into a written agreement to consult the SDA to see if that particular document is chargeable with stamp duty. If any person doubts whether the document is chargeable, he or she may apply for adjudication under section 43 to the Stamp Duty Officer upon payment of fees. Stamp duty is supposed to be paid within thirty days failure of which may lead into unpalatable consequences.