Overview of Documentary Stamp Tax in the Philippines

By: Garry S. Pagaspas

Under the National International Revenue Code (NIRC), a documentary stamp tax (DST) is imposed upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and the same time such act is done or transaction had Whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax.

Before we delve into the technicalities of applying DST on each and every enumeration in the above, we share hereunder an overview and some features of the documentary stamp tax (DST) in the Philippines:

Tax imposed on exercise of certain rights 

DST is a tax on the exercise of certain rights embodied in a document evidencing such rights exercise. As long as there is an exercise of a right, formal documents of such exercise may be dispensed with. Example of this is DST on shares of stocks which does not necessarily require an issuance of Stock Certificates to be taxable, a DST on loan agreements which no longer require a notarized loan agreement to be taxable.

Specific transactions are specified in the NIRC, so not all transactions are subject to DST.

Any contracting party liable

As a rule, any party to the taxable transaction may be held liable. In some contracts (e.g. Deed of Absolute Sale of Real Properties, or Deed of Assignment of Shares of Stocks, Loan Agreements or similar contracts) parties may agree on who shall shoulder the DST applicable on the agreement. However, it is only binding as to the parties and not as against the Bureau of Internal Revenue (BIR or Tax Authority). In tax assessment, the BIR will see to it that DST on such transactions has been paid, so it will be good to have a provision on the proof of payment of DST on such contracts for security of the contracting parties.

Nevertheless, DST is imposed once on a specific taxable transaction. As such, payment of one party would suffice and payment of both of the parties would be excessive and erroneous.

Non-payment does not affect liability

DST liability is for tax purposes only and has nothing to do with the validity of the agreement between the parties. Even if parties failed to pay the DST, the agreement would remain to be effective. However, in case of court actions involving the duly executed documents subject to DST, the court will not admit the same as evidence unless the DST is paid on such document. Of course, you do not take this rule as a justification in not paying.

Each taxable transaction is a taxable event

DST is imposed on each and every transaction so failure to pay in one transaction is a distinct offense.

Example: During the year, Company A obtained a business loan of P5M each in five times on even dates and the balance of such loan payable is P500,000.00. Company A is liable for P25,000 (P5M divided by P200) in each of the five loan transactions.

In some tax assessments however, ending balance or the increment on the loans payable and which should not be the case to cut the process short and in the absence of details. In the above example DST computation based on the ending balance of the loan  amounting to P500,000 or is a DST of P2,500 (P500,000 divided by P200).

Tax rates vary depending on the transaction

With the varied application of DST, there is no fixed rate and the applicable rate would depend on the nature of the taxable transaction. As such, you have to determine the applicable rate by referring to the NIRC. Example: DST on loans agreements, and original issuance of shares  are subject to DST rate of P1.00 for every P200 face value or par value, or fractional thereof. DST on lease or rental agreements is P3.00 for the first P2,000 and P1.00 for every succeeding P1,000 of the amount of rental under the contract.

Manner of Payment

DST is paid manually or through electronic filing and payment system (EFPS), or through the loose documentary stamps for the purpose depending on the type of taxable transaction. There used to be a metering machine for businesses with material DST transactions like banks, but it was later replaced by EFPS. Loose documentary stamp is the one attached to official documents or certificates issued by government agencies. In general, most DST applications to your business is manual DST or BIR Form No 2000, or BIR Form No 2000-ONETT for one time transactions involving real property transfers.

Hereunder are the enumeration of those subject to DST under NIRC and soon we may make an article:

• Stamp tax on original issue of shares of stock;
• Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stocks;
• Stamp tax on bonds, debentures, certificates of stocks or indebtedness issued in foreign countries;
• Stamp tax on certificates of profits or interest in property or accumulations;
• Stamp tax on Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and Other Instruments;
• Stamp tax on all debt instruments;
• Stamp tax on all bills of Exchange or Drafts;
• Stamp tax upon acceptance of Bills of Exchange and others;
• Stamp tax on foreign bills of exchange and letters of credit;
• Stamp tax on life insurance policies;
• Stamp tax on policies of insurance upon property;
• Stamp tax on fidelity bonds and other insurance policies;
• Stamp tax on policies of annuity and pre-need plans;
• Stamp tax on indemnity bonds;
• Stamp tax on certificates;
• Stamp tax on warehouse receipts;
• Stamp tax on Jai-alai, horse race tickets, Lotto, or other authorized number games;
• Stamp tax on bills of lading or receipts;
• Stamp tax on proxies;
• Stamp tax on powers of attorney;
• Stamp tax on lease and other hiring agreements;
• Stamp tax on mortgages, pledges, and deeds of trust;
• Stamp tax on deeds of sale and conveyances of real property;
• Stamp tax on charter parties and similar instruments;
• Stamp tax on assignments and renewals of certain instruments

(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at ga************@ta************.ph.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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