Documentary stamp tax and business transactions

MANILA, Philippines – Many of us are not aware that there are some documents, agreements and instruments that we enter into with others that require the payment of the so-called documentary stamp tax (DST). The payment of the documentary stamp tax is required under the provisions of the National Internal Revenue Code of 1997, as amended by Republic Act No. 7660 dated December 23, 1993 and Republic Act No. 9243 dated February 17, 2004, more particularly Title VII, Sections 173 to 201.

One may ask: What is the documentary stamp tax? In the case of Philippine Home Assurance Corporation, Philippine American Accident Insurance Company, Philippine American General Insurance Company and American International Underwriters (Phils.), Inc., Petitioners vs. Court of Appeals and Commissioner of Internal Revenue, Respondents (G.R. No. 119446 dated January 21, 1999), it was held that: “The respondent court correctly characterized a documentary stamp tax as in the nature of an excise tax. As such, it is imposed on the privilege of conducting a particular business or transaction and not on the business or transaction itself. Thus, the documentary stamp tax on insurance policies is in effect imposed on the privilege to conduct insurance business and not on the insurance business itself or on the premiums paid under the said insurance policies. This means then that the documentary stamp tax accrues when the said privilege is exercised. As the respondent court stated, while it is true that a documentary stamp is levied on the document and not on the property involved, the documentary stamp tax is not intended to be a tax on the document alone. The laws taxes the document because of the transaction so that the tax becomes due and payable at the time the transaction is had or accomplished, in this case, at the time of the issuance of the document.

“This is the reason that the documentary stamp tax will not be refunded upon the subsequent cancellation of the insurance policy. Likewise, when a policy already issued becomes ineffective because of the non-payment of the first premium, the documentary stamp tax cannot be refunded whether or not the policy has, in fact, become effective, since the privilege subject of the tax has already been realized.”

The National Internal Revenue Code of 1997 as amended (NIRC) enumerates the documents, loan agreements, instruments and papers that are subject to the documentary stamp tax and the corresponding amount of DST taxes to be paid. The law likewise provides the list of the documents and papers that are not subject to the documentary stamp tax. However, the NIRC provides that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.

Here are some of the documents and papers that require the payment of the documentary stamp tax: Powers of Attorney; Bills of Exchange or order drawn in foreign country but payable in the Philippines; Foreign Bills of Exchange and Letter of Credit; Life Insurance Policies; Policies of Insurance Upon Property; Pre-need Plans; Jai-alai, Horse Race Tickets, lotto or Other Authorized Number Games; Bills of Lading or Receipts (except charter party); Lease and other Hiring agreements of memorandum or contract for hire, use or rent of any land or tenements or portions thereof; Mortgages, Pledges of lands, estate, or property and Deeds of Trust; Deed of Sale, instrument or writing and Conveyances of Real Property (except grants, patents or original certificate of the government); Original Issue of Shares of Stock with par value; Original Issue of Shares of Stock without par value; Bank Checks, Drafts, Certificate of Deposit not bearing interest and other Instruments.

When I was Undersecretary at the Department of Trade and Industry (DTI), one of my functions was to oversee and fast-track the approval and issuance of the Certificates of Business Names to Sole Proprietorship entities in Metro Manila and in the different regions. I introduced a new policy then – namely, that no Certificate of Business Name should be released by DTI unless the required documentary stamp tax is affixed on the face of the Certificate of Business Names (left side) and duly cancelled by two parallel lines. DTI then bought the documentary stamps in bulk from the Bureau of Internal Revenue (BIR) Office near DTI (then at the Atrium Building) and included P15.00 (the cost of the documentary stamp) in the cost of the certificate. This system insured the payment of the BIR documentary stamp tax before the Certificate of Business Name is released by DTI to the applicant of the business name.

Finally… this question: Is a massive public information campaign on documentary stamp tax in some transactions needed at this time? The answer is yes.

Have a joyful day!

source: manila bulletin