DST collections expected to drop this year

MANILA, Philippines — The government may see a drop in   documentary stamp tax (DST) collection this year due to the economic fallout from the  coronavirus disease 2019  or COVID-19 outbreak and the implementation of pandemic relief measures, according to a state think tank.

“The exemption of qualified loans during the enhanced community quarantine from the DST is justifiable to ensure full compliance of the provision set under Section 4(aa) of RA 11469 from lending institutions as well as to reduce their financial burden and their clients as well,” the National Tax Research Center (NTRC) said.

In a report, the  NTRC said Republic Act 11469 or the Bayanihan to Heal as One Act has provided relief to Filipinos by ordering financial institutions to extend loan payments due within the enhanced community quarantine period, without penalty.

In line with this, the Bureau of Internal Revenue (BIR) issued Revenue Regulation 8-2020, which provided that credit extensions and restructuring should be exempted from the DST.

The state think tank said that these actions could result in substantial revenue loss for the government.

Citing the Department of Finance (DOF), the NTRC said the DST exemption, along with the extension of tax deadlines under RA 11469, is estimated to cost the government P470 million.

Moreover, the NTRC said the slower economic activity due to the COVID-19 would lead to fewer transactions, which would then result in lower DST collections.

“Trade and private investments in the country is seen to be sluggish due to the global and local outbreak. This will drag the demand for corporate loans, which accounts for 82 percent of the Philippine banking system’s loans and restrain the momentum in retail or individual loans,” the NTRC said.

“Since the DST is a transaction tax, the slowdown in economic activities and fewer transactions due to COVID-19 will have a negative impact on the attainment of the DST revenue target,” it added.

Section 4(aa) or RA 11469 directed all banks, quasi-banks, financing companies, lending companies and other private or public financial institutions to implement a minimum of 30-day grace period for the payment of all loans due within the enhanced community quarantine period, without penalties or charges.

Following the enactment of the law, the BIR issued RR 8-2020, which prescribed the rules and regulations for the implementation of this provision.

Specifically, the BIR issuance stated that Sections 179 (stamp tax on all debt instruments), 195 (stamp tax on mortgages, pledges and deeds) and 198 (stamp tax on assignments and renewals of certain instruments) of the National Internal Revenue Code of 1997, as amended, should not be applied to extended loans during the enhanced community quarantine period.

Citing data from the BIR, the NTRC said DST collected under Sections 179, 195 and 198 reached an average of P43 billion from 2014 to 2018.

For this year, DST collections are targeted to reach P188 billion, P86 billion of which are estimated to come from these specific sections of the Tax Code.

Given the expected reduction in DST collection, specifically from Sections 179, 195 and 198, the NTRC said there is a need for the BIR “to ensure the effective and efficient collection of DST on other documents, instruments or transactions not covered by the exemption under RR 8-2020.