The documentary stamp tax or DST Law basically rationalized the rates by introducing additional documents to be exempt from DST, lowered the rates for investments in shares and insurance, and provided a uniform rate for all debt instruments.
This law may also be viewed as a vehicle in spurring growth in the financial and capital markets (and, hopefully, in the economy, by and large) by easing the tax burden on financial and equity instruments.
The following are the significant changes made under Republic Act 9243:
• The DST rate on original issuance of shares has been reduced from P2 on every P200 of the par value of the shares to P1 on each P200. In case of subsequent transfer of shares or securities, the tax rate is now reduced to 75 centavos on every P200 of the par value. This was previously taxed at P1.50 for every P200.
• The DST on debt instruments like bonds and loans have been increased to P1 on each P200 of the issue price of the instrument. Previously, a DST of 30 centavos was imposed for every P200 of the face value of the agreement. In addition, bills of exchange (between points within the Philippines) or drafts are subject to the DST of 30 centavos on each P200 of the face value of any such bill of exchange or draft.
• As to life insurance policies (or other instruments by whatever name the same may be called where any insurance is made or renewed upon any life or lives), the DST rate is 50 centavos on each P200 of the amount of the premium collected. The tax base before was the amount insured by the policy.
• The DST rate for all policies of annuities (or other instruments by whatever name the same may be called where an annuity is made, transferred or redeemed) is 50 centavos on each P200; and for pre-need plans, 20 centavos on each P200, based on the premium or contribution collected. The previous rates were P1.50 for every P200 of annuities and 50 centavos for every P500 of pre-need plans, based on the capital of the annuity or the value of the plan.
Finally, the new law expressly provides for additional documents that are exempt from DST. These are:
• Borrowings and lending of securities executed under the Securities Borrowing and Lending Program of a registered exchange, or in accordance with regulations prescribed by the appropriate regulatory authority, provided that any such borrowing or lending of securities agreement is duly covered by a master securities borrowing and lending agreement acceptable to the appropriate regulatory authority. The agreement must also be duly registered and approved by the Bureau of Internal Revenue.
• Loan agreements or promissory notes, the aggregate of which does not exceed P250,000 or any such amount as may be determined by the Secretary of Finance, executed by an individual for his purchase on installment for his personal use or that of his family and not for business or resale, barter or hire of house, lot, motor vehicle, appliance or furniture. The amount to be set by the Secretary of Finance should be in accordance with a relevant index but should not exceed 10% of the current amount and should remain in force for at least three years.
• Sale, barter, or exchange of shares of stock listed and traded through the local stock exchange for a period of five years from the effectivity of the law;
• Assignment or transfer of any mortgage, lease or policy of insurance or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in the maturity date or remaining period of coverage from that of the original instrument;
• Fixed income and other securities traded in the secondary market or through an exchange;
• Derivatives, provided that repurchase agreements and reverse repurchase agreements are treated similarly as derivatives;
• Interbranch or interdepartmental advances within the same legal entity;
• All forbearances arising from sole or service contracts, including credit car and trade receivables, provided that the exemption is limited to those executed by the seller or service provider;
• Bank deposit accounts without a fixed term or maturity;
• All contracts, deeds, documents, and transactions related to the conduct of business of the Bangko Sentral ng Pilipinas;
• Sale or exchange of property under a plan of merger or consolidation, pursuant to Section 40 (C) (2) of the National Internal Revenue Code of 1997, as amended;
• Interbank call loans with maturity of not more than seven days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks.
(Raymund S. Gallardo is tax partner of Laya Mananghaya & Co./KPMG. Questions and comments are welcome. Messages to the author can be sent by e-mail at manila@kpmg.com.ph).