Doc stamp on loans for personal consumption

Section 180 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:

"Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities, certificates of deposit bearing interest and others not payable on sight or demand. — On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines; bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities or certificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than at the sight or on demand, or on all promissory notes, whether negotiable or non- negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos, or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory note issued to secure such loan, whichever will yield a higher tax: Provided, however, That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this section."

I am an employee of a bank and the one responsible in preparing bir remittance.

base in the above section, if our transaction is we grant loan for personal consumption does it means that it is exepmt with the documentary stamp tax?

tia atty.

i recommend you inquire with your in house cpa or lawyer

rjn.

The provision you mentioned was the Section 180 of the 1997 NIRC ( Before it was amended by RA 9243 effective 2004) . Section 180 of the 1997 NIRC has already been amended by RA 9243 effective sometime on March 2004. the implementing provision of RA 9243 is BIR Revenue Regulation 13-2004.


SEction 180 of the 1997 NIRC ( the provision you mentioned) had been renumbered already into different sections . please see RR 13-2004 for the proper provisions of law as renumbered.

rjn,

you have this question posted last April 11, 2012 . You were asking if DST maybe imposed on loans for personal consumption in view of the express exemption granted by Section 173 and Section 199 of the 1997 Tax code, as amended by RA 9243. .



For the purpose of answering your question regarding DST on loans for personal consumption, let me cite two relavant provisions, to wit:

1. Section 173 Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers (Section 180 of the 1997 NIRC was renumbered into different provisions and one of the said provisions is Section 173 , as amended by RA 9243.)

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: Provided, That 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. [34]


2. Section 199 (D) NIRC (as amended by RA 9243) :

The provisions of Section 173 to the [u]contrary (the one which mentioned that when one party is exempted , the other party who is not exempt shall be the one directly liable for the tax) notwithstanding , documents and papers shall be exempt from the documentary stamp tax:

(d) Loan agreements, or promisorry note, the aggregate of which does not exceed 250,000 pesos (250,000) 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 a house, lot, motor vehicle, appliance or furniture
xxxxxxxxxxxxxxxxx

[u]

3. Section 179 (as amended by RA 9243)

sTamp Tax on All Debt Instruments- on every original issue [u] of "DEBT INSTRUMENTS", there shall be collected doc stamp of 1.00 peso on each 200 pesos or fractional thereof. Provided xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. Provided further, that only one doc stamp shall be imposed on either loan agreement or promisorry notes issued to secure such loan.

for purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificate of indebtedness,xxxxxxloan agreements, xxxxxxpromisorry notes, whether negotiable or non-negotiable, except bank notes issued for circulation.

3RD RELEVANT PROVISION:

3. Section 179 (as amended by RA 9243)

sTamp Tax on All Debt Instruments- on every original issue of "DEBT INSTRUMENTS", there shall be collected doc stamp of 1.00 peso on each 200 pesos or fractional thereof. Provided xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. Provided further, that only one doc stamp shall be imposed on either loan agreement or promisorry notes issued to secure such loan.

for purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificate of indebtedness,xxxxxxloan agreements, xxxxxxpromisorry notes, whether negotiable or non-negotiable, except bank notes issued for circulation.
[u]

RJN,
BEFORE I WILL ANSWER YOUR QUESTION, please bear these pointers when confronted with another issue regarding documentary stamp tax.


Pointer number 1.

1. DST is a tax on documents, instruments, and papers evidencing the acceptnce, assignment, sale or transfer of an obligation, right, or property incident thereto. Hence, DST is not a tax imposed on a particular party but it is a tax on a particular document , instrument or paper.

2. Parties Liable to the tax- (De Leon Textbook 2011 edition)- both the person issuing and the person to whom the document is issued may be liable for the tax. The tax is imposed against the person making, signing, issuing, accepting or transferring" the document or facility evidencing the transaction.

Hence, either of the parties (lender or the borrower for example) is liable.

3. Section 173 provides that 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. [34] [u]

Hence, if the other party enjoys exemption from the payment of DST, DST must still be paid by the party who is not exempt .

Assuming that the borrower is a coop ( who enjoys exemption from the payment of DST), DST must still be paid by the bank or lending company ( who is not tax-exempt) because of the provision of Section 173 of NIRC (as amended by RA 9243).


Note: This number 3 rule (the non-exempt party will be liable to pay the tax if one party is exempt from paying DST) will apply only if the transaction does not fall under Section 199 A-N of NIRC (as amended by RA 9243).

4. Section 173 (that provides that DST must always be paid by either parties and the rule that 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.) does not apply when the document and papers are covered by the provisions of Section 199 of NIRC (as amended by RA 9243).

Hence, even if one party is exempted and the other is not exempted, NO DST may still be imposed because it is specifically exempted under Section 199 of the NIRC. Hence, this Section 199 as amended is an exception to the general rule that DST must always be paid.

RJN,
BEFORE I WILL ANSWER YOUR QUESTION, please bear these pointers when confronted with another issue regarding documentary stamp tax.


Pointer number 1.

1. DST is a tax on documents, instruments, and papers evidencing the acceptnce, assignment, sale or transfer of an obligation, right, or property incident thereto. Hence, DST is not a tax imposed on a particular party but it is a tax on a particular document , instrument or paper.

2. Parties Liable to the tax- (De Leon Textbook 2011 edition)- both the person issuing and the person to whom the document is issued may be liable for the tax. The tax is imposed against the person making, signing, issuing, accepting or transferring" the document or facility evidencing the transaction.

Hence, either of the parties (lender or the borrower for example) is liable.

3. Section 173 provides that 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. [34]

Hence, if the other party enjoys exemption from the payment of DST, DST must still be paid by the party who is not exempt .

Assuming that the borrower is a coop ( who enjoys exemption from the payment of DST), DST must still be paid by the bank or lending company ( who is not tax-exempt) because of the provision of Section 173 of NIRC (as amended by RA 9243).


Note: This number 3 rule (the non-exempt party will be liable to pay the tax if one party is exempt from paying DST) will apply only if the transaction does not fall under Section 199 A-N of NIRC (as amended by RA 9243).

4. Section 173 (that provides that DST must always be paid by either parties and the rule that 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.) does not apply when the document and papers are covered by the provisions of Section 199 of NIRC (as amended by RA 9243).

Hence, even if one party is exempted and the other is not exempted, NO DST may still be imposed because it is specifically exempted under Section 199 of the NIRC. Hence, this Section 199 as amended is an exception to the general rule that DST must always be paid.
[u][u]

SEction 199 provides the following:

The provisions of Section 173 to the contrary (the one which mentioned that when one party is exempted , the other party who is not exempt shall be the one directly liable for the tax) notwithstanding , documents and papers shall be exempt from the documentary stamp tax:

a.xxx
n. xxx

to answer your question rjn.

1. determine if the promissory note you mentioned is covered by SEction 199 (as amended). if it is covered by SEction 199, the bank and the borrower is not liable to pay DST.

2. if it is not covered by SEction 199 (as amended), determine also if the borrower is exempted from DST. (like coop). if the borrower is exempted, your company is liable to pay DST because of the rule provided under Section 173.

3. if it is not covered by Section 199 and the borrower is not exempted from DST, then either of the borrower or the bank is liable.

if it is the policy of the bank to charge DST payments on customers, make sure you deduct the said amount from the loan proceeds that maybe received by the borrower.

TO DETERMINE IF it is covered by Section 199 (D) NIRC (as amended by RA 9243), please take note of the following criteria:

1. it must be a loan agreement or promissory note
2. the aggregate of said amount must not exceed 250,000 pesos (250,000) or any such amount as may be determined by the Secretary of Finance

( the amount of P 250,000.00 may be increased (not to exceed 10% for every such increase) by the Secretary of Finance in accordance with the relevant price Index, and shall remain in force at least for 3 years.----- i dont know if this P 250,000 has been increased already ..


3. it must be executed by an individual ( if executed by a corporation or partnership, Section 199 does not apply)

4. for his purchase
- of a
1. house
2. lot
3. motor vehicle
4.appliance
5. furniture

-on installment

-for his personal use or that of his family

-and not for business or resale, barter, or hire[/u][u]

rjn,

you will have a very big problem with regards to the criteria of personal consumption (his personal use or that of his family and not for business/resale/barter /hire) under SEction 199 (d).

whether the borrower will use the house,lot, motor vehicle, appliance, furniture ( as covered by the loan granted by the bank) for his personal use and not for business , resale, barter or hire , that fact can only be ascertained long after you have granted the loan.


(the BIR has not yet issued a revenue memorandum circular clarifying this issue or providing for additional guidelines regarding this matter.)

it would be prudent on your part to address and elevate this concern to the management of your bank. (Perhaps, they might later require the customers to submit affidavits and other proofs to establish that the loan that will be granted to them will be for their personal consumption.)

or better still, you impose DST and charge it to the borrower because:

1. Come BIR examination time, the burden of proof will always be on the BANK. your customer may no longer be around to help you establish that the personal loan previously granted to them was for their personal consumption.

the BIR examiners will always require documents after documents to prove personal consumption. if you cannot provide the documents as required, they will issue assessments based on your failure to establish that the transaction was covered by SEction 199 (d) of NIRC. (remember the rule that DSt is a tax on documents- either party may be liable). hence, they will always require you to justify the exemption.

And we are only talking of one transaction. Imagine if the BIR examiner will require you to produce the documents for justification (personal consumption) for transactions covered for one whole year. and did i say that the BIR audit will usually conduct their audit one to two years, but not to exceed three years, after the filing of your income tax return (not later than April 15 of the next taxable year.

rjn,

you will have a very big problem with regards to the criteria of personal consumption (his personal use or that of his family and not for business/resale/barter /hire) under SEction 199 (d).

whether the borrower will use the house,lot, motor vehicle, appliance, furniture ( as covered by the loan granted by the bank) for his personal use and not for business , resale, barter or hire , that fact can only be ascertained long after you have granted the loan.


(the BIR has not yet issued a revenue memorandum circular clarifying this issue or providing for additional guidelines regarding this matter.)

it would be prudent on your part to address and elevate this concern to your management. (Perhaps, they might later require the customers to submit affidavits and other proofs to establish that the loan granted to them will be for their personal consumption.)

or better still, you impose DST and charge it to the borrower because:

1. Come BIR examination time, the burden of proof will always be on the BANK. your customer may no longer be around to help you establish that the personal loan previously granted to them was for their personal consumption.

the BIR examiners will always require documents after documents to prove personal consumption. if you cannot provide the documents as required, they will issue assessments based on your failure to establish that the transaction was covered by SEction 199 (d) of NIRC. hence, they will always require you to justify the exemption.

And we are only talking of one transaction. Imagine if the BIR examiner will require you to produce the documents for justification (personal consumption) for transactions covered for one whole year. and did i say that the BIR audit will usually conduct their audit one to two years, but not to exceed three years, after the filing of your income tax return (not later than April 15 of the next taxable year) ?????

theoritically, if the transaction is really covered by Section 199 d of NIRC ( as amended), then there is no DST that may be imposed.

but please take note of my advice (BIR audit) for your sake and convenience.

theorEtically (nawrong spelling) , if the transaction is really covered by Section 199 d of NIRC ( as amended), then there is no DST that may be imposed.

but please take note of my advice (BIR audit) for your sake and convenience.
[u]

this is just my opinion. refer this matter to your in-house counsel or internal auditor.