(Article published in
TODAY, Business Section)
little over five years ago, during the 1997 Stamp Duty Conference
conducted by the IBC Asia Limited in Singapore and Kuala Lumpur, my
assigned task was to give the participants a sense of the Philippines’
documentary stamp tax on financial instruments. In order to distract the
audience from the state of disarray of our country’s stamp tax
structure, I articulated the view, which I hold up to now, that the
documentary stamp tax is a relic of the past that should be consigned to a
legal museum where it could do no harm since the premise of its existence,
the primacy of a paper document, was in clear danger of becoming extinct
in the dawning era of a digital society.
The revenues that the documentary stamp tax generates are better
collected thru other revenue laws of general application, like an
equitable and efficient income tax.
Saturday (20 March 2004), when Republic Act No. 9243 (“R.A. No. 9243”)
goes into effect, I acquired additional ammunition against what I consider
an odious form of taxation. After incessant prodding by brokers, bankers and insurers,
Congress finally passed, and the President Gloria Macapagal-Arroyo signed,
into law R.A. No. 9243 entitled “an act rationalizing the provisions on
the documentary stamp tax of the National Internal Revenue Code of 1997,
as amended, and for other purposes.”
pretentious title tells it all and demonstrates that good sense has not
returned to man, to political leaders at least, since Anthony in his
oration at the funeral of Ceasar announced that judgment, ratio,
had fled to brutish beasts. “Rationalizing”, when used to describe the
recent changes to the documentary stamp tax law, apparently has come to
mean in this day and age collecting from Peter, who is unable to protect
himself, what is lost from
not collecting from Paul, who had all along been able to pass on the
burden to others. Under R.A.
No. 9243, the consumers serviced by the securities and insurance
industries are relieved of the taxes they had long been used to paying and
the expected revenue loss to the Government, plus more, is to be borne by
the hapless bank customers who have no way of passing on to others the
additional cost of banking services.
All in the name of capital market reform through tax exemptions and
its promise, as believable as the campaign commitment of a disqualified
presidential candidate to pay the national debt from his own pocket, of
prosperity for everyone.
Tax Concessions Given to the Securities
clear beneficiary of the changes in the documentary stamp tax on financial
instruments is the deep pocket player dealing with shares of stocks.
R.A. No. 9243 reduced the documentary stamp tax on the original
issue of shares, i.e. when a corporation issues for the first time
certificates representing a portion of its capital stock, by one-half,
from P2.00 to P1.00 for every P200 of par value.
A second tax break is given when these issued shares transferred to
others. The stamp tax
due is no longer P1.50 but now only P0.75 on each P200.
And this tax break is made even better if the issued share is sold,
at anytime within the next five years, through the local stock exchange.
No documentary stamp tax at all will be collected on the transfer for the
five years following the effectivity of the law.
as a bonus for those investors who buy stocks and hold them for long
periods of time, they are given an opportunity to squeeze some the value
out of their shares, in the meantime, by exempting their lending and
borrowing if done under the Securities Borrowing and Lending Program of a
registered exchange. Provided
the transaction is conducted under an agreement acceptable to the
government regulators and duly registered and approved by the Bureau of
Internal Revenue (BIR), the government will not collect the documentary
stamp tax that would otherwise have been due on the agreement for lending
and borrowing securities.
Tax Concessions Given to the Insurance
to be outdone by stock brokers and dealers, the life insurance industry
players, which had long been claiming to be “over-taxed” (aren’t we
all?), were able to get, at last, a measure of what they had for years
been lobbying for, i.e. lowering the policy holder’s cost of buying
insurance so that he could be persuaded to buy more.
methodology of tax relief, however, is different from the route taken by
the securities industry players. The
insurance people agreed to maintain the stamp tax rate on the
issuance of life insurance policies at P0.50 per P200.00, but
convinced the lawmakers to change the tax base from “the amount of the
insurance” stated on the face of the policy to the “amount of premium
collected” from the insured. Thus, if a life insurance policy has a face
value of P1 million and is paid for by premiums of P10,000, the
documentary stamp tax which would have been collected under the old law
was P2,500. Under R.A. No. 9243, the new tax will be P25.00 only.
plans, despite the bad publicity that has been hounding the industry for
several years now, got the same treatment as life insurance policies.
The rate was kept at 1% but, instead of being collected on the
previous base of the “value
or amount of the plan”, the new tax base, similar to life insurance
policies, is “premium collected”.
both insurance policies and pre-need plans, therefore, the base is now
money “collected”, mind you, and not, despite the fact that the
economic burden of the tax is expected to be passed on to the buyer of the
policy or plan, money “due or collectible” from him.
In effect, the new tax is a tax on gross receipts (of premiums),
not on the value of the transaction to the parties.
annuity policies, however, got the best of both worlds.
The tax rate on policies of life annuities, on the other hand, was
reduced to one-third, from P1.50 per P200 to just P0.50 per P200, and the
previous base of “capital of the annunity” was reduced to “the
premium or installment payment or contract price collected”. Again, a
gross receipts tax, not an ad valorem tax on the underlying transaction.
these tax reductions will obviously put more pressure on the already
serious problem of budget deficit. And
so, where is the money needed to replace the lost revenues resulting from
these tax concessions to come from? The answer of R.A. No. 9243 is the
exact opposite of equity: from those least able to pay it, i.e. those who
need to borrow money. Messrs.
Topper Coronel and Mike Andaya, who were the bankers’ Horatius at the
bridge, succumbed like De
Pilar at Tirad Pass.
Tax Consequence on the Banking Industry
way the banking industry was made to pay for the concessions to the
securities and insurance industries was typical Filipino, a mixture of the
bitter and the sweet. First,
the heading of the relevant section in the Tax Code was changed, from a
specific enumeration of fixed-income instruments covered, to the generic
description, “all debt instruments”. As always, we begin a new regime
with a new name.
change in heading, though, has import beyond the clerical.
Under the text of the old heading, of the then Section 180, the
enumeration of specific debt instruments gave rise to the presumption that
what was not included specifically was not subject to the tax.
Inclusion unius, exclusio alterius, says your freshman law student.
But, under the obviously emcompassing “all” of the new section,
now numbered as Section 179, anyone claiming exemption for a particular
instrument has to prove with clear and convincing evidence that it was not
meant to be subject to the tax. In
effect, by the simple expedient of changing the relevant section’s
heading, the burden of proof for an exemption was placed on the shoulders
of the banking client whereas, before, it was on the Commissioner.
the boom was lowered and the cannon fired. The tax rate was raised from
P0.30 per P200.00 of issue price, under the old law, to P1.00 per P200.00,
or more than three times the
original rate. This more than
three hundred percent increase exposes R.A. No. 9243 as a measure to raise
additional revenues and not merely to institute capital market reforms.
Had the intention been purely the latter, the new law should have
been what economists call “revenue-neutral”, i.e. resulting in neither
loss or gain for the government coffers.
ease the pain, however, the bankers were given some sanitary balm in the
form of “exemptions”. Mostly
exemptions from taxes that was never due, or at most collected by the BIR
under doubtful theories, or on transactions which have not been engaged in
anyway by the bankers. Space limits a more thorough exposition.
But listing the “exemptions” will demostrate the consuelo
old exemption of loan agreements of not over P250,000 for personal
consumer transactions was retained, with the new power to the Secretary of
Finance to change it by not more than 10% once every three years in
accordance with a relevant price index. Assignment of mortgages and renewal or continuance of any
contract, charter or evidence of obligation or indebtedness, is also
exempt, provided, there is no change in maturity date or remaining period
of coverage from that of the original instrument (Can somebody tell me,
please, how can a loan be renewed without a change in the maturity date?).
trading of fixed-income instruments is also made tax-free.
Derivatives, including repurchase agreement and reverse repurchase
agreements, are not taxed. Interbranch
or interdepartmental advances within the same legal entity, i.e. when the
left pocket borrows from the right pocket, are also exempt.
So, are forebearances arising from the sale or service contracts
including credit card and trade receivables, which anyway had never been
subject to tax, continue to be not subject to tax.
Passbook accounts, except those masquerading as time deposits,
known as the Special Savings Accounts, are recognized as not taxable. Interbank call loans with maturity or not more than seven (7)
days and contracts, deeds, documents and transactions related to the
conduct of business of the Bangko Sentral ng Pilipinas (which had all
along been exempt from the documentary stamp tax under its charter), are
Completing the list, and the amendment that dissuaded me from attacking the law with greater vehemence, is the exemption of transfers of property under Section 40(C)(2) of the Tax Code. This encourages the incorporation of ones assets which under the Income Tax enjoys the privilege of tax-deferral. An unexpected assist to estate planners.