In the Philippine jurisdiction, the Documentary Stamp Tax (DST) is an excise tax levied on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property. For credit facilities and loan agreements, the DST is a primary consideration for both lenders and borrowers. When dealing with short-term loans—specifically those with a maturity of less than one year—the concept of proration becomes essential.

Legal Basis

The primary authority for DST on debt instruments is Section 179 of the National Internal Revenue Code (NIRC) of 1997, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963).

Under the current law, the DST rate for debt instruments is One Peso and Fifty Centavos (P1.50) on each Two Hundred Pesos (P200), or fractional part thereof, of the issue price of any such debt instrument.

The Rule on Short-Term Loans

A "short-term loan" is generally understood in tax practice as a loan with a term of less than one year (365 days). Unlike long-term loans where the full DST rate applies based on the face value, the law allows for a proportional or prorated computation when the instrument's term is short.

The logic behind proration is equity: a borrower should not be taxed at the same rate for a 30-day credit line as a borrower taking out a 10-year mortgage, even if the principal amounts are identical.

The Computation Formula

To compute the prorated DST for a loan with a term of less than one year, the following formula is applied:

Breakdown of Components:

Base Rate: (or ) is the standard statutory rate.
Fractional Part: If the principal is not perfectly divisible by 200, it is rounded up to the next 200.
Proration Factor: The ratio of the actual number of days the loan is outstanding over a 365-day year.

Illustrative Example

Scenario: A corporation borrows PHP 1,000,000.00 from a commercial bank for a period of 90 days.

Determine the Full DST:
Apply the Proration Factor:
Final DST Due: PHP 1,849.32

Note: If the loan were for 365 days or longer, the DST would be the full PHP 7,500.00.

Important Considerations

Renewals and Extensions: Under the NIRC, the renewal or extension of the maturity of a debt instrument is subject to a new DST. If a 90-day loan is "rolled over" for another 90 days, a new prorated DST must be paid on the renewal instrument.
Credit Lines: For a Credit Line Agreement, the DST is typically paid upon the execution of the main agreement based on the maximum facility amount. However, if the actual drawdowns are evidenced by separate promissory notes, the timing and computation of DST may vary depending on how the facility is structured.
Rounding Up: The "fractional part thereof" rule means that even a small excess over a multiple of 200 triggers the next PHP 1.50 tax unit.
Responsibility for Payment: While the law states that any party to the transaction can be held liable for the DST, in standard Philippine banking practice, the cost of DST is almost universally passed on to the borrower.

Compliance and Filing

The DST must be filed and paid through BIR Form 2000 (Documentary Stamp Tax Declaration/Return). Following the passage of the TRAIN Law, the return must be filed and the tax paid within five (5) days after the close of the month when the taxable document was made, signed, accepted, or transferred.

Failure to pay the DST on time results in surcharges, interest, and compromise penalties. More importantly, under Section 201 of the NIRC, an instrument subject to DST that has not been paid cannot be admitted or used as evidence in any court until the required stamp is affixed and cancelled.