Short answer
Generally, no. Legitimate lenders in the Philippines may pass on certain lawful, itemized government charges (most commonly documentary stamp tax on the loan or the mortgage, and registration/notarial fees). But the practice of demanding large, vague “BIR taxes” to be paid in cash before loan release is not required by law and is a common advance-fee scam. When lawful taxes exist, they are small, specific, and receipted, and lenders typically net-deduct them from the proceeds or collect them together with other disclosed charges—not through ad-hoc GCash transfers or personal accounts.
The legal landscape
1) Who regulates lenders and what rules apply?
- Banks and quasi-banks: supervised by the Bangko Sentral ng Pilipinas (BSP) and covered by the Truth in Lending Act (TILA, R.A. 3765) and the Financial Products and Services Consumer Protection Act (R.A. 11765), which require clear disclosure of all finance charges and prohibit unfair and deceptive acts and practices (UDAP).
- Financing and lending companies: registered with the SEC under the Financing Company Act (R.A. 8556) and the Lending Company Regulation Act (R.A. 9474), likewise subject to disclosure rules and UDAP prohibitions.
- Consumer protection baseline: No lender may charge undisclosed or deceptive fees—calling something a “BIR tax” when it isn’t, or inflating a real tax, risks regulatory and criminal liability.
2) Taxes and government charges that can legitimately arise on loans
Documentary Stamp Tax (DST) on the loan instrument
- What it is: A tax on the document (e.g., loan agreement, promissory note).
- Who is liable: By statute, the party making/issuing the document is primarily liable; in practice, parties may agree who shoulders it. Lenders often pass it through to borrowers.
- How it’s paid: Large lenders use eDST and remit monthly. From a borrower’s viewpoint, it appears as a small, itemized line in the fees and may be net-deducted from the loan proceeds.
- Red flags: A lender insisting you cash-pay “DST to BIR” before approval—without an official receipt or any itemization—is suspect.
DST on security documents (if any)
- Real estate mortgage or chattel mortgage may attract separate DST, plus Register of Deeds/LTO registration fees. These are official, receipted government charges.
Notarial fees (private fee, not a tax) and registration fees (government fees)
- Legitimate, typically modest and disclosed up front.
Taxes that are not collected “upfront from borrowers”
- Gross receipts tax (GRT) of banks/non-bank financial intermediaries is a lender’s tax—embedded in pricing, not demanded as a separate “BIR tax” from you.
- Income taxes are borne by the lender.
- Withholding taxes can apply in special cases (e.g., cross-border loans, interest paid to certain recipients), but retail borrowers are rarely withholding agents. If withholding applies, it is handled via BIR forms and official receipts, not ad-hoc cash requests.
Is it lawful to demand “BIR taxes” before releasing a loan?
The rule of thumb
- Lawful: Asking you to shoulder DST and registration/notarial fees that are clearly itemized in your Disclosure Statement (as required by TILA) and supported by official receipts. These amounts are typically modest and may be net-deducted from the loan.
- Unlawful/Deceptive: Requiring large, unspecified “BIR taxes” as a precondition to approval or release, especially via personal e-wallets, without ORs, or with threats that “BIR will not allow the release otherwise.” The BIR does not require retail borrowers to pre-pay taxes to get a loan released.
Why most “pay-first BIR tax” requests are improper
- Misrepresentation: Labeling a private fee or padding as “BIR tax” is deceptive under R.A. 11765 and other consumer-protection rules.
- Process mismatch: Lenders remitting DST do so via eDST and monthly returns; they don’t need your prior cash deposit to “pay BIR now.”
- Disclosure breach: TILA requires a written disclosure statement showing itemized finance charges and the effective interest rate (EIR/APR) before consummation. Unitemized “BIR taxes” violate this.
- Receipting: Government charges must be receipted (official receipts/OR). A demand without OR evidence is a red flag.
What legitimate, borrower-payable items can be collected—and how?
| Charge | Typical payer | Timing & method | Documentation |
|---|---|---|---|
| DST on loan document | Borrower (by contract) or lender | Net-deduct at release, or collected with fees | Appears as itemized fee; lender’s DST return/eDST (internal), borrower gets official receipt/fee schedule |
| DST on mortgage/pledge (if any) | Usually borrower | With mortgage registration | OR from Register of Deeds/LTO (plus reg. fees) |
| Notarial fee | Usually borrower | At signing or net-deduct | Official or acknowledgment receipt |
| Appraisal/processing fee | Usually borrower | Often net-deduct | Itemized in disclosure; official receipt |
Note: Exact amounts depend on loan size, instrument type, and local registry schedules. They are not open-ended.
Red flags that it’s a scam
- “Pay ₱X BIR tax first via GCash to this personal account.”
- “No OR—we’ll send later,” or they provide fake/blurred receipts.
- The “tax” is a round, large number with no computation basis (e.g., “10% BIR tax”).
- They refuse to show a Disclosure Statement itemizing finance charges and the APR/EIR.
- The entity is unregistered (no BSP license for banks, no SEC license for lending/financing companies), or uses a different corporate name than what’s on the supposed receipts/contracts.
What to do if a lender asks you to pay “BIR taxes” upfront
Ask for the Disclosure Statement (R.A. 3765) showing:
- Principal, all finance charges, APR/EIR, itemized taxes/fees, and net proceeds.
Demand itemization and proof:
- If they cite DST, ask which document it applies to and the computation.
- For registration, ask which registry, fee schedule, and OR.
Insist on proper receipting:
- Official Receipts from the lender (for private fees) and from the government office (for government fees).
Refuse ad-hoc cash/wallet payments to personal accounts.
Verify the entity:
- Banks: Check BSP’s supervised institutions list.
- Lending/financing companies: Check SEC’s public list and advisories.
Walk away if they won’t comply. Report to BSP (for banks), SEC (for lending/financing firms), or DTI/FTC-like channels for online scams.
Practical FAQs
Q1: Can a lender make me shoulder DST? Yes, by contract. Many do. But it must be clearly disclosed, reasonably computed, and usually net-deducted from proceeds—not demanded as a pre-release “cash to BIR.”
Q2: How big is DST? It is typically a small fraction relative to loan size and depends on the instrument and term. If someone quotes a double-digit percentage of the principal as “DST,” that’s a red flag.
Q3: The lender says BIR will block the release unless I pay now. True? For ordinary retail loans, false. Lenders manage their own tax compliance (e.g., eDST returns). The BIR doesn’t “approve” your personal loan.
Q4: Are interest and lender taxes passed to me as “BIR taxes”? No. GRT and income tax are the lender’s obligations and are priced into your interest/fees. They are not billed to you as separate “BIR taxes.”
Q5: What about cross-border or corporate loans? There are special withholding/treaty rules in those settings, addressed in the loan agreement and tax certificates. For consumer borrowers, these rarely apply.
Compliance checklist for borrowers (use before signing)
- ✅ Got a Disclosure Statement with APR/EIR and all fees itemized
- ✅ Any DST/registration fees are specific, computed, and supported by receipts
- ✅ No requests to cash-pay “BIR taxes” to personal accounts
- ✅ Lender is properly licensed (BSP or SEC) and uses its legal name on all documents
- ✅ You understand the net proceeds (principal minus legitimate fees)
Bottom line
- It’s not a legal requirement for borrowers to pre-pay “BIR taxes” before a loan is released.
- The only legitimate government-related amounts a borrower might shoulder are specific, small, and itemized (e.g., DST on the loan/mortgage, registry, notarial).
- Anything beyond that—especially large, vague “BIR taxes” billed upfront—is improper at best and scammy at worst. Refuse, demand documentation, and verify the lender.