The Legality of “Tax Fee” Requirements by Lending Companies Before Loan Release in the Philippines

Philippine context • informational overview (not legal advice)

Executive summary

Legitimate, government‐imposed taxes that can attach to a loan exist—most notably the Documentary Stamp Tax (DST) on loan agreements.
Who pays the DST may be shifted by contract (often passed on to the borrower), but the obligation to file and remit it is handled by the lender through the BIR’s eDST system. Borrowers are not expected to “go to BIR” or send a separate “tax payment” to an agent before release.
Other taxes (VAT or Gross Receipts Tax) are the lender’s business taxes, embedded in pricing. They are not collected from consumers as a separate, pre-release “BIR fee.”
Requiring vague or unexplained “tax fees” as a condition for release—especially if paid to personal e-wallets—is a major red flag and can violate disclosure and consumer-protection rules.
Full and accurate fee disclosure is mandatory under the Truth in Lending Act (R.A. 3765) and the Financial Consumer Protection Act (R.A. 11765). The SEC (for lending/financing companies) and BSP (for banks) can penalize unfair, abusive, or deceptive practices.

Who regulates what

Securities and Exchange Commission (SEC). Regulates lending companies (R.A. 9474, the Lending Company Regulation Act) and financing companies (R.A. 8556). It also polices unfair practices of both brick-and-mortar and online lending operators.
Bangko Sentral ng Pilipinas (BSP). Regulates banks and certain non-bank financial institutions. If you’re dealing with a bank, BSP rules on disclosure and pricing apply.
Bureau of Internal Revenue (BIR). Administers taxes relevant to loans (e.g., DST), and business taxes on lenders (VAT or Gross Receipts Tax).
National Privacy Commission (NPC). Oversees data-privacy compliance (relevant when lenders request tax IDs and other personal data).

Taxes that can legitimately attach to a loan

1) Documentary Stamp Tax (DST) on loan agreements

What it is: A documentary tax imposed by the National Internal Revenue Code (NIRC) on certain instruments, including loan agreements, promissory notes, and renewals.
How it’s paid: Registered institutions pay DST electronically via the BIR eDST system when the instrument is executed/issued.
Who ultimately shoulders it: Contractual. While the NIRC sets the tax, parties may agree that the borrower shoulders the cost. In practice, lenders deduct the DST from the proceeds (net-of-proceeds) or add it to the amount due as part of the finance charges—but the lender handles the filing/remittance.
Good practice: If passed on, the lender should itemize the DST in your disclosure or loan computation. You may request proof (e.g., loan schedule reflecting the DST, or a statement referencing the eDST payment). A separate “BIR walk-in” payment by the consumer is not standard.

2) VAT or Gross Receipts Tax (GRT) on the lender’s gross receipts

Banks and certain non-bank financial intermediaries are generally subject to GRT on interest and related income.
Most non-bank lending/financing companies are subject to VAT on their gross receipts (interest, penalties, and certain fees).
Key point: These are business taxes of the lender. They are priced into interest/fees and not collected as a stand-alone “tax fee” from consumers before release.

3) Withholding tax considerations (mainly B2B)

Consumers (individual borrowers) are not typically withholding agents.
Business borrowers may have withholding obligations on interest and certain fees paid to lenders, depending on BIR rules. This is not a consumer “pre-release tax fee.” It’s a compliance mechanism between businesses and the BIR.

4) What is not a tax

Notarial fees, processing fees, insurance premiums, and platform/service fees are charges, not taxes. They may be legitimate if disclosed, reasonable, and compliant with applicable caps or rules—but they should not be misrepresented as “BIR taxes.”

Can a lender require a “tax fee” before releasing a loan?

When it can be lawful

Passing DST to the borrower is lawful if disclosed transparently and handled by the lender (i.e., the lender deducts DST from proceeds or includes it in the finance charge, then files/remits via eDST).
The contract may say “Borrower to shoulder all taxes”, but in practice the lender still collects and remits. You should see it on your computation; you shouldn’t be told to personally pay a “BIR tax” to an agent before funds are released.

When it’s problematic or unlawful

Vague “tax fee” with no breakdown, no legal basis, or inconsistent explanations (e.g., “BIR clearance fee,” “refundable tax hold,” “government code XYZ”) as a condition for release.
Instructions to send “tax” to a personal bank/e-wallet account (e.g., GCash/PayMaya) or to a person’s name rather than the lender’s official account.
Threats or pressure that release will be blocked unless a “tax” is paid off-platform immediately.
No disclosure document (Truth in Lending) showing the DST and other charges before you accept the loan.
Misrepresenting business taxes (e.g., VAT/GRT) as a borrower-payable “BIR fee.” These behaviors can violate R.A. 3765 (Truth in Lending) and R.A. 11765 (Financial Consumer Protection Act), and may also amount to fraud or deceptive conduct sanctionable by the SEC (for lending/financing companies) or BSP (for banks).

Mandatory disclosures & consumer rights

Truth in Lending Act (R.A. 3765)

Lenders must disclose clearly, before consummation:

The nominal/annualized effective interest rate or equivalent measure,
The total finance charge (interest + all fees required to obtain the loan),
Any other charges the consumer is required to pay (e.g., DST if passed on),
The net proceeds you’ll actually receive.

If a “tax fee” is truly required, it must appear in the written disclosure—clearly labeled (e.g., “Documentary Stamp Tax”), with a pesos amount.

Financial Consumer Protection Act (R.A. 11765)

Prohibits unfair, deceptive, or abusive acts or practices (UDAAP).
Requires fair, transparent, and timely disclosures.
Empowers SEC (for lending/financing companies) and BSP (for banks) to investigate and penalize violators, order restitution, and require corrective action.

Practical, lawful ways DST is handled

Net-of-proceeds: Loan amount ₱X Less: DST ₱D (and possibly notarial/processing, if disclosed) Net cash released: ₱(X – D – fees)
Add-on to amount due: Cash released = ₱X (full) Plus: DST ₱D reflected in the amortization/settlement amount

Both approaches are lawful if disclosed; both should tie to your loan schedule. What’s not standard: asking you to pay a separate “tax” upfront in cash or via personal e-wallet to an individual.

Red flags of an advance-fee scam (even if labeled “tax”)

“Pay the BIR tax first via GCash to Agent Ana so we can release.”
“Refundable tax hold—send ₱____ today; otherwise your loan is blocked.”
“BIR clearance for loan release (rush fee).”
“Code 002 government fee; can’t disclose details until you pay.”
Refusal to provide SEC registration, company name, registered address, official receipts, or a written fee breakdown.

What to ask for (and keep)

A written disclosure/loan computation that itemizes all charges, including DST if passed on.
The official company pay-in channels (corporate bank account in the company’s name, not a personal account).
Official Receipt (OR) for any amount you are asked to pay outside of the netting-off in the loan proceeds.
Company registration details (SEC registration and the exact corporate name of the lender).
Contact details for the lender’s customer assistance unit and complaint process.

Remedies if you encounter a questionable “tax fee”

Don’t pay into personal e-wallets or accounts.
Escalate to the lender’s helpdesk in writing; ask for a full itemized breakdown and cite R.A. 3765 and R.A. 11765.
File a complaint with the SEC (for lending/financing companies) or BSP (for banks).
If you already paid under false pretenses, consider demand letters, small claims (for qualifying amounts), or consulting counsel on rescission, damages, or estafa (criminal fraud) where warranted.
If your TIN or personal data was misused or over-collected, consider a complaint with the NPC.

Special notes for businesses borrowing from lenders

Withholding tax: If you are a business borrower, check if your interest or certain fees are subject to creditable withholding under BIR rules. This is separate from DST and not a consumer advance “tax fee.”
Contract clauses: It’s common to see “Borrower shall shoulder taxes”. That does not mean you must personally file DST; it means the economic burden is on you, while the lender remits via eDST and reflects the cost in your statements.

FAQs

1) Is it legal for a lender to charge me a “tax fee” before releasing a loan? Only if it’s a legitimate, itemized charge like DST, and the lender collects/remits it as part of the transaction (typically deducted from proceeds or included in the charges). Vague or separate “BIR fees” paid to a person are not standard and are suspect.

2) Can a lender require a TIN? Yes, for KYC and tax reporting. But TIN issuance is free from the BIR. A lender cannot impose a “TIN card tax.” Any ID card fee from third parties is not a government tax.

3) Are VAT or GRT collected from me as a separate pre-release tax? No. Those are lender business taxes reflected in pricing, not a separate consumer tax to be remitted before release.

4) Who pays DST if the loan is renewed or rolled over? Renewals/re-issuances can trigger new DST. Parties may agree the borrower shoulders it, but the lender should remit and show it in your documents.

5) What proof should I see for DST? A loan disclosure/statement that itemizes DST (if passed on), consistent with your loan agreement and amortization. Lenders using eDST should be able to reference the transaction in their records.

Model contract language (borrower-friendly)

Taxes and government charges. The parties acknowledge that this loan agreement is subject to documentary stamp tax (DST) under the National Internal Revenue Code. The Lender shall compute, file, and remit the DST through the BIR eDST system. The Borrower agrees to shoulder the economic cost of the DST in the amount ₱[amount], which shall be [deducted from the proceeds / added to the amount due], as disclosed in the Loan Disclosure Statement. No other “tax” shall be collected from the Borrower unless expressly identified by law, itemized in the Disclosure Statement, and payable to the Lender’s official accounts with an Official Receipt issued.

Borrower checklist (quick use)

Is the lender SEC-registered (if not a bank)?
Did I receive a written disclosure itemizing interest, fees, and DST (if any)?
Is any “tax” clearly labeled (e.g., DST) with a pesos amount?
Am I being told to pay a “tax” to a personal e-wallet? (🚩)
Did the lender provide official receipts and corporate account details?
Do the net proceeds match the computation?

Bottom line

It is lawful for a lender to pass the DST cost to a borrower if it is properly disclosed and remitted by the lender through BIR channels.
It is not lawful or fair to demand vague “tax fees” upfront as a release condition, especially via personal accounts, or to mislabel the lender’s business taxes (VAT/GRT) as consumer-payable “BIR fees.”
When in doubt, ask for a written itemization tied to R.A. 3765 disclosures, and escalate to SEC/BSP if the requirement appears deceptive or abusive.

If you want, I can adapt this into a one-page checklist for staff training or a consumer-facing explainer, or draft a short complaint template you can use with the SEC/BSP.