BSP pins hope on tax reform’s ‘Package 4’ after TRAIN law’s higher DST disappoints

MANILA, Philippines — The Bangko Sentral ng Pilipinas said it was “disappointed” over higher documentary stamps taxes (DST) imposed by the first package of the Duterte administration’s Comprehensive Tax Reform Program, which came into law as the central bank works on accelerating capital market development.

On December 19, President Rodrigo Duterte signed into law Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which aims to generate revenue to fund a multibillion-dollar infrastructure program that is central to the government's economic agenda.

The TRAIN law increases take-home pay for most wage earners, compensating for the projected foregone revenue through higher excise taxes, including DST.

“We are disappointed by the doubling of the documentary stamp tax,” BSP Governor Nestor Espenilla said in an interview with international think tank GlobalSource Partners.

DST is imposed on every original issuance of debt instruments, including loan agreements, promissory notes, and other instruments representing borrowing and lending transactions.

Last year, Espenilla said that under his watch, the BSP will continue to pursue capital market reforms “to provide a viable alternative source of financing for long-term investments, including the development of the necessary financial market infrastructures.”

READ: Economic team set to roll out capital market reforms by 2019

Nonetheless, the BSP chief said he is pinning his hope on the design of capital income taxation under the tax reform program’s Package 4, which he expects to “be consistent with our capital market development agenda.”

According to Espenilla, the fourth package of the CTRP will streamline the tax regime for financial transactions by reducing tax on interest income from peso deposits and harmonizing all capital income tax rates at 10 percent.

“The country is envisioned to benefit greatly from TRAIN. Although some sectors such as the capital market will shoulder a heavier tax burden, the collection of higher taxes from these transactions is expected to contribute to economic growth through the funding of government programs,” Espenilla said.

“In turn, these planned infrastructure and expansionary projects in different sectors are expected to benefit capital market development,” he added.

“Overall, the long-run benefits to the economy brought about by the fiscal reform is expected to counter the higher tax costs imposed in the short-run.”