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A number of proposals, now pending in Congress and mostly designed to develop our capital market, point to the documentary stamp tax as one, of many, targets of reform. Advocates want, for instance, to remove the stamp duty on the secondary sale of debt instruments to reduce the friction cost of transfer and enhance the liquidity of the security. Exemption is also being sought for the original issuance of papers by special purpose vehicles organized to pool non-performing assets of banks. Insurance companies complain that the documentary stamp tax on policies they issue discriminate against their products vis-à-vis bank products.

Indeed, the documentary stamp tax is under siege, and rightly so. In my view, it is an anachronism; a relic of a by-gone age, and the sooner we get rid of it, the better.

There was, of course, a time when the documentary stamp tax, stamp duty in other jurisdictions, had its shinning moments and served some useful purpose. A written instrument, when affixed with the documentary stamp, exuded an air of solemnity and warned all and sundry that the paper is not just any paper, but one which was legally significant. Like the notarial seal, which adds nothing of substance to a legal document, it was a necessary accouterment of contracts and declarations. For this "value-added" imbued by the stamp on the document, the state collected its dues.

That the stamp performed a purely ceremonial function is obvious from a number of rules now constitute the documentary stamp tax law. As early as 1908, the Supreme Court ruled that the lack of a stamp does not invalidate the taxable document (Azarraga v. Rodriquez, 9 Phil 637). Section 201 of the Tax Code concedes that the adverse effects of not affixing the stamp are, primarily, that the document cannot be recorded in a government registry and that it cannot be admitted in evidence in court. Having provided these tame consequences, the law itself hastens to add that the effects of not affixing the stamp lasts only "until the requisite stamp or stamps shall have affixed and cancelled".

Moreover, the documentary stamp tax, of all taxes, most blatantly demonstrates that its imposition is motivated only by the need to raise revenue. The law is indifferent as to who pays the documentary stamp tax. And, in an obvious countermeasure against those who stipulate the payment of the tax by a person who by law is exempt, Section 173 was amended to state that "whenever one part to the taxable document enjoys exemption from the tax…, the other party thereto who is not exempt shall be the one directly liable for the tax". Never mind that, in most cases, the idea of stipulating the payment of the documentary stamp tax to be done by an exempt party, was to reduce the cost of the transaction, which just as often is passed on to the exempt party, anyway.

Even the awe-inspiring effect of a stamp affixed on a legal document is now completely gone. Whereas previously, the stamp had to be affixed on the taxable document, perforated and cancelled by "writing or stamping the date across the face of the stamp itself and part on the paper in which it is attached", the present practice, which has been in place for many years, is to use, with permission of the Bureau of Internal Revenue, metering machines. Nothing in the stamp of the metering machine inspires any awe other than how so little ink can cost so much and print so little.

So, why don’t we just abolish the documentary stamp tax, replace it with a transaction tax (thereby by-passing the nasty debate on whether the tax is on the document or on the transaction it relates to), and get on with the development of our capital market?

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