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Nothing probably demonstrates how archaic the documentary stamp tax law is than the current controversy regarding a popular bank product known as the Special Savings Account.

The issue is whether the establishment of that kind of an account generates an obligation to pay documentary stamp tax. The banks say "no"; the Bureau of Internal Revenue says "yes". And Congressman Jesli A.Lapus, once upon a time President of the Land Bank of the Philippines (and therefore knows whereof he speaks) seeks to close the debate by amending Section 180 of the National Internal Revenue.

A Special Savings Account, which is known by other names depending on which bank is offering it, is typically documented as a savings deposit. The proof of the deposit, therefore, is a passbook and not a certificate. However, unlike the run of the mill savings account, the transaction is characterized by two features: first, an informal arrangement between the depositor and the bank about the "tenor" of the placement, e.g. the depositor is not "expected" to withdraw his money prior to the expiration of a certain period; and, second, as a consequence of such informal arrangement, a commitment of the bank to pay interest on the deposit at a rate that is a wee bit higher than that given to regular savings. If for some reason or another, the depositor needs his money prior to the expiration of the "expected period", the bank readily allows the withdrawal, but reduces the interest paid. In most cases, the interest thus paid is equivalent to what the deposit would have earned had it been originally deposited in a regular savings account.

The reason the banking industry and the tax collector is at odds lies in the wording of Section 180 which imposes a stamp tax of P.30 on each P200 or fraction thereof on the face value of, among other documents, a "certificate of deposit". Is the "passbook" a "certificate"? The argumentation borders on the ludicrous. But the amounts at stake prevent us from being facetious. In the first seven months of this year alone, the Bureau of Internal Revenue assessed about five banks for documentary stamp taxes on this arrangement totaling, on basic tax alone, P263.5 million. This must be part of the P6.4 billion "leakage" in the documentary stamp tax collection that Undersecretary Tony Bernardo admitted the BIR was unable to exact from the banks. With the BIR way off its collection target for 2001, one can understand why the exchange of views is often loud and vociferous.

The banks argue that a "certificate" that is subject to documentary stamp tax is one that certifies; their passbook simply passes from the hand of the depositor to the hand of the teller and vice versa contempraneous to the passing of the cash between the same parties; the interest rate differential between a deposit maintained all throughout the expected period and a deposit withdrawn before its tenor expires is irrelevant because, in this age of interest rate deregulation, a bank is free to stipulate the interest rate on individual deposits in accordance with the total relationship with each client. The BIR, on the other hand, counters that the special savings account is in substance a time deposit; the passbook is functionally a certificate. It thus invokes the lines of the revered argument that "if it walks like a duck and quacks like a duct, it must be taxed like a duck".

All these wiggling and waggling two by two lead nowhere of course. Even the bill Congressman Jesli A. Lapus (House Bill No. 1673), which simply includes in the taxing scope of Section 180 any other document that constitutes "evidence of time deposit" does not solve the entire issue since it leaves undefined the term "time" deposit. For instance, is a deposit that is withdrawable on demand that carries an "interest-plus" feature, if not withdrawn within a stipulated holding period, a "time" deposit?

The best solution, therefore, is, to my mind, simply abolish the documentary stamp tax on all types of time deposits. This tax, after all, finds itself passed on to the depositor who is at the receiving end not only of the onerous final tax on interest (more about that later) but also of the low interest rate regime now plaguing the country and, in fact, the rest of the world. If we want to increase the savings rate among our people; we must make it worth their while to save and not take a slice of the little that they do.

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