THE Bureau of Internal Revenue (BIR) recently clarified the nature of a finance lease transaction in computing documentary stamp tax (DST) through the issuance of Revenue Memorandum Circular No. 46-2014, which emphasizes that a finance lease is defined and treated as debt and not as lease.

Under the Financing Company Act of 1998, as amended, a finance lease is a mode of extending credit through a non-cancellable lease contract under which the lessor acquires, at the instance of the lessee, movable or immovable property in consideration of periodic payment by the lessee of a fixed amount of at least 70 percent of the acquisition cost. The law also defined credit to mean any loan, mortgage, finance lease, deed of trust, advance, conditional sales contract and any other contract having similar purpose or effect.

Considering this, the appropriate DST for finance lease shall be based on Section 179 of the Tax Code, as amended, which covers all debt instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, bonds, loan agreements and other evidences of debt having a specific maturity date. Although documents or transactions under finance lease are not specifically mentioned under this Section, the imposition of the DST under such Section covers all debt instruments.

Hence, being a nature of an obligation, a finance lease is treated as a debt instrument. Accordingly, any document, transaction or arrangement entered into under finance lease is subject to DST at P1 for every P200.

(Source: Punongbayan & Araullo)