Documentary stamp taxes can be collected on pawnshop tickets

MANILA, Philippines - The Philippines’ premier tax agency will soon charge and collect documentary stamp taxes (DST) on pawn tickets after the Supreme Court reversed a lower court’s decision exempting pawnshops from the tax. Pawn tickets involving amounts not exceeding P5,000 will be imposed a P20 DST while those in excess will be charged an additional P10 DST, the Bureau of Internal Revenue (BIR) said, citing an April 2009 Supreme Court ruling. “The [National Internal Revenue Code] law imposes DST on documents issued in respect of the specified transactions, such as pledge, and not only on papers evidencing indebtedness…" the High Court said in its April 2009 decision. A pawn ticket constitutes a pledge and are therefore subject to tax, BIR Commissioner Sixto Esquivias IV said, citing the same decision. Pawn tickets are issued to those who put up items of value – such as jewelry – in exchange for small, short-term loans given by pawnshops. The ticket indicates the loan, redemption amount, and date of redemption. Since a pledge was a real contract, its issuance by the pawnshop indicates that the item pledged has already been placed in its possession and that the pledge has been completed. The court’s second division reversed an earlier Court of Tax Appeals (CTA) decision which said that Tambunting Pawnshop Inc. should be exempted from DST because it issued pawn tickets, which “were not securities indicating indebtedness." In 2006, the High Court rendered the same judgment regarding a similar dispute between Michel J. Lhuillier Pawnshop Inc. and the BIR Commissioner. The earlier decision cited section 195 of the National Internal Revenue Code which imposed a documentary stamp tax “on every pledge regardless of whether [the document] is a conventional pledge governed by the Civil Code or one that is governed by the provisions of [PD 114 or the law regulating pawnshops]." However, Tambunting argued that it was exempt from the tax, citing Presidential Decree 114 which defined the pawn ticket “as neither a security nor a printed evidence of indebtedness." But the BIR defined the DST as a tax imposed on all types of documents or loan instruments which establish that certain assets or obligations have been transferred, sold, or reassigned to another party. Three years ago, the CTA also ruled that value added tax (VAT) should be collected on gross receipts of pawn brokerage service in a case that involved Tambunting. The court instructed Tambunting to pay P3.06 million in VAT for 1999, finding no justification for its assertion that it was not liable. VAT coverage of services such as lending investors is indicated in Section 108. The Bangko Sentral ng Pilipinas data said there are more than 14,000 pawnshops in the Philippines. It is currently dominated by the Tambunting and Lhuillier families. An estimated P10 billion yearly is lent by the industry, which accepts jewelry, television sets, mobile phones, digital cameras, and motorcycles. - GMANews.TV