First Planters Pawnshop, Inc. v Commissioner of Internal Revenue, GR No. 174134, July 30, 2008

Facts:

The BIR informed the petitioner on its VAT and Documentary Stamp Tax (DST) deficiency for the year 2000. The petitioner protested after receiving the formal assessment notice from the BIR directing it to pay its VAT deficiencies with surcharges and interest. They contend they are not a lending investor within the scope of Section 108 (A) of the National Internal Revenue Code therefore not subject to Vat and that a pawn ticket is not subject to DST because it is not a proof of pledge of transaction. Their protest was denied by the BIR Regional Director and their appeal was likewise denied by the Court of Tax Appeal hence this petition for review.

Issue:

Whether or not pawnshops maybe subjected to VAT and Documentary stamp tax?

Ruling:

At the time of the disputed assessment in 2000, pawnshops were not subject to 10% under the general provision on "sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997 which was amended by the RA 9238 classifying pawnshops as “Other Non-Bank Financial Intermediaries.” Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be.

Pawnshops are liable for documentary stamp tax. Subject of DST is not limited to the document alone. Pledge (which is an exercise of a privilege to transfer obligations, rights or properties incident thereto) is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. The DST is an excise tax imposed in the exercise of a pledge. Although the law does not consider a pawn ticket as an evidence of security or indebtedness, for purposes of taxation it is treated as an exercise of a taxable privilege of concluding a contract of pledge.

Thus, the court partially granted the petition where the decision on the BIR assessment on VAT deficiency is reversed and set aside while the decision on payment for DST is affirmed.

R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.

R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks. phi1

Financial intermediaries are defined as "persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others."
Section 3 of P.D. No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage."