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SC: Pawnshops not exempt from stamp taxes

Posted in Supreme Court Decisions, Tax by Erineus on April 24, 2009

Philippine Daily Inquirer
First Posted 21:47:00 04/23/2009

BAGUIO CITY – Pawnshops, the enterprise most likely to unburden households during financial crises, should be covered by documentary stamp taxes, the Supreme Court ruled here.

The court’s second division overturned a Court of Tax Appeals ruling that H. Tambunting Pawnshop Inc. should not be assessed for documentary stamp taxes because it issued pawn tickets, which “were not securities indicating indebtedness.”

But Associate Justice Presbitero Velasco Jr., in a dissenting opinion, said Congress intended to exempt pawnshops from this tax.

“It is my submission that Presidential Decree 114 is a piece of legislation granting social justice to the poor, the marginalized and the weak. Our view on the exclusion of pawn transactions from the coverage of [the documentary stamp tax] hews closely with the principle that those who have less in life should have more in law,” Velasco said.

The Bureau of Internal Revenue defines the documentary stamp tax as one 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.

In a decision written by Associate Justice Leonardo Quisumbing, the high court said it had made the same judgment when it ruled on a similar dispute between Michel J. Lhuillier Pawnshop Inc. and the commissioner of internal revenue.

In that 2006 ruling, the court 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].”

Tambunting had argued that PD 114 already defined the pawnbroker’s receipt as one “for a pawn [which] is neither a security nor a printed evidence of indebtedness.”

Therefore, the firm argued, the pawn ticket was shielded from the coverage of documentary stamp tax.

What BIR should pursue, it said, were pledge agreements assigned by the pawnshops “if any is issued,” quoting Tambunting’s petition.

The BIR asserted that “the transactions in a pawnshop business partake of the nature of pledge transactions” so the court should conclude that “pawn transactions as evidenced by pawn tickets are subject to documentary stamp tax.”

Vincent Cabreza, Inquirer Northern Luzon


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