Tuesday, February 21, 2012

First Planters Pawnshop Inc., vs. CIR [G.R. No. 174134, July 30, 2008]

Facts: Petitioner First Planters Pawnshop received a Formal Assessment Notice directing payment of value-added tax (VAT) deficiency and documentary stamp tax (DST) deficiency, inclusive of surcharge and interest for the year 2000. Petitioner protests the said deficiency assessments and argues that: (1) it is not a lending investor within the purview of Section 108(A) of the NIRC and therefore not subject to VAT and (2) a pawn ticket is not subject to DST because it is not proof of the pledge transaction, and even assuming that it is so, it is not subject to tax since a documentary stamp tax is levied on the document issued and not on the transaction. 

(1) Is petitioner subject to value-added tax for the year 2000? 

(2) Is petitioner liable for documentary stamp tax? 

(1) NO. Petitioner pawnshop is a non-bank financial intermediary and 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. 

(2) YES. The subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. Section 195, NIRC unqualifiedly subjects all pledges to DST. The business of pawnshops essentially involves entering into contracts of pledge. 

While the law does not consider a pawn ticket as an evidence of security or indebtedness, the said ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. It is not said ticket that creates the pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. Furthermore, a pawnshop ticket is not one of the enumerated documents which Section 199, NIRC exempts from stamp tax.

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