Supreme Court ruling exempts pawnshops from lending investors' tax

MANILA, Philippines - Pawnshops are not lending investors.

The Supreme Court (SC) has said this in exempting pawnshops from the five percent lending investor’s tax under the Tax Code.

In a 14-page decision penned by Associate Justice Adolfo Azcuna before he retired last Feb.16, the SC granted the petitions of pawnshop owners Agencia Exquisite of Bohol Inc. (AEBI) and Exquisite Pawnshop and Jewelry Inc. (EPJI) contesting the deficiency percentage tax imposed on them by the Bureau of Internal Revenue (BIR).

Upholding the pawnshop’s arguments, the High Court has ruled that pawnshops should not be classified as “lending investors” for the purpose of imposing the five percent tax under Section 116 of the National Internal Revenue Code of 1977, as amended by Executive Order 273.

The High Tribunal said while pawnshops are also engaged in the lending business, they cannot be considered as “lending investors” and should therefore be spared from the five percent tax, citing previous similar cases of Lhuillier and Trustworthy pawnshops as precedents.

“Under the doctrine of adhering to precedents, it behooves the Court to apply its previous ruling in Lhuillier and Trustworthy to the cases under consideration. Once a case has been decided one way, any other case involving exactly the same point at issue, as in the present consolidated cases, should be decided in the same manner,” the ruling stated.

In granting the petitions of AEBI and EPJI, the SC reversed and set aside the ruling of the Court of Appeals (CA) and reinstated the decisions of Court of Tax Appeals (CTA).

On March 11, 1991, then BIR chief Jose Ong issued Revenue Memorandum Order 15 classifying pawnshop business as akin to lending investor’s business activity “which is broad enough to encompass the business of lending money at interest by any person whether natural or juridical” and imposing both a five percent lending investor’s tax based on their gross income, pursuant to then Sec. 116 of the NIRC.

The BIR then issued assessment notices to AEBI and EPJI demanding payments of the mending investor’s tax.

The two pawnshop firms questioned before the CTA and secured a favorable ruling. The BIR elevated the case to the CA, which subsequently reversed the CTA ruling.