BIR Ruling [DA-193-03]

June 20, 2003 BIR RULING [DA-193-03] 22, 108 & 121 DA-68-01 Merca's Jewelry and Pawnshop Borromeo St. 8400 Surigao City Attention: Mr. Rodolfo Merca Proprietor Gentlemen : This refers to your letters of protest dated August 24, 2000 and September 4, 2000, indorsed to this Office by the Commissioner, and requesting clarification on whether pawnshops are subject to value-added tax (VAT). It is represented that you received a notice of assessment dated August 21, 2000 representing deficiency value added tax in the amount of P234,094.39; that on August 28, 2000 an informal conference was made with Revenue District Officer Edilberto C. Radaza and Arnel Jude L. Villanueva representing you in his capacity as an accountant; that during the said conference, points have been raised on issues that pawnshops are not subject to VAT and that the assessment made on your pawnshop be dropped for lack of legal basis citing the decision of the Court of Appeals Seventh Division dated December 23, 1993 as reference; that the Bureau of Internal Revenue continues to assess VAT on pawnshops based on Revenue Regulations No. 7-95 and Revenue Memorandum Circular No. 13-95; that the issue of whether pawnshops are subject to VAT is still pending before the Supreme Court for final resolution; and that you refused to sign the waiver of the statute of limitations. In reply, please be informed that until a final resolution by the Supreme Court that pawnshops are not subject to VAT, the present stand of the BIR is that the business of a pawnshop, i.e. lending money at interest, is akin to a lending investor's business. Thus, under Revenue Memorandum Order No. 15-91, pawnshops became subject to the 5% lending investor's tax under then Section 116 of the Tax Code, as amended. However, effective January 1, 1996, lending investors became subject to the value-added tax (VAT) under Section 102(a) of the Tax Code, as amended by Republic Act No. 7716, as further amended by R.A. No. 8241, now Section 108(A) of the Tax Code of 1997. Pawnshops undoubtedly are subject to VAT. Central Bank Circular No. 374 includes pawnshops among those considered as non-bank financial intermediaries under the supervision of the Bangko Sentral ng Pilipinas (BSP). However, for tax purposes, pawnshops are considered as lending investors and therefore, subject to VAT effective January 1, 1996. As such, services rendered by pawnshops are not among those deferred until January 1, 2001 pursuant to R.A. No. 8761. Please be guided accordingly. AaCEDS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group