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Lowly pawnshops show lofty banks the way |
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(Article published in the Dec
10,2004 issue of TODAY, Business Section)
Revenue Memorandum Circular No. 73-2004 marks the eventual end of the pejorative connotation attached to the term “pawnshop mentality”. For so long, people who worked in banks have looked down on their brothers who worked in pawnshops for the latter’s almost exclusive reliance on the collateral as the determinant factor when lending to customers. Lending money that way (and making one’s money by lending that way) was, the bankers scoff, a no-brainer and showed not only lack of sophistication in making credit decisions but also inferior understanding of nature of the lending business. But with RMC 73-2004 in their pockets, pawnbrokers have clearly shown, at least in the matter of how to put their tax worries behind them, they are smarter than bankers.
An
RMC is a internal communication from the Commissioner of Internal Revenue
directed at his minions in the field giving them his instructions on how
to deal with specific collection issues with taxpayers.
They constitute their marching orders, some sort of a battle plan.
RMC
73-2004 is, however, instead of being a revenue officer’s plan of
attack, lays down a modus vivendi
that has been mutually agreed upon between the tax collectors and the
pawnshop industry. It is not
exactly the Isaiah’s vision of the wolf living with the lamb, the
leopard lying down with the kid, and the calf and the lion and the fatling
together, but it does approximate swords being turned to plowshares. At the very least, it allows the pawnshop industry to
disengage from its deadly litigation grappling with the Bureau of Internal
Revenue and permits both of them to move forward, go their separate ways,
and focus on their respective businesses.
The
casus belli used to be the
question of whether pawnshops are subject to the value-added tax or not,
as a “non-bank financial intermediary”, whose gross sale of services
was included in the VAT net by R.A. No. 7716 effective 1996.
As of 31 August 2004, almost 40 cases had been filed with the
courts on that issue, 4 are presently with the Supreme Court, 12 were with
the Court of Appeals, and the rest with the Court of Tax Appeals.
Six cases were won by the Bureau in the lower courts, but since the
issue was raised in the Supreme Court, the victory is tentative, if not
tenuous.
The issue was further complicated in 2003, when Congress passed and the President approved R.A. No. 9238, upon the lobby of the banking industry, re-imposing the gross receipts tax on banking income as well as the receipts of “non-bank financial intermediaries”.
The
Commissioner of Internal Revenue invoking the definition of what a
pawnshop is in Presidential Decree No. 114, i.e. “a person or entity
engaged in the business of lending money” and the classification of
pawnshops in Bangko Sentral Manual of Regulations, considered them as
“non-bank financial intermediaries”.
The pawnshop industry, like everyone else subjected to a new tax
burden, screamed in pain. Hence,
the cases.
This
year, however, the Chambers of Pawnbrokers of the Philippines, Inc. and
the BIR talked peace, and on 04 June, entered into a memorandum of
agreement allowing the pawnbrokers a less bloody way of settling their VAT
liabilities from 1996 to 2003. This
was operationalized in RMC 37-2004. The atmosphere of peaceful co-existence continued and last
month, RMC 73-2004 set up the
orderly transition from the VAT regime to the gross receipts tax system
under R.A. No. 9238.
The
broad lines of the armistice are very simple.
To
effect a meaningful impact on the government’s efforts to narrow the
deficit, pawnshops are induced to settle their VAT liabilities for the tax
years 1996 to 2002, times when there was really great doubt spawned by
conflicting rulings and decisions on whether pawnshops are subject to the
VAT, up to 15 December of this year.
Following RMC 37-2004, they are to pay 25% of their liabilities
based on the pawnshops own self-assessment. Subject to verification, of
course.
For
the years 2003 and 2004, the pawnshops concede their being subject to the
VAT. Accordingly, in the
interest of those who are not big players, pawnshops with not more than
P550,000.00 in annual gross receipts or gross sales are subjected only to
a 3% percentage tax.
And
beginning next year, 2005, all sales of goods and services of pawnshops
will be subjected to the gross receipts tax “re-imposed” by R,.A. No.
9238 that amended Section 122 of the Tax Code.
For
a smooth transition, the process of converting from a VAT-registered into
a non-VAT taxpayer, the disposition of unused VAT receipts, the treatment
of collections received before the end of this year, and the utilization
of excess input tax credits are dealt with in the final provisions of RMC
73-2004.
Only
time will tell whether the peace will hold.
If it does, pawnbrokers shall have served their country well, not
only by contributing to its treasury in this great time of great need,
but, more significantly, by declogging the courts of the nearly pending 40
VAT cases and freeing executive time and government efforts for more
productive enterprise than seeing each other in court or exchanging nasty
assessments and protests.
The
bankers, in the meantime, are still stymied by the overhang of their
long-standing quarrels with the Bureau of Internal Revenue concerning the
documentary stamp tax on their product called “special savings
accounts” and the FCDU tax. The
choice is theirs, of course, whether to keep on fighting the revenue
authorities or burying the hatchet in a mutually satisfactory manner.
From where I sit, however, my friend Topper Coronel and his banker constituents could use, in this regard, some “pawnshop mentality”.
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