Part Two
A report by Ken Research Private Ltd. published in April last year asserted pawnshops primarily serve the interest of the lower-income and middle-income classes of
Filipino society.
“Their remittance and easy credit requirements [especially, are addressed] since this population cluster constitutes the unbanked members of the population,” said the report, titled “Philippines Pawnshop Market Outlook to 2020—Convenience with Pawning and Remittance Services to Stimulate Growth.”
The report added that unbanked Filipinos also use pawnshops to pay various kinds of bills. Although pawnshops are not much preferred for payment of bills, its market presence will help boost the growth of bills-payment services through pawnshops, the report said.
Another report, this time by the National Tax Research Center (NTRC), noted that pawnshops play a vital role in terms of contributing to the growth and development of the economy.
The report, titled “Taxation of Pawnshops in the Philippines and in the Asean Region”, said the industry widens the sources of
microcredit for Filipinos, which help address their short-term financial needs when
banks cannot.
Insurance offers
PAWNSHOPS now provide low-cost insurance services, specifically microinsurance.
“The insurances provided by the pawnshops usually come in combination with different kinds of services, such as accident, death, burial assistance and others,” the report said. “These policies vary from three to 12 months.”
In March the Insurance Commission (IC) said the number of Filipinos covered by a microinsurance product totaled 28.4 million in the fourth quarter of last year. The figure reveals an 8-percent increase in the number of people covered by a microinsurance product at the end of December.
Insurance Commissioner Dennis B. Funa pointed out the growth can be attributed to the increase in members and dependents of Microinsurance Mutual Benefit Associations (Mi-MBAs). And with the government’s thrust to further enhance financial inclusion in the country, a number of pawnshops are seen to start providing auxiliary services alongside with pawning services.
Still, the NTRC report stated that jewelry remains to still be the most pawned item.
“It has been observed that as of 2015, jewelry stood as the most pawned item in the pawnshops. This is majorly due to the fact that jewelry is usually the most valuable
thing that a person owns and it is always fashionable,” the report said.
Growth rates
UNDER the Pawnshop Regulatory Act, or Presidential Decree 114, pawnshops can either be established by single proprietorship, partnership, or corporations.
The Act requires those who want to enter the pawnshop business to register with the Department of Trade and Industry (DTI) for single proprietorship or the Securities and Exchange Commission (SEC) for partnerships and corporations. They also need to secure a permit from the local government unit of the area where they wish to operate.
The NTRC has said the pawnshop industry dominated the financial system of the Philippines in terms of number of branches in 2014. It posted around 17,422 branches
for the year, while the banking sector only had 10,361 branches. The pawnshop branches for the same year comprised 62 percent of the 28,135 total institution in the financial system for the year.
Of the 17,422 pawnshops operating for the year, 5,847, or 34 percent, were head
offices while 11,575, or 66 percent, were branch offices. The number of pawnshops increased from 14,333 in 2008 to 17,652 in 2013, the NTRC said in its April report. However, in 2014, the number went down to 17,422 as some were delisted from the Bangko Sentral ng Pilipinas registry of pawnshops pursuant to BSP Circular Letter 2014-043.
“[This was] due to the voluntary closures and failure to submit necessary reports and pay the required fees to the BSP,” the report said. Total pledge loans for the pawnbroking industry from 2008 to 2014 amounted to P24.20 billion, with the highest being recorded in 2012 amounting to P22.27 billion, and the lowest being P14.22 billion during 2009.
Tax tiers
THE government taxes pawnshop operators several ways.
Operators are levied with a 5-percent annual gross receipts tax (GRT). Sole proprietors are imposed a minimum corporate income tax of 5 percent to 32 percent, while partnerships and corporations are required to pay a regular corporate income tax (RCIT) of 30 percent.
A documentary stamp tax (DST) is also imposed at P20 for transactions not exceeding P5,000 and an additional P10 in excess of P5,000. Business tax and real property tax are also imposed on the pawnshop operators.
A different tax scheme is implemented for pawnshops that operate with other corollary businesses, like remittances, foreign-currency exchange and bills-payment operations.
“It is worthy to note that a pawn ticket is not considered as either a commercial invoice or an official receipt for which an authority to print [ATP] must be secured from the Bureau of Internal Revenue [BIR] for printing,” the NTRC said in its report.
The taxes collected by the BIR from the industry for 2012 reached P1.36 billion, from the P635 million, registered in 2010. On average, P554 million, or 45 percent, were paid as percentage tax; P391 million, or 32 percent, as income tax; and P287 million, or 23 percent, as DST tax annually from 2010 to 2013.
“The number of pawnshop operators belonging to the BIR top 500 nonindividual taxpayers started with two companies in 2010,” the report added. “Consistently included in the list from 2010 to 2012 were P.J. Lhuillier Inc. and Michel Lhuillier Financial SVCS Inc.”
Incorrect payments
ACCORDING to the BIR, one in every 20 BIR-registered pawnshop in the country did not pay the correct taxes for the year 2011.
Of the 5,248 pawnshops registered with the BIR, only 5,003 paid proper taxes, the BIR said.
The BIR added that despite the growth in the gross income of pawnshops in the country, the BIR’s revenue collections from the industry decreased by 9.25 percent. The BIR said the industry posted a year-on-year gross income growth of 1.66 percent.
In 2013, when the BSP issued Circular 799, it mandated that interest rates for
loans transacted through pawnshops was at 6 percent per annum. At present, most pawnshops in the country impose a rate of 3 percent to 4 percent per month. This was explained to be payable during the month and can be renewed for a maximum of three months.
“As observed, the interest rates imposed by pawnshops are high compared to those imposed by other financial institutions,
pursuant to BSP Circular 799. They also collect a service charge equivalent to 1 percent of the principal loan but not to exceed P5,” the NTRC report said.
To reduce risks of fraudulent actions, the BSP has mandated that pawnshops are required to bond with employees and officers from reputable insurance companies accredited by the Insurance Commission. The BSP has the power to impose sanctions for the pawnshops that fail to operate according to the rules set forth by the government.
To be concluded
Image credits: Nonoy Lacza