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Percentage tax

G.R. No. L-28383 June 22, 1976


Petitioner-appellant, a domestic corporation engaged in the development and management of subdivisions, sale of
subdivision lots and collection of installments due for a fee which the real estate owners pay as compensation for each of
the services rendered, failed to pay the real estate broker's six percent(6%) tax on its income derived from the
supervision and collection fees, for the period from October 1953 to September 1958.

Consequently, the Commissioner of Internal Revenue demanded the payment of the percentage tax therefor plus twenty-
five percent (25%) surcharge, contending that said income is subject to the real estate broker's percentage tax. On the
other hand, petitioner-appellant claimed that the supervision and collection fees do not form part of its taxable gross

On appeal, the Court of Tax Appeal sustained the view of the Commissioner of Internal Revenue and held that income
derived from supervision of subdivisions and collections of installments for lots sold are subject to the brokerage
percentage tax.

Unsatisfied with this ruling, petitioner-appellant sought a review of the Tax Court Decision.

1. Whether or not the term "gross compensation" in section 195 includes supervision and collection fees received by
a real estate broker as a realty subdivision operator.
2. Whether or not the imposition of the twenty-five percent surcharge on the deficiency assessment is valid.


1. Yes.

With respect to the collection fees, the services rendered by Hoskins in collecting the amounts due on the
sales of lots on the installment plan are incidental to its brokerage service in selling the lots. If the broker's
commissions on the cash sales of lots are subject to the brokerage percentage tax, its commissions on installment
sales should likewise be taxable.

As to the supervision fees for the development and management of the subdivisions, which fees were
paid out of the proceeds of the sales of the subdivision lots, they, too, are subject to the real estate broker's
percentage tax.

The development, management and supervision services were necessary to bring about the sales of the
lots and were inseparably linked thereto. Hence, there is basis for holding that the operation of subdivisions is
really incidental to the main business of the broker, which is the sale of the lots on commission.

We hold that the Tax Court did not err in applying to this case the ruling in the Tuason case, supra where
the eight percent (8%) administration fee paid by Varsity Hills, Inc. to J.M. Tuazon & Co., Inc., as developer and
administrator of its subdivision, in addition to the latter's sales commission of ten percent (10%) on all sales of
subdivision lots, was held to be subject to the real estate broker's percentage tax.

2. Section 183 of the Tax Code provides that if the business percentage tax is not paid within twenty days
after the end of each month (formerly calendar quarter), "the amount of the tax shall be increased by twenty-five
per centum, the increment to be a part of the tax".

Considering that the taxability of collection and supervision fees was really a debatable or controversial
matter and was set at rest only on June 30,1960, when the Tuason case, supra, was decided, we believe that the
imposition of the twenty-five percent surcharge under the circumstances obtaining in this case (involving 1955 to
1958 deficiency tax) is not justified (Imus Electric Co., Inc. vs. Commissioner of Internal Revenue, L-22421,
March 18, 1967, 19 SCRA 612).

G.R. No. 150947. July 15, 2003


Revenue Memorandum Orders (RMOs) were issued imposing a 5% lending investor’s tax on pawnshop.
Pursuant to this, the BIR issued an assessment against Michel J. Lhuillier Pawnshop, Inc. (hereafter Lhuillier)
demanding payment of deficiency percentage tax.

Lhuillier filed an administrative protest, contending, inter alia, that pawnshops are different from
lending investors, which are subject to the 5% percentage tax under the specific provision of the Tax Code. Its
protest having been unacted upon, Lhuillier with the CTA which declared the RMO’s in question null and void
insofar as they classify pawnshops as lending investors subject to 5% percentage tax.


1. Are pawnshops included in the term lending investors for the purpose of imposing the 5% percentage
tax under then Section 116 of the NIRC?

2. Whether or not the RMOs in question are valid


1. NO. While it is true that pawnshops are engaged in the business of lending money, they are not considered
“lending investors” for the purpose of imposing the 5% percentage taxes since: (1) prior to its amendment the
NIRC, pawnshops and lending investors were subjected to different tax treatments; (2) Congress never
intended pawnshops to be treated in the same way as lending investors, since the amendment of the NIRC
treated both tax subjects differently’ (3) Under the maxim expressio unius est exclusio alterius, the mention of
one thing implies the exclusion of another thing not mentioned, Sec. 116 subjects to percentage tax dealers in
securities and lending investors only.

2. NO. There are two kinds of administrative issuances: the legislative rule and the interpretative rule. A
legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by
providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the
law which the administrative agency is in charge of enforcing.

When an administrative rule is merely interpretative in nature, its applicability needs nothing further
than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed.
When, on the other hand, the administrative rule goes beyond merely providing for the means that can
facilitate or render least cumbersome the implementation of the law but substantially increases the burden of
those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance is given the force and effect of law.[15]

RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective
measures revoking in the process the previous rulings of past Commissioners. Specifically, they would have
been amendatory provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops
would not be liable to pay the 5% percentage tax, considering that they were not specifically included in
Section 116 of the NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the law. The due
observance of the requirements of notice, hearing, and publication should not have been ignored.