Lotto tickets subject to DST

The sale of lotto tickets is subject to documentary stamp tax (DST) based on the cost of the ticket, pursuant to Section 190 of the Tax Code, as amended. They are not covered by the tax exemption granted to horse races and sale of tickets in the horse race sweepstakes under the Philippine Charity Sweepstakes Office (PCSO) charter (Republic Act No. 1169).

Under Section 4 of RA 1169, i.e., PCSO Charter, horse races and sale of tickets in the said sweepstakes are exempt from all taxes, except that each ticket shall bear a 12-centavo internal revenue stamp. According to the Court of Tax Appeals (CTA), since the statute expressly limits the exemption to horse races and sale of horse race sweepstakes, it may not, by interpretation or construction, be extended to others, i.e., lotto tickets.

On the contention that Section 4 of RA 1169, which grants tax exemption to “horse races tickets and sale of sweepstakes,” is inconsistent with Section 190 of the Tax Code, which imposes tax on lotto, the CTA held that there is no inconsistency between Section 190 of the Tax Code and Section 4 of RA 1169 since the latter expressly exempts only horse races and sale of sweepstakes tickets, and does not include lotto tickets.

The CTA further held that Section 190 of the Tax Code is clear that the cost of the ticket should be the basis for the computation of the DST. According to the CTA, the cost of the ticket is equivalent to the gross sales without deducting the commission and rent due the third parties, and not the net receipts.

(PCSO v. CIR and Assistant Commissioner of Internal Revenue, Large Taxpayers Service, CTA EB Case No. 807 re Case No. 8036, October 1, 2012)

Tax Brief - November 2012

Punongbayan and Araullo