New tax exemption ruling for co-ops

New tax exemption ruling for co-ops

By Nicole Marie Ignacio · May 4, 2010

While taxes may be the lifeblood of the government (as oftentimes exemplified both positively and negatively in ours), the Bureau of Internal Revenue (BIR) gives way to certain sectors under considerable factors promulgated in accordance to court rulings. Other than the mandatory exemptions stated in the 1987 Philippine Constitution sets such as charitable and religious institutions and (Article VI, Section 28, paragraph 3)non-stock, non-profit educational institutions (Article XVI, Section 4(3)), and the recently amended Republic Act No. 9504 approved on 17 June 2008 exempting minimum wage earners from paying income tax, cooperatives can now also enjoy the exemption from the 20% withholding tax.

As of February this year, the Second Division of the High Court reversed a ruling of the Court of Tax Appeals in December 2007 ordering the Dumaguete Cathedral Credit Cooperative (DCCCO) to pay over P2.6 million in unpaid withholding taxes on interest from savings and time deposits of its members for the taxable years 1999 and 2000, as well as delinquency interest of 20 percent per annum.

The SC also effectively nullified the pre-assessment notice on tax deficiency against DCCCO issued by the regional office of the Bureau of Internal Revenue (BIR) in Bacolod City.

The High Court explained that cooperatives are not required to withhold taxes on interest from savings and time deposits of their members as declared by the country’s major tax collecting agency in BIR Ruling 551-888 promulgated on Nov. 16, 1988.

The SC noted that under Article 2 of RA 6938, “it is a declared policy of the State to foster the creation and growth of cooperatives as practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice.”

“Thus, although taxes are the lifeblood of the government, the State’s power to tax must give way to foster the creation and growth of cooperatives,” the SC said.

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