by Recel P. Cachuela
The Cooperative Code of the Philippines (Republic Act No. 6938) declares
the policy of the State to foster the creation and growth of cooperative
as a practical vehicle for promoting self-reliance and harnessing people
power towards the attainment of economic development and social justice.
To encourage their formation and organization, cooperatives were granted
tax incentives under the Cooperative Code. The incentive vary depending
on whether the cooperative does business exclusively with members or
deals with non-members.
Cooperatives dealing exclusively with members are not subject to any
government taxes or fees imposed under the internal revenue laws and
other tax laws. For national taxes, the tax exemptions, as clarified
under Revenue Regulations ("RR") No. 20-01, include the following:
a. Income tax on income from operations
b. Value-added tax, subject to certain conditions
c. 3% percentage tax
d. Donor's tax subject to certain limitations
e. Excise tax
f. Documentary stamp tax (DST)
g. Annual registration fee of P500.00
They are also exempt from local taxes, except service charges or rentals
for the use of property and equipment or public utilities owned by local
government units, as confirmed through various rulings issued by the
Bureau of Local Government Finance.
For cooperatives dealing with both members and non-members, the
taxability of the transactions depends on whether or not the accumulated
reserves and undivided net savings (ARUNS) exceeds P10 million. If the
ARUNS is within the P10 million threshold, the cooperative enjoys the
same incentives as cooperatives dealing with members only.
Those with ARUNS exceeding the P10 million threshold are subject to
income tax on transactions with non-members after the lapse of 10 years
from the date of registration with the CDA. They are, likewise, subject
to donor's tax, DST, excise tax and local taxes. RR No. 20-01 further
clarified that the income of cooperatives, regardless of classification,
from transactions not related to their principal operation are subject
to the appropriate taxes under the Tax Code.
Despite the clear exemptions of cooperatives from taxes, many
cooperatives are still swamped with deficiency tax assessments from the
Bureau of Internal Revenue. Should these cooperatives be made liable for
taxes even if the exemption is clearly provided in the law? Is the
failure to comply with administrative requirement sufficient basis for
divesting cooperatives of the tax exemption privileges?
For example, RR No. 20-01 requires the cooperatives to apply for
Certificate of Exemption (COE) through the Legal Services of the Revenue
Region having jurisdiction over the cooperatives' principal place of
business. This is not, however, imposed as a requisite for the availment
of the tax exemption. Neither does the law require a Certificate of
Exemption as a condition for the enjoyment of the tax exemption
privileges. Thus, cooperatives could not be denied the incentives
provided in the law merely for failure to comply with the administrative
requirement.
Another pressing issue affecting particularly savings and credit
cooperative (SSC) is its supposed obligation, as withholding agent, to
withhold 20% final tax on the interest expenses paid to
member-depositors. In the February 2006 draft Manual of Rules and
Regulations for Cooperatives with Savings and Credit Services in the
Philippines, it is provided that SSCs are required to withhold and remit
20% final tax on interest income earned by the member-depositors. It is
to be noted that the Tax Code requires a final tax of 20% only upon the
amount of interest on currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and
similar arrangement. Considering th at a cooperative is not a bank, the
interest derived by the members should be exempt from final withholding
tax.
These are only some of the many challenges that the cooperatives face in
terms of complying with their tax obligations. If the cooperatives are
to be considered as vehicles for promoting self-reliance aimed towards
the attainment of economic development and social justice, these should
be accorded the benefits clearly intended by the law. In fact, every
government agency, including the revenue tax authority, is expected to
ensure that cooperatives develop into viable and responsive economic
enterprises free from any conditions that may infringe upon their
autonomy or organizational integrity.
(The author is a tax manager at the Davao branch of Punongbayan &
Araullo, member of Grant Thornton International. For comments and
inquiries, please e-mail the author).
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