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Tuesday, December 21, 2010

TAX EXEMPTION RULES FOR COOPERATIVES

TAX EXEMPTION RULES FOR COOPERATIVES UNDER ''PHILIPPINE COOPERATIVE CODE OF 2008''
REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City

February 11, 2010

REVENUE MEMORANDUM CIRCULAR NO. 12-2010

Subject : Circularizing the Full Text of JOINT RULES AND REGULATIONS

IMPLEMENTING ARTICLES 60, 61 AND 144 OF REPUBLIC ACT
NO. 9520, OTHERWISE KNOWN AS THE “PHILIPPINE
COOPERATIVE CODE OF 2008” IN RELATION TO RA 8424 OR
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

To : All Internal Revenue Officials, Employees and Others Concerned

For the information and guidance of all internal revenue officials, employees and others concerned, attached is the full text of JOINT RULES AND REGULATIONS IMPLEMENTING ARTICLES 60, 61 AND 144 OF REPUBLIC ACT NO. 9520, OTHERWISE KNOWN AS THE “PHILIPPINE COOPERATIVE CODE OF 2008” IN RELATION TO RA NO. 8424 OR THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED signed by the Department of Finance, the Bureau of Internal Revenue, and the Cooperative Development Authority last February 5, 2010.

All officials and employees are enjoined to give this Circular as wide a publicity as possible.

(Original Signed)

JOEL L. TAN-TORRES

Commissioner of Internal Revenue

B-4

Republic of the Philippines

DEPARTMENT OF FINANCE
Roxas Boulevard Corner Pablo Ocampo Street
Manila 1004
5 February 2010

JOINT RULES AND REGULATIONS IMPLEMENTING ARTICLES 60, 61 AND 144 OF REPUBLIC ACT NO. 9520, OTHERWISE KNOWN AS THE “PHILIPPINE COOPERATIVE CODE OF 2008” IN RELATION TO RA NO. 8424 OR THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED

SECTION 1. SCOPE. – Pursuant to the provisions of Sections 4 and 244 of the National Internal Revenue Code of 1997 (NIRC), as Amended, and Article 144 of RA 9520, this Joint Rules and Regulations are hereby promulgated to implement Articles 6o,61 of RA 9520 granting tax exemption to cooperatives, prescribe the guidelines for the availment thereof and for other purposes.

SECTION 2. CONSTRUCTION - The provisions of this Joint Rules and Regulations shall be construed and applied in accordance with and in furtherance of the declared policy, concepts, and principles enunciated under Articles 2, 3, and 4 of RA 9520, without prejudice to the provisions of Section 4 of the NIRC, as Amended.

In case of conflict or ambiguity which may arise in the implementation of this Joint Regulations or in case there is any doubt as to the meaning of any provision of this regulation or any regulation issued in pursuance to RA 9520, the same shall be resolved and construed liberally in favor of the cooperatives and their members as provided for in Article 142 of RA 9520.

SECTION 3. DEFINITION OF TERMS.

a) ACCUMULATED RESERVES – refers to the accumulated amount of money
Annually deducted from the net surplus, which shall be less than fifty per centum (50%) for the first five years of operations after registration and at least ten per centum of the net surplus thereafter, intended not for the allocation or distribution to the members but for the protection and stability of the cooperative, commonly referred to as the Reserve Fund.

b) BUREAU OF INTERNAL REVENUE – refers to the government agency entrusted with the power to, assess and collect all national internal revenue taxes, fees and charges, and the enforcement of all forfeitures, penalties and fines connected therewith, hereinafter referred to as the BIR.

c) BUSINESS TRANSACTION – refers to any business activity or livelihood engaged in by the cooperative where such cooperative generates savings.

d) CAPITAL ASSETS – refers to the property held by the taxpayer (whether or not connected with trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation.

e) CERTIFICATE OF GOOD STANDING – refers to the certificate issued annually by the CDA to cooperatives which comply with the requirements provided in CDA-Memorandum Circular No. 2008-03, and any subsequent amendments thereto.

For internal revenue tax purposes, said Certificate of Good Standing is one of the essential requirements for the grant of the Certificate of Tax Exemption/Ruling provided for in the next paragraph.

f) CERTIFICATE OF TAX EXEMPTION/RULING – refers to the certificate/ruling issued by BIR granting exemption to a cooperative, which is valid for a period of five (5) years from the date of issue.

g) COOPERATIVE – refers to an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together-to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits, of the undertaking in accordance with universally accepted cooperative principles.

h) COOPERATIVE DEVELOPMENT AUTHORITY – refers to the government agency created under R.A. 6939 mandated to register, regulate and develop cooperatives, hereinafter referred to as the CDA.

i) INTEREST ON SHARE CAPITAL – refers to the interest earned by the member’s paid-up to the capitalization of the cooperative. It is based on the average share capital contribution of members computed on a per month basis against the pre-set amount earmarked by the board of directors for interest on share capital.

j) PATRONAGE REFUND – refers to the refund or return to the members of net savings generated from the operations of the cooperative.

k) REGISTRATION – refers to the operative act granting juridical personality to a proposed cooperative as evidenced by a Certificate of Registration issued by the CDA.

l) RELATED OPERATIONS/TRANSACTIONS – refers to transactions of cooperatives which are part of the objectives and purposes, as enumerated in the Articles of Cooperation.

m) TRANSACTION WITH MEMBERS – refers to the cooperative activity that provides goods and services to members where the cooperative generates net savings/surplus.

n) TRANSACTION WITH NON-MEMBERS – refers to the cooperative activity that provides goods and services to non-members where the cooperative generates savings/surplus.

o) INDIVIDED NET SURPLUS/UNDIVIDED NET SAVINGS – refers to the new amount arising from the operations of the cooperative after deducting the operational expenses from revenue generated, not construed as profits, but as excess of payments made by the members for the loans borrowed or the goods and services bought – from the cooperative including other inflows of assets resulting from its other operating activities and which shall be deemed to have been returned tothem if the same is distributed as prescribed in accordance with Article 86 of RA 9520 and the by-laws of the cooperative.

p) UNRELATED TRANSACTIONS – refers to transactions of cooperatives which are not part of the objectives and purposes as enumerated in the Articles of Cooperation.

SECTION 4. TYPES OF COOPERATIVES. – A cooperative may fall under any of the Following types:

a) CREDIT COOPERATIVE – is one that promotes and undertakes savaings and
Lending services among its members. It generates a pool of funds in order to provide financial assistance and other related financial services to its members for productive and provident purposes;

b) CONSUMER COOPERATIVE – is one the primary purpose of which is to procure and distribute commodities to members and non-members;

c) PRODUCER’S COOPERATIVE – is one that undertakes a joint production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materials or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members;

d) MARKETING COOPERATIVE – is one which engages in the supply of production inputs to members and markets their products;

e) SERVICE COOPERATIVE – is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric, light and power, communication, professional and other services;

f) MULTIPURPOSE COOPERATIVE – is one which combines two (2) or more of the business activities of these different types of cooperatives;

g) ADVOCACY COOPERATIVE – is a primary cooperative which promotes and advocates cooperativism among its members and the public through socially-oriented projects, education and training, research and communication, and other similar activities to reach out to its intended beneficiaries;

h) AGRARIAN REFORM COOPERATIVE – is one organized by marginal farmers majority of which are agrarian reform beneficiaries for the purpose of developing an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;

i) COOPERATIVE BANK – is one organized for the primary purpose of providing a wide range of financial services to cooperatives and their members;

j) DAIRY COOPERATIVE - is one whose members are engaged in the production of fresh milk which may be processed and/or –marketed as dairy products;

k) EDUCATION COOPERATIVE – is one organized for the primary purpose of owning and operating licensed education institutions, notwithstanding the provisions of Republic Act No. 9155, otherwise known as the Governance of Basic Education Act of 2001;

l) ELECTRIC COOPERATIVE – is one organized for the primary purpose of undertaking power generation, utilizing renewable energy sources, including hybrid systems, acquisition and operation of sub-transmission or distribution to its household members;

m) FINANCIAL SERVICE COOPERATIVE – is one organized for the primary purpose of engaging in savings and credit services and other financial services;

n) FISHERMEN COOPERATIVE – is one organized by marginalized fishermen in localities whose products are marketed either as fresh or processed products;

o) HEALTH SERVICES COOPERATIVE – is one organized for the primary purpose of providing medical, dental and other health services;

p) HOUSING COOPERATIVE – is one organized to assist or provide access to housing for the benefit of its regular members who actively participate in the saving program for housing. It is co-owned and controlled by its members;

q) INSURANCE COOPERATIVE – is one engaged in the business of insuring life and property of cooperatives and their members;

r) TRANSPORT COOPERATIVE – is one which includes land and sea transportation, limited to small vessels, as defined or classified under the Philippine maritime laws, organized under the provisions of this Code;

s) WATER SERVICE COOPERATIVE – is one organized to own, operate and manage water systems for the provision and distribution of potable water for its members and their households;

t) WORKER’S COOPERATIVE – is one organized by workers, including the self-employed, who are at the same time the members and owners of the enterprise. Its principal purpose is to provide employment and business opportunities to its members and manage it in accordance with cooperative principles; and

u) OTHER TYPES OF COOPERATIVES as may be determined by the CDA.

SECTION 5. CATEGORIES OF COOPERATIVES. – Cooperatives shall be categorized according to membership and territorial considerations as follows:

a) In terms of Membership-Cooperatives shall be categorized into:

a.1) Primary – The members of which are natural persons;

b.2) Secondary – The members of which are primaries; and

c.3) Tertiary – The members of which are secondary cooperatives;

b) In terms of Territory – Cooperatives shall be categorized according to areas of operations which may or may not coincide with the political subdivisions of the country.

SECTION 6. CLASSIFICATION OF COOPERATIVES ACCORDING TO THE EXTENT OF THE TAX EXEMPTIONS GRANTED.

a) Those duly registered cooperatives which transact business with members only; and

b) Those duly registered cooperative which transact business with both members and non-members which are further sub-classified according to the following:

b.1) Cooperatives with accumulated reserves and undivided net savings of

\ not more than Ten Million Pesos (Php 10,000,000.00); and

b.2) Cooperatives with accumulated reserves and undivided net savings of

more than Ten Million Pesos (Php 10,000,000.00).

SECTION 7. TAX EXEMPTION OF DULY REGISTERED COOPERATIVE WHICH TRANSACT BUSINESS WITH MEMBERS ONLY. - Duly registered cooperatives dealing /transacting business with members only shall be exempt from paying any taxes and fees, including but not limited to:

a) Income Tax imposed by Title II of the NIRC, as amended;

b) Value-added Tax (VAT) imposed under Title IV of the NIRC, as amended

c) Percentage Tax imposed under Title V of the NIRC, as amended;

d) Donor’s Tax imposed under Title III of the NIRC, as amended, on donations to duly accredited charitable research and educational institutions and reinvestment to socio-economic projects within the area of operation of the cooperatives;

e) Excise Tax under Title VI of the NIRC, as amended, for which it is directly liable;

f) Documentary Stamp Tax imposed under Title VII of the NIRC, as amended, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax;

g) Annual Registration Fee of P500.00 under Section 236(B) of the NIRC, as amended;

h) All taxes on transactions with insurance companies and banks, including but not limited to 20% final tax on interest and7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system; and

i) Electric cooperatives duly registered with the Authority shall be exempt from VAT on revenues on systems loss and VAT on revenues and distribution, supply, metering and lifeline subsidy of electricity to their members.

SECTION 8. TAXABILITY/EXEMPTION OF DULY REGISTERED COOPERATIVES WHICH TRANSACT BUSINESS WITH MEMBERS AND NON-MEMBERS.

a) Cooperatives with accumulated reserves and undivided net savings of not more

Than Ten Million (Php 10,000,000.00) - -Exemption – from all national internal revenue taxes for which these cooperatives are liable as enumerated under Section 7 of this Joint Rules and Regulations.

b) Cooperatives with accumulated reserves and undivided net savings of more than Ten Million Pesos (Php 10,000,000.00) –

b.1) Business transactions with members – Business activities engaged in by such cooperatives with its members where said cooperatives generates revenues shall be exempt from all national internal revenue taxes for which it is liable as enumerated in Section 7 of this Joint Rules and Regulations;

b.2) Business transactions with non-members – Cooperatives with accumulated reserves and undivided net savings of more than Php 10,000,000.00 which transact with non-members shall:

b.2.1.1 ) Income Tax - On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by the members. The tax base for all cooperatives liable to income tax shall be the net surplus arising from the business transactions with non-members after deducting the amounts for the statutory reserve funds as provided for in the Cooperative Code and other laws.

b.2.1.2) Value-Added Tax (VAT) - On transactions with non-members: Provided, however, That cooperatives, pursuant to Section 109, par. (L), (M) and (N) of the NIRC, as amended by RA 9337, shall be exempt from the imposition of VAT, namely the following:

i. Sales by agricultural cooperatives duly registered and in good standing with the CDA to their members, as well as sale of their produce, whether in its original state or processed form, to non-members, their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce (Sec. 109 (1) (L) of the NIRC, as amended).

Provided, further, That the exempt transactions pursuant to the above shall include sales made by a duly registered agricultural cooperative organized and operated by its members to undertake the production and processing of raw materials or of goods produced by its members into finished or processed products for sale by said cooperative to its members and non-members: Provided, finally, That any processed product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed the product of the cooperative.

Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g., trader), only those sales to its members shall be exempted from VAT.

Exempt transactions shall include sales made by a duly registered agricultural cooperative organized and operated by its members to undertake the production and processing of raw materials or of goods produced by its members into finished or processed products for sale by said cooperative to its members and non-members.

Products produced/processed by non-members or production not related to the purposes for which a cooperative is created as stated in its Articles of Cooperation even if sold in the name of said cooperative shall not be considered as produced/processed by said cooperative. To illustrate, raw materials produced by the members and processed by the cooperative shall be exempt from VAT.

It is to be reiterated, however, that sale or importation of agricultural food products in their original state is exempt form VAT irrespective of the seller and buyer thereof, pursuant to Sec. 4.109-1 (B) (a) of Revenue Regulations No. 16-05, as amended.

ii. Gross receipts from lending activities by credit or multipurpose cooperatives duly registered with the CDA (Sec. 109 (1) (M) of the NIRC, as amended); or

iii. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the CDA: Provided, That the share capital contribution of each member does not exceed fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among members (Sec. 109 (1) (N) of the NIRC, as amended; or

iv. Transactions of cooperative as may be deemed VAT exempt under the NIRC.

b.2.1.3) Percentage Tax - all sales of goods and/or services rendered to non-members shall be subject to the applicable percentage taxes imposed by Title V of the NIRC, as amended, except sales made by producers, marketing, or service cooperatives;

b.2.1.4) All other Internal Revenue Taxes unless otherwise provided by the law; and

b.2.2) Be entitled to limited or full deductibility of donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation of such cooperative.

b.2.3) Pursuant to Article 61 (3) be entitled to an exemption on taxes on transactions with insurance companies and banks, including but not limited to 20% final tax on interest deposits and 7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system.

SECTION 9. TAXABILITY OF UNRELATED INCOME OF COOPERATIVE.

--Notwithstanding the foregoing, all income of cooperative not related to the main/principal business/es under its Articles of Cooperation shall be subject to all the appropriate taxes under the NIRC, as amended. This is applicable to all types of cooperatives whether dealing purely with members or both members and non-members.

SECTION 10. TAXABILITY OF COOPERATIVESTO OTHER INTERNAL REVENUE TAXES. - All cooperatives, regardless of classification shall be subject to:

a.) Capital Gains Tax from sale of shares of stock or sale, exchange or other disposition of real property classified as capital assets;

b.) Documentary stamp taxes on transactions of cooperatives dealing with non-members, except transactions with banks and insurance companies, Provided that whenever one party to the taxable document enjoys the exemption from DST, the other party who is not exempt shall be the one directly liable for the tax;

c.) VAT billed on purchases of goods and services, except the VAT on the importation by agricultural cooperative of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce, pursuant to Section 109 (L) of the NIRC, as amended. All tax free importations shall not be transferred to any person until five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or the duties thereon;

d.) Withholding tax on compensation/wages, except in the case where an employee is a minimum wage earner; and creditable and final withholding taxes, if applicable. All cooperatives, regardless of classification, are considered as withholding agents on all income payments that are subject to withholding pursuant to the provisions of Revenue Regulations No. 2-98, as amended; and

e.) All other taxes for which cooperatives are directly liable and not otherwise expressly exempted by any law.

SECTION 11. TAXABILITY OF MEMBERS/SHARE HOLDERS OF COOPERATIVES. - All members of cooperatives shall be liable to pay all the necessary internal revenue taxes under the NIRC, as amended, except for the following:

a) Any tax and fee, including but not limited to final, tax on member’s

deposits or fixed deposits (otherwise known as share capital) with cooperatives, and documentary tax on transactions of members with the cooperative; and

b) Patronage refund which includes all refunds, returns or rebates of the net savings generated from the operation of the cooperative.

SECTION 12. CERTIFICATE OF TAX EXEMPTION/RULING. - All cooperatives which were issued a new certificate of registration by the CDA in compliance to Article 144 (1) of RA 9520 and subsequently new cooperatives to be registered under the same Act shall secure their certificate of tax exemption from the BIR by the way of confirmatory ruling to be issued by the Regional Director or by the Assistance Commissioner of Internal Revenue (ACIR), Legal Service, as the case may be, in accordance with the delegated authority granted to them by RDAO No. 3-2009.

However, the application for Certificate of Tax Exemption of cooperatives whose accumulated reserves and undivided net savings do not exceed Ten Million Pesos (P 10,000,000.00) shall be acted upon within forty-five (45) days upon submission of all the required documents. Otherwise, the BIR officer/employee concerned may be held liable under Article 140 of RA 9520.

Such cooperatives are required to be registered with the BIR, but shall be exempt from the payment of the annual registration fee of P500.00.

SECTION 13. DOCUMENTS TO BE ATTACHED TO THE LETTER - APPLICATION FOR THE ISSUANCE OF A CERTIFICATE OF TAX EXEMPTION/RULING. - A letter-application signed by the Chairman/General Manager of a cooperative, or his duly authorized representative shall be submitted to the Revenue District Office which has jurisdiction over the principal place of business of the cooperative. Such Revenue District Office shall transmit the application for tax exemption within five (5) working days from the filing of the said letter-request accompanied by the required documentary requirements to the Legal Division of the Regional Office or The Assistant Commissioner, Legal Service, as the case may be. The letter-application shall state the type of the cooperative and the transactions engaged in with members/non-members. The following documents shall be attached to said application:

a) A certified true copy of the Certificate of Registration issued by the CDA under the new Cooperative Code;

b) A certified true copy of the Articles of Cooperation and By-laws of the Cooperative;

c) A certified true copy of the current Certificate of Good Standing from CDA, effective on the date of application. No application for exemption will be processed in the absence thereof;

d) A copy of the BIR Certificate of Registration of the Cooperative.

The application for exemption by a qualified cooperative is a pre-requisite for availment of tax exemption by said cooperative. The Certificate of Tax Exemption/Ruling shall be issued only after the determination by the BIR that the cooperative has complied with all the necessary documentary requirements for entitlement under RA 9520, as enumerated above.

The Certificate of Tax Exemption/Ruling must be signed by the BIR Regional Director/Assistant Commissioner, Legal Service, as the case may be, and shall be acted upon within forty-five (45) days from the date of submission of the complete documentary requirements, otherwise the BIR officer/employee concerned may be held liable under Article 140 of RA 9520.

All duly registered cooperatives under RA 9520 shall apply for a Certificate of Tax Exemption/Ruling within sixty (60) days counted from the date of issuance of certificate of registration.

Exemption from taxes herein shall apply to the duly-registered cooperatives on the year the certificate of tax exemption/ruling was issued. However, for the initial issuance of the Certificate of Tax Exemption/Ruling under RA 9520, the effectivity of such Certificate of Tax Exemption/Ruling issued shall commence from the year RA 9520 took effect: Provided, That the cooperative has registered with the CDA as provided under Article 144 of RA 9520.

For applications for tax exemption not filed within the prescribed period, the late applicants shall be subjected to internal revenue taxes prior to the issuance of the Certificate of Tax Exemption/Ruling; however, they can apply for tax credit/refund of taxes previously paid from the date of registration with the CDA up to the issuance of the Certificate of Tax Exemption/Ruling, subject to the rules and procedures for processing tax credit/refund. The BIR shall act on the request for tax refund of taxes previously paid within one hundred twenty (120) days from submission of the complete documents in support of the application filed.

SECTION 14. VALIDITY OF CERTIFICATE OF TAX EXEMPTION/RULING. - The Certificate of Tax Exemption/Ruling shall be valid for a period of five (5) years from the date of issue or date of effectivity as provided under Section 13 hereof, and during such period that the Cooperative is in good standing as ascertained by the CDA on an annual basis.

A copy of the Certificate of Good Standing issued by the CDA to the cooperative shall, together with the Income Tax Return and Audited Financial Statements, be submitted to the BIR on or before the 15th day of the fourth month (April 15) following the close of the calendar year.

SECTION 15. RENEWAL OF CERTIFICATE OF TAX EXEMPTION/RULING. – An application for renewal of Certificate of Tax Exemption shall be filed at least two (2) months prior to the date of expiration of the existing Certificate of Tax Exemption/Ruling, and should be acted upon within the period prescribed inn Section 13 of this Joint Rules and Regulations. Such renewal of the Certificate of Tax Exemption/Ruling shall be for a period of five (5) years unless sooner revoked for cause.

The application for renewal of Certificate of Tax Exemption shall be accompanied by the following documents:

a) A certified true copy of the Certificate of Registration issued by the CDA under the new Cooperative Code;

b) A certified true copy of the Articles of Cooperation and By-laws of the Cooperative;

c) A certified true copy of the current Certificate of Good Standing from CDA, effective on the date of application. No application for exemption will be processed in the absence thereof or submission of an expired Certificate of Good Standing;

d) Certificate under oath by the Chairperson/General Manager whether the cooperative is transacting business with members only or both members and non-members, whichever is applicable;

e) In case the cooperative deals with members and non-members, records of transactions clearly showing which transactions correspond to members and non-members shall be submitted in the next renewal of the said tax certificate and not in the year of registration;

f) Certification under oath by the Chairperson or General Manager of the cooperative as to the amount of the accumulated reserves and that at least 25% of the net surplus is returned to the members in the form of interest on share capital and/or patronage refund;

g) Certification under oath of the list of members and the share capital contribution of each member; and

h) Latest financial statements of the immediately preceding year duly audited by an independent certified public accountant.

Should any of the above requirements involve submission of voluminous documents and/or records on the part of the cooperative, soft copies of such documents/records may be submitted in lieu of printed material. Said soft copies shall be submitted in two (2) CD-R or DVD-R disks, using a format such as an Adobe Acrobat (pdf) file. The Revenue District Office shall check if the copies are identical, make distinguishing marks on both copies upon submission to ensure that the records are not tampered with/substituted, and return 1 copy to the submitting cooperative. In cases where the Revenue District Office has no CD-R/DVD-R optical drives, the copies may be submitted on floppy disks/other media subject to the distinguishing marks as stated above.

SECTION 16. EXAMINATION OF BOOKS OF ACCOUNTS AND OTHER ACCOUNTING RECORDS OF THE COOPERATIVE. – The books of accounts and accounting records of the cooperatives can be examined by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions and their tax liabilities, if any, only after previous authorization by the CDA, which shall be released by the CDA or its Extension Office having jurisdiction over the cooperative, copy furnished the concerned cooperative, within twenty (20) days from receipt of the request from BIR.

The formal investigation shall commence upon the issuance of the letter of Authority/Letter-notice by the Commissioner or his authorized representative and the authorization from the, CDA within the period prescribed above.

SECTION 17. COMPROMISE SETTLEMENT OF ANY TAX LIABILITY UNPAID BY COOPERATIVES. – Pursuant to Article 144 (2) of RA 9520, all cooperatives previously registered under RA 6938 with unpaid/unsettled assessments as of the effectivity of RA 9520 shall be qualified to avail of the compromise settlement with BIR at a compromise rate equivalent to twenty percent (20%) of the basic tax assessed. Provided, That if the financial position of a cooperative demonstrates a clear inability to pay the assessed tax, Section 204 (A) (2) of the NIRC, as amended, shall apply and such shall be determined after having deducted all statutory funds required under RA 9520, such as the Reserve Fund, Education Fund, Community Development Fund and Optional Fund. Provided, further, That such compromised amount may be paid in installments favorable to duly registered cooperative in cases of financial incapacity.

SECTION 18. TRANSITORY PROVISIONS. – All duly-registered cooperatives pursuant to RA 6938 are deemed registered provided that said cooperatives must submit to the nearest CDA office a copy of their valid and effective Certificate of Registration, Articles of Cooperation, By-laws, and Audited Financial Statements within one (1) year from the effectivity of RA 9520. If a cooperative fails to follow this procedure, its registration will be cancelled motu propio.

After a cooperative complies with the requirements provided in the immediately preceding paragraph, and has been given a new certificate of registration, it can proceed with securing a Certificate of Tax Exemption/Ruling from the Revenue District Office having jurisdiction over the same following the procedure provided therein.

Applications for Tax Exemption pending with the BIR shall be acted upon by the concerned Regional Director having jurisdiction over the cooperative within forty-five (45) days from the effectivity of this Joint Rules and Regulations.

SECTION 19. REPEALING CLAUSE. - Revenue Regulations 13-2008, Revenue Regulations 6-2007 and Section 4.114-1 (B) and Section 4.109 (B) (1) of Revenue Regulations 16-2005 are hereby repealed.

All other revenue rulings, regulations, and other issuances, which are inconsistent with the provisions of this Joint Rules and Regulations, are hereby repealed or modified accordingly.

SECTION 20. SEPARABILITY CLAUSE. - Should any part of this Joint Rules and Regulations be held unconstitutional or invalid, the validity of the remaining provisions not affected thereby shall remain in force and effect.

SECTION 21. EFFECTIVITY. - This Joint Rules and Regulations shall take effect upon its approval.

(Original Signed )
MARGARITO B. TEVES
Secretary of Finance

Recommending Approval:

(Original Signed )
HON. JOEL L. TAN-TORRES
Commissioner of Internal Revenue

(Original Signed )
HON. LECIRA V. JUAREZ
Chair, Cooperative Development Authority

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CERTIFICATE OF TAX EXEMPTION OF COOPERATIVES

BIR RMO NO. 76-2010: CERTIFICATE OF TAX EXEMPTION OF COOPERATIVES AND MONITORING THEREOF
September 27, 2010

REVENUE MEMORANDUM ORDER NO. 76-2010

Subject: Prescribing the Policies and Guidelines in the Issuance
of Certificate of Tax Exemption of Cooperatives
and Monitoring Thereof.

To : All Internal Revenue Officers and Others Concerned

Section 1. BACKGROUND:

Republic Act (RA) No. 9520, otherwise known as the "Philippine Cooperative Code of 2008", was approved on February 17, 2009 and took effect on April 6, 2009. Pursuant to the provisions of Article 144 of the Cooperative Code, in relation to Sections 4 an 244 of the National Internal Revenue Code of 1997 (NIRC), as amended, the Department of Finance, Bureau of Internal Revenue (BIR) and the Cooperative Development Authority (CDA) issued the Joint Rules and Regulations Implementing Articles 60, 61 and 144 of the Cooperative Code on February 5, 2010 which became effective on June 16, 2010.

RA No. 9520 extends the same preferential tax treatment to cooperatives granted under RA 6938 and reiterates most of the provisions of the old Cooperative Code on tax incentives and exemptions. The major difference, however, is that under Article 61 of the new law, transactions of members with cooperatives are now expressly exempt from any imposition of taxes and fees thereby making the legislative intent for taxation to give way to the demands of social justice more apparent.

Consistently with the foregoing policy of the State, it is incumbent upon the BIR to ensure that the tax exemptions and incentives extended to cooperatives are administered effectively. Towards this end, the BIR shall adopt uniform and simplified procedures in the processing and confirmation of cooperative tax exemptions.

Section 2. OBJECTIVES:
This Order is hereby issued to achieve the following objectives:
1. To prescribe simplified procedures in the availment of tax exemptions and incentives provided for under Articles 60, 61 and 144 of RA 9520;
2. To sustain an efficient and effective administration of tax exemptions under RA 9520; and
3. To increase coordination between Revenue Regions and National Office for purposes of monitoring the revenue impact of the exemptions granted to cooperatives.

Section 3. POLICY:

It is a declared policy to integrate and streamline the requirements for confirming tax exemptions under RA No. 9520. In order to expedite the processing and confirmation of tax exemptions, applications shall be acted upon by the Revenue District Offices and Revenue Regions having jurisdication over the principal place of business of the cooperatives, instead of the National Office.

Section 4. GENERAL GUIDELINES:

1. All cooperatives previously registered with and confirmed by CDA under RA 6938 and RA 6939 are deemed registered under the new Cooperative Code (RA 9520) and a new certificate of registration shall be issued by CDA. It is only after a cooperative has secured a new certificate of registration that it becomes eligible to apply for a Certificate of Tax Exemption with the BIR.
2. All cooperatives registered with the CDA under RA 9520 are mandated to update their registration information with the BIR.
3. A cooperative applying for tax exemption shall be required, as a condition for the issuance of Certificate of Tax Exemption, to update its BIR Registration with the Revenue District Office (RDO) having jurisdiction over the cooperative's principal place of business.
4. The cooperative's application for Registration Update may be processed simultaneously with the cooperative's application for tax exemption.
5. The Updated Certificate of Registration shall be issued and released to the cooperative together with the Certificate of Tax Exemption. The concerned RDO shall endeavor to release the Certificate of Tax Exemption within ten (10) working days from submission of complete documents by the cooperative.
6. Applications for Certificate of Tax Exemption and its subsequent renewals shall comply with documentary requirements prescribed in the succeeding section. The RDA shall refuse to accept the cooperative's application when it is not properly supported by the documents required herein.

Section 5. DOCUMENTARY REQUIREMENTS:

A. For the Original Issuance of Certificate of Tax Exemption

A cooperative shall submit a duly accomplished Application for Certificate of Tax Exemption for Cooperatives (BIR Form No. 1945), attached herein as Annex "A", together with the following documents, to the concerned RDO:

1. Certified True Copies of the Articles of Cooperation and By-Laws, as certified by the CDA;
2. Certified True copy of the new Certificate of Registration issued by the CDA under the new Cooperative Code, as certified by the CDA;
3. Certified True Copy of the current Certificate of Good Standing issued by the CDA effective on the date of application; and
4. Certified True Copy of the BIR Certificate of Registration of the Cooperative.

In addition to the above requirements, the cooperative shall also submit the following documents:

1. Original Copy of Certification under Oath of the List of Cooperative Members with their respective Taxpayer Identification Number (TIN) and their capital contributions prepared by authorized official of the Cooperative.

Foe the initial submission of this list of cooperative members, those without TIN may temporarily use NSO number or other government-issued ID number or Community Tax Certificate Number.

Subsequently, however, the cooperative should require all their members to secure a TIN with the BIR of the updated list of members to be submitted together with the regular filing of the cooperative's annual income tax return.

B. For the Renewal of Certification of Tax Exemption

For the renewal of Certificate of Tax Exemption, a cooperative shall likewise submit a duly accomplished Application for Certificate of Tax Exemption for Cooperatives (BIR Form No. 1945), attaching herein as Annex "A", together with the following documents, to the concerned RDO:

1. Certified True Copy of the Certificate of Registration issued by the CDA under the new Cooperative Code;
2. Certified True Copy of the Latest Articles of Cooperation and the Latest By-laws of the Cooperative;
3. Certified True Copy of the current Certificate of Good Standing from CDA effective on the date of application. No application for exemption will be processed in the absence thereof or submission of an expired Certificate of Good Standing; and
4. Certified True Copy of Latest financial statements of the immediately preceding year duly audited by a BIR accredited independent certified public accountant.

Section 6. Processing of Request for Issuance of Certificate of Tax Exemption

A. APPLICATION AND PRE-EVALUATION BY THE REVENUE DISTRICT OFFICE

1. Update of BIR Registration profile:

The cooperatives are required to surrender their Old BIR Certificate of Registration and submit an Application of Update of BIR Registration with the Revenue District Officer (RDO) where they are originally registered.

2. Application for Cooperative's Certificate of Tax Exemption:
The cooperative must submit also to the RDO where they are registered a duly accomplished BIR Form No. 1945 with all requisite documents.l

3. Pre-evaluation at the RDO:
The RDO, or his designated Revenue Officer of the Day must pre-evaluate the cooperative's submission using Pre-evaluation Sheet of Revenue Officer, herein attached as Annex "B".

4. Endorsement to the Regional Director:

If the cooperative's submissions are in order and in compliance with this RMO, the Revenue Officer of the Day shall prepare a Memo Endorsement Form, herein attached as Annexes "C"/"C-1", to the Regional Director recommending issuance of Certificate of Tax Exemption. The entire docket, with the necessary pre-evaluation sheet and endorsement letter report, shall be transmitted within five (5) working days from the filing of the duly-accomplished BIR Form No. 1945 accompanied by the required documentary requirements to the Office of the Regional Director, through The Chief, Legal Division.

B. REVIEW AND APPROVAL OF CERTIFICATES BY THE REGIONAL DIRECTOR

1. Review by the Legal Division:

The Chief, Legal Division shall review and evaluate the RDO's report, and if in order, prepare the appropriate Certificate of Tax Exemption (For Cooperatives registered under Republic Act No. 9520), following the applicable format herein as Annex "D" or Annex "E" or Annex "F."

2. Preparation and Approval of Certificate of Tax Exemption:
The Certificate of Tax Exemption shall be forwarded to the Regional Director for his signature. Only applications for tax exemption which comply with the documentary requirements prescribed herein shall be approved by the Regional Director.

C. NUMBERING AND RELEASING OF CERTIFICATES

1. Immediately after the Certificate of Tax Exemption (For Cooperatives Registered under Republic Act No. 9520) has been approved and signed by the Regional Director, the same shall be transmitted back to the Legal Division for numbering.

2. The certification number shall be indicated in the space provided for in the upper right portion of the Certificate and shall adopt the following numbering code:

Example:
The 1st Certificate of Tax Exemption (For Cooperatives Registered Under Republic Act No. 9520) to be issued by Revenue Region No. 1 -Calasiao, Pangasinan for a cooperative registered with RDO No. 001 -Calasiao, Pangasinan for a cooperative registered with RDO No. 001, Ilocos Norte shall bear the following certification number:

"COOP No. 00001-10-RDO 001"

Where:
"00001" indicates that this is the first Certificate of Tax
Exemption issued for the period;
"10" represents the calendar year 2010;
"RR-01" stands for Revenue Region No. 1 (or the concerned revenue region)
and
"RDO 001" refers to RDO 01 (or the RDO Number where the cooperative
is registered taxpayer)

Certificates of Tax Exemption (For Cooperative Registered under Republic Act No.
9520) shall be numbered sequentially as they are issued.

3. The signed and numbered Certificate of Tax Exemption shall be transmitted back
to the RDO, together with the updated Certificate of Registration, whenever
applicable.

Section 7. TAX EXEMPTIONS AND INCENTIVES OF COOPERATIVE UNDER
RA No. 9520

For the guidance and information of all concerned, Revenue Memorandum Circular (RMC) No. 012-10 dated February 11, 2010 was issued to circularize the Joint Rules and Regulations (JRR) implementing Articles 60, 61 and 144 of RA No. 9520.

However, as quick reference to this RMO, the tax exemptions and incentives provided under Articles 60 and 61 or RA No. 9520, as implemented by Section 7, 8, 9 and 10 of the JRR are quoted herein as follows:

"Section 7. TAX EXEMPTIONS OF DULY REGISTERED COOPERATIVES
WHICH TRANSACT BUSINESS WITH MEMBERS ONLY. - Duly registered
cooperatives dealing/transacting business with members only shall be exempt from
paying any taxes and fees, including but not limited to:

a) Income Tax imposed by Title II of the NIRC, as amended;
b) Value-Added Tax (VAT) imposed under Title IV of the NIRC, as amended;
c) Percentage Tax imposed under Title V of the NIRC, as amended;
d) Donor's tax imposed under Title III of the NIRC, as mended on donations to duly accredited charitable research and educational institutions
and reinvestment to socio-economic projects within the area of operation
of the cooperatives;
e) Excise tax under Title VI of the NIRC, as amended, for which it is directly liable;
f) Documentary Stamp Tax imposed under Title VII of the NIRC, as amended, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax;
g) Annual Registration Fee of P500.00 under Section 236 (B) of the NIRC, as amended;
h) All taxex on transactions with insurance companies and banks, including but not limited to 20% final tax on interest deposits and 7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system, and;
i) Electric cooperatives duly registered with the Authority shall be exempt from VAT on revenues on systems loss and VAT on revenues on distribution, supply, metering and lifeline subsidy of electricity to their members.

Section 8. TAXABILITY/EXEMPTION OF DULY REGISTERED COOPERATIVES WHICH TRANSACT BUSINESS WITH MEMBERS AND NON-MEMBERS-

a. Cooperatives with accumulated reserves and undivided net savings of not more than Ten Million (Php 10,000,000.00) -Exemption from all national internal revenue taxes for which these cooperatives are liable as enumerated under Section 7 of this Joint Rules and Regulations.
(TO BE CONTINUED...)

BIR WAIVES TIN

BIR WAIVES TIN, WILL ALLOW PHOTOCOPY OF MEMBERS' LIST/CAPITAL SHARES IN CO-OP'S APPLICATION FOR TAX EXEMPTION CERTIFICATE

Good News! The Bureau of Internal Revenue will no longer require cooperatives to submit an "Original Copy of Certification under Oath of the List of Cooperative members and their respective Taxpayer Identification Number (TIN) and their capital contribution."

This is when cooperatives apply with the BIR for a Certificate of Tax Exemption, which was earlier required under BIR Revenue Memorandum No. 76-2010, dated September 28, 2010.

In its subsequent Revenue Memorandum Circular No. 81-2010, dated November 5, 2010, the BIR said that, in place of the abovementioned requirement, which cooperatives found onerous, it will "..allow the submission of the Certified Photocopy of the List of Cooperative members with their Respective Capital Contributions, submitted by the cooperatives in obtaining their Certificate of Confirmation of New Registration and Certificate of Good Standing with the Cooperative Development Authority (CDA).."

What a relief, indeed! We can only thank BIR Commissioner KIM S. JACINTO-HENARES, and the concerned CDA officials whom we can presume to have convinced BIR and the Department of Finance people to reconsider their original, hard stance, which met with strong oppoosition from many cooperative sectors. Thank you, Undersec. Lecira Juarez of the CDA!

We are reprinting the following, for the guidance of all cooperatives:

REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUES

November 5, 2010

SUBJECT : Clarification on the Documentary Requirements for the Application
for Certificate of Tax Exemption for Cooperatives (BIR Form No.
1945) pursuant to Revenue Memorandum Order No. 76-2010
dated September 28, 2010

TO : All Internal Revenue Officers and Others Concerned.

Revenue Memorandum Order No. 76-2010 dated September 28, 2010 was issued to prescribe the policies and guidelines for the issuance of Certificates of Tax Exemption for registered Cooperatives under Republic Act (RA) No. 9520, otherwise known as the "Philippine Cooperative Code of 2008."

In compliance with the submission of the additional requirement mentioned in Section 5 (A) of Revenue Memorandum Order No. 76-2010, this Circular is issued to allow the submission of the Certified Photocopy of the List of Cooperative Members with their Respective Capital Contributions submitted by the cooperatives in obtaining their Certificate of Confirmation of New Registration and Certificate of Good Standing with the Cooperative Development Authority (CDA).

All internal revenue officers are hereby enjoined to give this Circular a wide publicity as possible.

(Original Signed)

KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

BSP bans pre-approved credit cards

BSP bans pre-approved credit cards
December 20, 2010 23:57:00

Philippine Daily Inquirer

MANILA, Philippines—Banks will no longer be allowed to distribute pre-approved credit cards, a practice that has elicited fraud-related complaints from the public.

Responding to such complaints, the Bangko Sentral ng Pilipinas has issued guidelines tightening credit card regulation in the country. The guidelines, which will take effect 15 days after publication, prohibit banks from issuing pre-approved credit cards to potential clients.

Pre-approved credit cards—those that are issued without application by the intended recipients—are usually sent to target clients through regular mail or courier service. The instance the recipient uses the card for a purchase or cash advance automatically makes him or her a credit card customer liable to pay the applicable interest rate and service fees.

The problem with pre-approved credit cards, the BSP said, was that these make the supposed recipients prone to becoming victims of fraud. Some intended recipients do not get to hold the credit cards and the cards intended for them are fraudulently used by other people.

“The MB [Monetary Board of the BSP] gave particular weight to concerns that pre-approved cards have exposed the public to cases of fraud via unauthorized use of said cards,” the BSP said in a statement.

The new credit-card guidelines likewise require banks to notify a cardholder that his account would be endorsed to a collection agency at least seven days before the actual endorsement is made. Collection agencies are tapped to collect overdue accounts.

“The notification requirement is expected to also give cardholders enough time to consider whether it will be advantageous for them to settle before their accounts are endorsed to collection agents,” the BSP said.

Under the guidelines, cardholders should be notified about the identity of the collecting agent. This addresses concerns over unfair collection practices by some collecting agents, the BSP said.

Moreover, the new guidelines impose tighter disclosure requirements. A table of credit card transactions with the applicable interests and penalties will be included in billing statements.

Cardholders should also be reminded constantly in the billing statements that payment of only the minimum amount due, or any amount lower than the total amount due, for a billing cycle would result in the imposition of interest and other charges.

Regulators said some cardholders were not fully aware of how interest and charges were imposed on their purchases, while others were not aware that paying less than the total amount due resulted in the payment of applicable interest and charges.

They said transparency would help protect the public not only against fraud but also against unintelligent use of credit cards.

Documents from the BSP showed that outstanding credit-card loans amounted to P129.6 billion as of end-June this year, about 5 percent lower than the P135.9 billion a year ago.—Michelle V. Remo

Sunday, December 19, 2010

BIR tightens disclosure requirements for taxpayers

BIR tightens disclosure requirements for taxpayers

By Iris C. Gonzales (The Philippine Star)
Updated December 19, 2010 12:00 AM

MANILA, Philippines - The Bureau of Internal Revenue (BIR) has tightened the disclosure requirements for individual and corporate taxpayers, with the end goal of obtaining more information on taxes and duties remitted to the tax agency.

Finance Secretary Cesar Purisima said the newly issued regulation would make it easier for the BIR to monitor and track if companies were paying the right amount.

“It will still not be able to deal with outright nondisclosure of revenues but bookkeepers who cannot take the cheating anymore can provide us information anonymously so we can catch tax cheats,” Purisima said.

He said bookkeepers and other informants can provide tips and leads through the Department of Finance’s www.perangbayan.com, a website intended to help in the government’s campaign against tax evaders and smugglers.

Under the newly issued BIR regulation, taxpayers are required to include information on taxes, duties and license fees paid or accrued during the taxable year in addition to the disclosures mandated under the Philippine Financial Reporting Standards.

“Taxpayers must now disclose information on the amount of value added tax (VAT) output tax declared during the year and the account title and amount upon which the same was based,” the BIR said in its regulation.

Furthermore, it said that any information on the amount of VAT input taxes claimed beginning of the year as well the current year’s domestic purchases and payments for goods for resale, manufacture or further processing must also be indicated.

The BIR is also requiring information on goods other than for resale or manufacture, capital goods subject or not subject to amortization as well as services lodged under cost of goods sold and other account.

Claims for tax credit, refund and other adjustments also need to be disclosed, the tax agency said.

For importers, the BIR is requiring information on imports and the amount of customs duties and tariff fees paid. The amount of excise tax classified per major product category such as tobacco and alcohol products, automobiles, minerals, oil and petroleum paid on locally produced and imported excisable items must also be incorporated in the report.

Investments in different instruments and stocks will also be scrutinized, the BIR said.

This means that information on documentary stamp tax (DST) on loan instruments, shares of stock and other transactions as well local and international taxes must also be disclosed, the BIR said.

“For withholding taxes, information must include tax on compensation and benefits, creditable withholding taxes and final withholding taxes,” the BIR said.

BIR sets strict rules on filing of late and out-of-district tax returns

BIR sets strict rules on filing of late and out-of-district tax returns
By CHINO S. LEYCO

December 17, 2010, 12:39am

MANILA, Philippines – The Bureau of Internal Revenue (BIR) said yesterday that it will be implementing stringent rules on the filing of late and out-of-district tax returns.

In a statement, the tax agency said no Authorized Agent Banks (AABs), Revenue Collection Officers (RCOs), Revenue District Offices (RDOs) Large Taxpayers District Offices (LTDOs) or Large Taxpayers Division (LTD) shall accept late and out-of-district returns as well as payment of the taxes due.

The BIR said the new rule applies to all kinds of returns including One-Time- Transactions involving Estate, Donor’s, Capital Gains and Documentary Stamps Taxes.

However, the regulations specify certain cases where the bureau made exceptions to the rule and provides the necessary policies and guidelines to be followed.

On non-acceptance of Out-of-District Returns, it is only in cases where an AAB in the course of its operations has inadvertently or erroneously accepted an Out-of-District Return with the corresponding tax payment, shall an exception to the rule be made to consider.

As such, the office that received the tax payment from the AAB shall not process or encode data from the Out-of-District Return. Rather the said office shall segregate all Out-of District Returns within five (5) days from receipt and transmit such return to the proper Office (RDO/LTDO/LTD) where the returns must be filed.

On acceptance of Late Tax Returns, the bureau requires that prior to the filing of a Late Return by the taxpayer, he must first submit a Late Return, whether “With Payment” or “No Payment” to the proper Office for stamping of the words “Late Filing” and for recording.

The proper office shall include to the Late Return a computation of the corresponding penalties.

Late Return that has not been stamped with “Late Filing” and has no computation of the penalties by the proper office must not be accepted by the AAB or RCO.

Under this regulations, receiving, retrieving, processing, encoding and storage of Late Returns and Out-of-District Returns shall be carried out in observance of the guidelines under Revenue Memorandum Order No. 32-2000.

The concerned Office shall be responsible for the monitoring, processing and storage of Out-of-District Returns and Late returns filed within their jurisdiction.

It is also required that the said Office shall prepare reports on Out-of-District Returns and Late Returns as well as No Out-of-District Returns and Late Returns if no return was received. These reports shall be prepared under oath in the prescribed formats and must be submitted to the BIR Commissioner every 30th day of the month.

Banking system's NPL ratio remains low at 3.2% in October, says BSP

Banking system's NPL ratio remains low at 3.2% in October, says BSP

By LEE C. CHIPONGIAN

December 19, 2010, 12:04am

MANILA, Philippines – The banking system’s non-performing loans (NPL) ratio slid to 3.2 percent in October, the 25th consecutive month that the bad loans ratio has been below four percent, the Bangko Sentral ng Pilipinas (BSP) yesterday said.

Compared to September, NPL ratio improved by 0.09 percentage points from 3.11 percent.

BSP said the big banks provided adequate provisioning against potential credit losses. The NPL coverage ratio strengthened to 117.15 percent from the previous month’s 117.13 percent.

NPLs, or loans that have remained unpaid for 90 days, was lower at P83.35 billion in October from P84.14 billion in September.

The big banks’ total loan portfolio in the meantime declined to P2.6 trillion from P2.67 trillion in September.

In first 10 months, BSP said non-performing assets (NPA) to gross assets ratio improved to 3.63 percent from September’s 3.65 percent and year ago’s 4.16 percent ratio. The improvement from September occurred as the 0.22 percent drop in NPAs came with the growth in gross assets.

The NPA level stood at P211.19 billion, down from September’s P211.65 billion and year ago’s P222.49 billion.

BSP said the NPA coverage ratio widened to 59.67 percent from last month’s 59.57 percent. Year-on-year, October’s NPL and NPA coverage ratios fared better than their reference ratios of 106.37 percent and 53.04 percent, respectively.

Saturday, December 18, 2010

Philippine banks are resilient - IMF

Phl banks resilient - IMF

By Lawrence Agcaoili (The Philippine Star)
Updated December 13, 2010 12:00 AM

MANILA, Philippines - Multilateral lender International Monetary Fund (IMF) reiterated that the local banking system remained resilient after the Bangko Sentral ng Pilipinas (BSP) managed to put in place reforms aimed at containing the effects of the global financial crisis.

IMF mission chief Vivek Arora said in a press conference that the BSP has made substantial progress in banking supervision and regulatory framework.

“The financial sector has remained resilient, owing in large part to the strengthening of the supervisory and regulatory framework in recent years,” Arora told reporters.

Arora pointed out that banks in the Philippines survived external shocks including the financial crisis in the US as well as the debt crisis in Europe. “Banks have been not much affected by the global financial turbulence in recent quarters,” he added.

He cited the relatively low non-performing loan ratios as well as high capital adequacy of Philippine banks.

Latest BSP data showed that the ratio of soured loans of universal and commercial banks to the industry’s total loan portfolio eased further in July as the surprising economic growth in the first half of the year as well as strong corporate earnings enabled borrowers to pay their outstanding financial obligations on time.

The industry’s total loan portfolio went up at a faster rate of 7.11 percent to P2.545 trillion as of end-July this year from P2.376 trillion as of end-July last year while the non-performing loans (NPLs) of universal and commercial banks only increased by 3.44 percent to P85.73 billion from P82.88 billion.

This resulted in a 0.12 percentage point decline in NPL ratio to 3.37 percent in end-July from 3.49 percent in end-July last year but 0.10 percentage point higher than the 3.27 percent in end-June.

The gross assets of universal and commercial banks increased by 8.6 percent to P5.56 trillion as of end-July this year from P5.121 trillion as of end-July last year while the industry’s non-performing assets (NPA) retreated by 3.6 percent to P214.66 billion from P222.63 billion.

Likewise, the BSP said the growth of loan loss reserve (LLR) of banks climbed by double-digit level of 10.6 percent to P96.29 billion as of end-July this year from P87.01 billion as of end-July last year.

On the other hand, the capitalization or capital adequacy ratio of the Philippine banking sector reached 14.9 percent on a solo basis and 15.95 percent on a consolidated basis as of end-March.

The BSP said the industry’s CAR continued to exceed both the statutory level set by the BSP at 10 percent and the international standard of eight percent under the Basel Accord.

Meanwhile, the IMF also stressed the importance of quickly amending the BSP charter to further strengthen the country’s banking supervision and regulatory framework.

“In order to further bank supervision and regulation, it is important that amendments to the BSP Charter be quickly approved that would give supervisors stronger legal protection as well as allow the BSP to issue its own debt securities for more effective conduct of monetary policy and promotion of macroeconomic stability,” Arora said.

The BSP has been pushing the proposed amendments to its charter for more than five years starting from the term of Governor Rafael Buenaventura.

The BSP is seeking to strengthen its powers to enhance the administration of the monetary, credit and banking system under the pending bills and would help seek to track the owners of banks and determine their fitness and integrity.

Pending bills also aim to empower BSP examiners to access deposit accounts in gathering evidence against the perpetrators of bank fraud. The BSP also wants to compel a more timely rehabilitation, reorganization or restructuring of distressed banks.

The central bank is also pushing to increase administrative fines and expedite forfeiture proceedings. It also seeks to obtain data from any person or entity in the formulation of monetary policy and in crafting remedial measures in case of abnormal movements in monetary aggregates, credit or price level.

Large taxpayer focus for BIR

Posted on 07:05 PM, December 17, 2010

Large taxpayer focus for BIR

AN EVEN bigger proportion of the Bureau of Internal Revenue's (BIR) collections will be sourced from large taxpayers, new rules state.

BIR Revenue Regulations 17-2010, issued last Nov. 26 and published in a newspaper on Friday, update "the process/criteria in enlisting/delisting large taxpayers ... until such time that 85% of the bureau's total collections shall have been captured ... through the database of [Large Taxpayers Service or LTS]."

The LTS currently accounts for 60% of annual BIR collections. The regional offices account for the rest.

Tax Commissioner Kim S. Jacinto-Henares, in a phone interview on Friday, said it was "best practice" to have most of tax revenues come from a "sophisticated group which you can check and monitor more properly under one wing."

"[The regulations] make sure that you have at least 85% of revenues [guaranteed for the most part]. At least with this, the only problem you have is on how to earn the other 15%," she claimed.

Ms. Jacinto-Henares said RR 17-2010 also updates the criteria for LTS membership, which was last revised 12 years ago through RR 01-1998.

RR 17-2010 sets ten categories as large taxpayer candidates:

all branches of taxpayers under the LTS; subsidiaries and affiliates of conglomerates/group of companies initially listed as of the rules' effectivity;

the "surviving" company as a result of a merger involving a large taxpayer;

any corporation that absorbs a large taxpayer;

corporations that have at least P300 million in capital registered with the Securities and Exchange Commission;

multinational enterprises with authorized capitalization of P300 million;

publicly-listed corporations;

universal and commercial banks;

taxpayers with authorized capitalization of at least P100 million and belonging to either the banking, insurance, telecommunication, utilities, petroleum, tobacco and alcohol sectors; and

corporate taxpayers engaged in metallic mineral production.

Additional large taxpayers may be selected or deselected, the new rules state.

Criteria to be used in determining a large taxpayer, in addition to the ten categories set down, are that the taxpayer should have a net value-added tax payable of P200,000 per quarter; annual excise, income, withholding and documentary stamp taxes of at least P1 million each; percentage taxes of at least P200,000 per quarter; gross sales of at least P1 billion; net worth of at least P300 million; annual gross purchases of at least P800 million; and be among the top corporate taxpayers as listed by the Securities and Exchange Commission.

The new rules also prescribe the time, place and manner of filing/payment of taxes due.

The LTS is tasked to collect P485.15 billion of the BIR's P860.4-billion goal for the year. Data as to how much it has collected so far was not immediately available.

The BIR, which accounts for about 70% of the government's tax revenues, expects to miss this year's collection target, having taken in only P753.23 billion as of November versus its P783.03-billion goal for the period.

Luzon and Visayas RBs convene at RBAP-MABS Regional Roundtable Conference

by John Owens on Wednesday, November 24, 2010 at 4:15pm

The USAID-supported RBAP-MABS Program continuously keeps its bankers updated on the latest trends in the Philippine microfinance industry by holding regular conferences and featuring informative presentations and discussions for rural banks. On November 23, RBAP-MABS held its annual Regional Roundtable Conference for Luzon and the Visayas, gathering over 40 bankers from all over the two island groups.

With the theme, “Managing Bank’s Risk, Creating Value for Clients”, the conference featured the latest Central Bank of the Philippines regulations related to microfinance and rural banking, strategies for a changing microfinance market, managing hardcore delinquency, small claims cases, and the latest updates on microinsurance and branchless banking.

RBAP President Corazon Miller welcomed the participants into the conference, thanking RBAP-MABS and its other partners in helping raise the level or rural banking in the country. Ms. Pia-Roman Tayag, BSP Inclusive Finance Advocacy Staff Head, discussed the latest BSP regulations on microfinance and rural banking, while Judge Maria Filomena Singh of the Regional Trial Court oriented the bankers into the small claims court and how they can make use of it to collect from their clients and get fast resolution for their filed cases.

MABS also provided a report on its assessment of its participating banks’ performance in the last six months based on the EAGLE (Efficiency, Asset Quality, Growth, Liability Structure and Earnings) criteria.

Ms. Pia-Roman Tayag, Head of the Inclusive Finance Advocacy Staff of the Central Bank of the Philippines (BSP), congratulated the bankers for their huge participation in upping the country's global microfinance ranking during the Regional Roundtable Conference for Luzon and the Visayas held at the Pan Pacific Hotel in Malate, Manila.

Friday, December 17, 2010

Munich Re Foundation, Microinsurance Network Publishes Proceedings of 6th International Microinsurance Conference

MICROCAPITAL BRIEF:

Munich Re Foundation, Microinsurance Network Publishes Proceedings of 6th International Microinsurance Conference

by MicroCapital on Saturday, December 11, 2010 at 3:31pm

The proceedings of the 6th International Microinsurance Conference that took place on November 9-11, 2010, in Manila, Philippines, have been published by its organizers, the Munich Re Foundation, a nonprofit founded by German reinsurer Munich Re, and the Microinsurance Network, a for-profit organization that promotes the development of microinsurance products through information sharing and stakeholder organization.The conference featured approximately 80 practitioners, academics and industry leaders as well as representatives of regulatory bodies from approximately 15 countries who discussed research and case studies in areas such as pricing, weather index insurance and the determinants of microinsurance adoption. Among the findings were that the rate of microinsurance adoption is very sensitive to price and that effective weather index insurance should be based on multiple data sources, including local knowledge. The Munich Re Foundation has published the details and results of the conference at:

http://www.munichre-foundation.org/NR/rdonlyres/1F14880F-A1E2-4546-8A53-A52022551F08/0/MIC2010_Summaries.pdf

About Munich Re: Munich Re is a reinsurance company established in 1880 in Munich, Germany. It provides insurance advisory services, reinsurance, primary insurance and health insurance. Its assets are managed by Munich Ergo Asset Management (MEAG). As of 2009, Munich Re has an investment portfolio of EUR 182 billion (USD 256 billion), return on equity (ROE) of 11.8 percent and return on assets (ROA) of 4.3 percent.

About the Microinsurance Network: The Microinsurance Network was first established in 2002 as the CGAP Working Group on Microinsurance. The organization aims to promote the development of good-value insurance products for low-income populations by providing a platform for information sharing and stakeholder coordination. It has 52 member organizations. There is no financial information available on the organization.

By Christopher Maggio, Research Assistant