Exempting coops from taxes

There is currently a move to repeal the law that exempts cooperatives from paying taxes. Senator Loren Legarda filed Senate Bill 2048 while Cebu Representative Gabriel Luis Quisumbing filed House Bill 2765. If approved, this will repeal Article 60 and 61 of Republic Act 9520 or the Cooperative Code of the Philippines which provides tax exemption privilege to all cooperatives. The purpose is to support “efforts to rationalize the country’s fiscal incentive mechanism.” Supporting the movement at the other end of the horizon are Senators Juan Edgardo “Sonny” Angara and Ferdinand Marcos Jr., the chairpersons of the ways and means panel and on cooperatives, respectively. They vowed to support the cooperatives to maintain their tax exempt status.

Under the law, cooperatives with accumulated reserves and undivided net savings of not more than 10 million are exempt from all national, city, provincial, municipal or barangay taxes.

Cooperatives, under the Cooperative Code, are also exempt from “customs duties, advance sales or compensating taxes on their importation of machinery, equipment and spare parts used by them.”

The need to maintain the status quo i.e. exempt coops from taxation can easily be understood. But in my opinion this is the best time to find a balance on how we can be of help to the need of the government to find more sources of revenue.

In the present-day scenario the 10.0 million accumulated net savings is not big and therefore should be exempted from taxes. If one recalls, the Cooperatives Net Savings is the baseline for allocating the mandatory appropriations like the General Reserve Fund, Coop Education and Training Fund, the Community Development fund, and the optional Land and Building fund. After the prescribed allocations are met, the balance is appropriated as dividends and patronage refund of members depending on their capital contribution and participation in its operations. That makes the cost of operations and services to be competitive with those offered by the commercial establishments.

If the tax exemption is lifted, it will be a big debate as to what will be taxable or not in cooperative activities. What will be the basis of the proposed taxes? And while the sector understands the revenue generating schemes of the government they are not ready to diminish the funds to be earmarked as returns to its members. Other taxes that could impact on cooperative operations include percentage taxes, VAT, sales taxes, income taxes and business taxes of LGUs. If they are subjected to percentage taxes for instance, wouldn’t that unnecessarily increase the cost of cooperative operations and therefore there is no more difference between transacting with ordinary business and transacting with a cooperative which is owned by the members themselves.

From a business stand point, being tax exempt would make small cooperatives to be more aggressive in sustaining their operations as they have the working capital that is needed to finance new programs and provide more services to its members. To this date we have “millionaire” cooperatives around the country.

Many of them operate in the credit sector while there are those in agriculture, multi-purpose and service. Many have worked on mergers making them more competitive and strong. Presently, they don’t only have big buildings but have covered a wide area of their market and has offered a lot of services to its members. tedestacio@ yahoo.com

The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of FINEX.