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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
AT A GLANCE:
Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including not limited to final taxes on members’ deposits and documentary tax. (Article 61, Republic Act No. 9520)
In our previous article, we delved into the tax status of cooperatives. We highlighted that registered cooperatives, in addition to the typical privileges they receive, benefit from a unique exemption: those exclusively conducting transactions with their members, and not with non-members or the public at large, are entirely exempt from taxes and fees imposed by the Internal Revenue Laws and other tax regulations. In this article, we will delve deeper into the extensive tax exemptions granted to cooperatives.
The law says:
Section 15, Article XII of the Constitution considers cooperatives as instruments for social justice and economic development. At the same time, Section 10 of Article II of the Constitution declares that it is a policy of the State to promote social justice in all phases of national development. In relation thereto, Section 2 of Article XIII of the Constitution states that the promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance. Bearing in mind the foregoing provisions, we find that an interpretation exempting the members of cooperatives from the imposition of the final tax under Section 24(B)(1) of the NIRC is more in keeping with the letter and spirit of our Constitution. (Dumaguete Cathedral Credit Cooperative vs. Commissioner of Internal Revenue, G.R. No. 182722, August 31, 2009)
Cooperatives in the Philippines enjoy certain tax privileges under Republic Act No. 9520, otherwise known as the Philippine Cooperative Code of 2008. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions:
Cooperatives with reserves up to P10 Million
- Exempt from various local taxes, including national, city, provincial, municipal, or barangay taxes.
- Enjoy customs duty exemption for imported machinery, equipment, and spare parts not locally available, certified by the Department of Trade and Industry (DTI).
- Prohibited from selling or transferring tax-exempt imports for five years, under penalty of double taxation.
Cooperatives with reserves exceeding P10 Million
- Subject to full-rate income tax on allocated interest on capital.
- Pay Value-Added Tax (VAT) on transactions with non-members.
- Other taxes apply unless otherwise stated.
- Donations to charitable, research, and educational institutions, as well as reinvestment in socioeconomic projects, may be tax deductible.
All cooperatives
- Exempt from local taxes and taxes on transactions with banks and insurance companies.
- Subject to applicable percentage taxes on sales or services provided to non-members.
- Authorized internal revenue officers can examine cooperative accounting records for tax purposes with prior authorization from the Cooperative Development Authority.
Read also: On Taxability of Cooperatives
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding taxation and taxpayer’s remedies, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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