BIR Ruling

August 8, 1975 The Commissioner Bureau of Customs Manila S i r : This refers to your identical letters dated June 17 and June 27, 1975 requesting that the Customs Canteen (an employee-owned) being registered as a consumers cooperative under Presidential Decree No. 175, be exempted from the payment of percentage and income taxes. cdt In reply, I have the honor to inform you that Section 5(a) of Presidential Decree No. 175 provides as follows: "SEC. 5. Privileges of Cooperatives . Cooperatives shall enjoy the following privileges: "(a) Exemption from income taxes and sales taxes provided that a substantial portion of the net income of the cooperative is returned to members in the form of interests and/or patronage refunds; Provided, further, that for income tax purposes, non-agricultural cooperatives shall be exempt for a period of five (5) years and agricultural cooperatives for a period of ten (10) years reckoned from the date of registration with the Department of Local Government and Community Development; Provided, finally, that the taxable income shall mean that portion of the cooperatives income after deducting the interest paid to members and patronage refunds;" From the context of the foregoing, it is clear that cooperatives are exempt only from the payment of income and sales taxes. Under the National Internal Revenue Code, Sections 184 to 186-B, inclusive, are the sections which provide for the imposition of sales tax on commodities, wares or articles whether locally manufactured and produced or imported. Consequently, since the Bureau of Customs canteen is subject to the caterer's percentage tax imposed in Section 191-A of the Tax Code, it cannot be exempted from the payment thereof. However, if it complies with all the requirements of a non-agricultural cooperative, then it may be exempted from the payment of income tax pursuant to the aforequoted provision of Presidential Decree No. 175. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5