BIR Ruling

November 24, 1976 Cooperatives Registered with the Department of Local Government & Community Development This refers to your letter dated May 15, 1976 requesting information whether or not the exemption from sales tax granted cooperatives registered under Presidential Decree No. 175 includes exemption from the payment of privilege tax. In reply, I have the honor to inform you that under Section 5 of Presidential Decree No. 175, cooperatives registered with the Department of Local Government and Community Development (DLGCD) are exempt from the payment of income and sales taxes. "Section 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 cooperative's income after deducting the interest paid to members and patronage refunds." If a cooperative is exempt from the sales tax, then it is also exempt from the payment of the annual fixed tax of P50.00 required by Section 182(A)(1) of the Tax Code to be paid by every person engaging in a business on which the percentage tax is imposed. However, if the cooperative, though exempt from the sales tax, is subject to other percentage taxes, then it will be subject to the applicable fixed tax under Section 182 aforecited. cdti If the cooperative engages solely in the business of buying and selling and, therefore, is not subject to any percentage taxes, it is required to pay the graduated annual fixed tax (C-13) imposed by Section 182(A)(2) of the Tax Code based on its gross annual sales during the preceding calendar year. But if the cooperative engages in two or more businesses, one or more of which is subject to the sales tax (from which it is exempt) or other percentage taxes, and the other, like buying and selling, exempt from the percentage tax, it shall pay the graduated fixed annual tax (C-13) based only on the sales corresponding to the buy and sell business. cdt