BIR Ruling

March 15, 1974 The Board of Directors Social Action Group Management Cooperative, Inc. 100 G. Araneta Blvd. Quezon City Attention: Mr . Marcelo P . Angeles, Jr . Secretary-Treasurer Gentlemen : This refers to your letter (xerox copy) dated February 7, 1974 referred to in your follow-up letters dated March 4, and March 11, 1974 requesting information whether or not the Social Action Group Management Cooperative, Inc. is exempt from the payment of 3% contractor's tax under the provisions of Presidential Decree No. 175. cd It is represented that the services of the Social Action Group Management Cooperative, Inc. has been contracted by the National Irrigation Administration for that formation, development, monitoring and evaluation of the New Pantabangan Cooperative; that since the project involves a day-to-day guiding and assisting the officers and members of the Pantabangan Cooperative, the Cooperative has to establish a properly staffed field office and the monitoring results from the field will be collected and collated at the main Office of the Cooperative in Quezon City; that for these services, the National Irrigation Administration signed a P49,180.00 Memo of Agreement in favor of the Cooperative; and that the contract amount will cover financial support for the field and main office personnel and no portion has been earmarked as profits. In reply, I have the honor to inform you that under the foregoing circumstances, the Social Action Group Management Cooperative, Inc. is a contractor liable to the payment of the P50.00 fixed tax prescribed in Section 182(A)(1) of the Tax Code and to the 3% tax imposed in Section 191(16) of the same Code. Section 5 of Presidential Decree No. 175 provides: "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 interest 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." The sales taxes to which a cooperative is exempt include only those prescribed by Section 184 to 186, inclusive, of the Tax Code. The exemption, therefore, does not include the contractor's fixed and percentage taxes imposed under Sections 182(A)(1) and 191(16) both of the Tax Code. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5