BIR Ruling [DA-108-06]

March 14, 2006 BIR RULING [DA-108-06] Mr. Roberto S. Bucoy OIC-Revenue District Officer Revenue District Office No. 91 Dipolog City S i r : This refers to your letter dated January 25, 2006 requesting for clarification on the taxability of Electric Cooperatives as provided under Revenue Memorandum Circular (RMC) No. 72-2003, particularly paragraph A(4) thereof, to wit: "A. Electric Cooperatives (ECs) registered with the National Electrification Administration (NEA) are exempt from: 1. . . . ; 2. . . . ; 3. . . . ; 4. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs . Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 [P.D. No. 269, Sec. 39(a)(2)];" (Emphasis supplied) On the other hand, Section 39 of PD 269 provides, viz : "SEC. 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation . Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperatives is necessary and appropriate: AcSCaI (a) Provided that it operates in conformity with the purposes and provisions of this Decree, a cooperative (1) shall be permanently exempt from paying income taxes , and (2) for a period ending on December 31; of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or administrative proceeding in which it may be a party, and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under this Decree; Provided , That the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for in this Decree." (Emphasis supplied) From the aforequoted provision of PD 269, it is clear that the exemption accorded to ECs registered with NEA is limited only until December 31 of the thirtieth full calendar year reckoned from the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. However, exemptions covered by the 30 year period or until completely free of indebtedness refer only to No. 2 of Section 39(a) of PD 269, i.e , franchise tax, value-added tax, 3% percentage tax and other taxes, except income tax. The exemption of ECs from income tax, on the other hand, is permanent in nature as expressly provided in No. 1 of Section 39(a) of PD 269. In view of the foregoing, this Office opines that the exemption of ECs from income tax is not among those tax exemptions being limited by No. 2 of Section 39(a) of PD 269. HcSETI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service