Electric Cooperative Not Subject to Franchise Tax

May 21, 1998 BIR RULING NO. 069-98 103 (s); 117-000-00-069-98 Sorsogon II Electric Cooperative P.O. Box 14 Sorsogon, Sorsogon Attention: Mr . Celso G . Tabuena, Jr . General Manager Gentlemen : This refers to your letter dated August 19, 1997 addressed to Hon. Secretary Roberto F. de Ocampo, Department of Finance, requesting clarification regarding the provisions of Section 117 of the Tax Code, (now Section 119 of the Tax Code of 1997) as amended by R.A. No. 8241, and as implemented by Revenue Regulations No. 6-97. Obviously, you want to know whether an electric cooperative is subject to the franchise tax imposed under then Section 117 of the Tax Code, as amended, inasmuch as several offices in your coverage area have allegedly started deducting the corresponding withholding tax from their power bill payments. In reply, please be informed that the 2% tax imposed under Section 117 of the Tax Code, as amended (now Section 119 of the Tax Code of 1997), is due and payable by electric utilities who are holders of legislative franchises. As an electric cooperative you are not subject to the said 2% franchise tax by reason of the fact that you are not a legislative franchisee but is created by virtue of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines. Moreover, pursuant to Section 103(s) also of the Tax Code (now Section 109(s) of the Tax Code of 1997), sales by electric cooperatives duly registered with the CDA or the National Electrification Administration (NEA), relative to the generation and distribution of electricity, as well as their importation of machineries and equipment, including spare parts, which shall be used directly in the generation and distribution of electricity shall be exempt from VAT. Accordingly, money payments made to Sorsogon II Electric Cooperative by the government, including any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations, shall not be subject to the 3% creditable VAT prescribed under Section 110 (c) of the Tax Code, as amended (now Section 114(c) of the Tax Code of 1997). Neither is said income payment subject to the creditable withholding tax under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94. LLpr Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue