BIR Ruling No. 204-83

November 18, 1983 BIR RULING NO. 204-83 Gentlemen : This refers to your letter dated March 8 and March 16, 1983 requesting exemption from the payment of internal revenue taxes under the provisions of Presidential Decree No. 175. The records show that Talaga Barangay Water Service Cooperative, Inc. is a water service cooperative registered with the Bureau of Cooperatives Development (BCOD) under Certificate of Registration No. FF-260 dated July 16, 1982, that under its articles of incorporation, it has among others, the following objectives and purposes: 1. To improve the health and economic well-being of the members by providing them with adequate supply of potable water for domestic use at a reasonable cost; 2. To own, manage, operate and maintain waterworks system; 3. To fix, charge and collect from its members contribution needed for the operation and proper maintenance of the waterworks system; 4. To provide the members the experience in formal organization and self-government and to encourage their participation in community life and enhance community prosperity; and 5. To undertake continuous education for its members, directors, committeemen, officers and employees as well as the general public on the principles and techniques of cooperation, both economic and democratic. that membership in the cooperative is open to any natural person of legal, age, head of the family and resident of the barangay or area serviced by the Cooperative; that the Cooperative is without capital stock and derive its funds from member's contributions to the water service system trust fund, voluntary contributions or loans from persons, partnerships, corporations and other entities or bequest or donations; that all the members have equal percentages of participation of property rights in the cooperative, and that the cooperative is operated on a non-profit basis for the mutual benefit of its patron-members. In reply, I have the honor to inform you that under the foregoing facts and circumstances, and since that Cooperative extends and renders water service only to its members, it is not considered engaged in business, and therefore, not subject to any percentage tax. Furthermore, since that Cooperative has complied with the requirements of a non-agricultural cooperative, it is exempt from the payment of income tax for a period of 5 years from the date of its registration pursuant to Section 5(a) of Presidential Decree No. 175 which provides: "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 dated 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." cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue