2% Franchise Tax on Electric Cooperatives

September 29, 1988 BIR RULING NO. 469-88 117 (a) 338-88 469-88 Gentlemen : This refers to your letter dated October 14, 1987 requesting, in effect, a ruling as to whether you, as withholding agent, should deduct and withhold the 2% franchise tax before making payments to some electric cooperatives who happens to be your clients. In reply, please be informed that the tax exemption privilege of electric cooperatives has been withdrawn by Executive Order No. 93 effective March 10, 1987. However, said withdrawal was suspended until June 30, 1987, pursuant to Memorandum Order No. 65 dated January 21, 1987 of the President. On the other hand, while FIRB Resolution No. 24-87 restored the tax exemption privilege of electric cooperatives effective July 1, 1987, the Secretary of Justice rendered an opinion on August 6, 1987 (Opinion No. 77, S. of 1987) declaring as unconstitutional the power of FIRB to restore the exemption privileges withdrawn by Executive Order No. 93. In other words, said restoration being unconstitutional and therefore, void, the tax exemption privileges of electric cooperatives expired as of June 30, 1987. (BIR Ruling No. 369-88) Such being the case, effective July 1, 1987, said electric cooperatives became subject to the 2% franchise tax imposed by then Section 227 of the Tax Code which provision is now renumbered as Section 117 by Executive Order No. 273. Accordingly, since you are a government office, your money payments to electric cooperatives are subject to the 2% franchise tax which shall be deducted, withheld and paid to this Bureau in accordance with Revenue Regulations No. 20-88 implementing Republic Act No. 1051. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner