Clarification on the Exemption of Cooperatives from the Payment of Local Taxes, Fees and Charges Under BLGF MC 31-2009

February 9, 2012 BLGF MEMORANDUM CIRCULAR NO. 008-12 TO : All Regional Directors for Local Government Finance; Metropolitan Manila Treasurers; City, Provincial and Municipal Treasurers; and All Others Concerned SUBJECT : Clarification on the Exemption of Cooperatives from the Payment of Local Taxes, Fees and Charges Embodied in BLGF Memorandum Circular No. 31-2009 Dated October 7, 2009 and in Relation to R.A. No. 7160 Otherwise Known as the Local Government Code (LGC) of 1991, Specifically Section 133 (n) Thereof The implementation of Republic Act No. 9520 otherwise known as the "COOPERATIVE CODE OF 2008" (RA 9520) generated numerous queries both from local government units (LGUs), taxpayers and other concerned, more particularly on the exemption from local taxes, fees and charges granted to Cooperatives duly-registered with the Cooperative Development Authority (CDA). Brought about by this development, this Bureau was prompted to issue MEMORANDUM CIRCULAR ("CIRCULAR") NO. 31-2009 dated October 7, 2009, copy attached, for purposes of further clarifying the exemption. The case in point is the last paragraph, page 2 of the CIRCULAR which provides: ". . ., cooperatives transacting business with both members and non-members are required to obtain or secure a Mayor's permit, which is implemented under the police powers of a local government unit to protect public interest and in furtherance of the general welfare clause enshrined both in the Constitution and the Local Government Code [Section 16 (General Welfare Clause)], and pay the corresponding fee of not exceeding One Thousand Pesos (P1,000.00), which commensurate to the cost of regulation, inspection and surveillance of the operation of its business. Likewise, said cooperatives shall secure a Community Tax Certificate (CTC) and pay the basic tax of Five Hundred Pesos (P500.00) as a juridical entity ." ( Underscoring for emphasis ) Antecedents to the immediate preceding issue are Articles 60 and 61 of RA 9520 otherwise known as the "Philippine Cooperative Code of 2008", which provides as follows: DEcITS "ART. 60. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which DO NOT TRANSACT ANY BUSINESS WITHIN NON-MEMBERS or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and OTHER TAX LAWS . Cooperatives not falling under this article shall be governed by the succeeding section. (Emphasis ours) "ART. 61. Tax and Other Exemptions. Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions with members. In relation to this, the transaction of members with the cooperative shall not be subject to any taxes and fees, including but not limited to final taxes on members' deposits and documentary tax. Notwithstanding the provisions of any law or regulations to the contrary, such cooperatives dealing within non-members shall enjoy the following tax exemptions: "(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be EXEMPT FROM ALL NATIONAL, CITY, PROVINCIAL, MUNICIPAL OR BARANGAY TAXES OF WHATEVER NAME AND NATURE . . . . ." (Boldfacing and underscoring for emphasis) xxx xxx xxx. "(3) All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives: . . . ." The abovequoted provisions of Section 60, specifically speaks of exemption of cooperatives, exclusively transacting business with members, from taxes and fees imposed under the internal revenue laws and other tax laws related thereto. Needless to state, the specific provision is applicable to national impositions being administered by the Bureau of Internal Revenue (BIR). Conversely, Section 61 speaks of cooperatives transacting business with both members and non-members. The law explicitly provides that cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. It must be stressed however, that Section 61 of RA No. 9520 is clear and specific that Cooperatives transacting business with both members and non-members and with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be exempt only from local taxes but not fees and charges . On the other hand, Section 133 (n) of the LGC provides as follows: "SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following : xxx xxx xxx (n) Taxes, fees, or charges , on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively ; . . . ." (Underscoring for emphasis) The abovequoted provision of the LGC may give a conflicting impression that cooperatives duly-registered under RA Nos. 6810 and 6938, respectively, (the latter now amended by RA 9520) are exempt from taxes, fees and charges. However, with the advent of R.A. No. 9520 otherwise known as the Cooperative Code of 2008, a Special Law, Section 133 (n), supra, had been appropriately repealed in view of Section 143 thereof, which provides: IcSHTA "ART. 143. Repealing Clause. Except as expressly provided by this Code, Presidential Decree No. 175 and all other laws, or parts thereof, inconsistent with any provision of this Code shall be deemed repealed: Provided, That the provisions of Sections 3, 5, and 7 of Presidential Decree No. 1645, Executive Order No. 623, series of 2007, Revenue Regulations No. 20-2001, and all laws, decrees, executive orders, implementing rules and regulations, BIR circulars, memorandum orders, letters of instruction, local government ordinances, or parts thereof inconsistent with any of the provisions of this Act are hereby repealed, amended or modified accordingly ." The repealing clause of the preceding provision of law was made clear and expressed that all laws, decrees, executive orders, implementing rules and regulations, BIR circulars, memorandum orders, letters of instruction, local government ordinances, or parts thereof inconsistent with any of the provisions of this Act are hereby repealed, amended or modified accordingly. Furthermore, the rule is that on a specific matter, the special law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. In addition, . . . the fact that one is special and the other is general creates a presumption that the special is to be considered as remaining an exception to the general, one as a general law of the land, the other as the law of a particular case. . . . . ( Commissioner of Internal Revenue vs. Philippine Airlines, G.R. No. 180066) The foregoing premises considered, the pertinent portion of BLGF MC No. 31-2009 dated October 7, 2009 is hereby repealed, amended and/or modified accordingly, to read as follows: "However, cooperatives transacting business with both members and non-members are required to obtain or secure a Mayor's permit and other regulatory permits, which is implemented under the police powers of a local government unit to protect public interest and in furtherance of the general welfare clause enshrined both in the Constitution and the Local Government Code [Section 16 (General Welfare Clause)], and pay the corresponding amounts of fees and charges for such permits that a local government unit may have imposed under its duly-enacted tax ordinance, which shall commensurate to the cost of regulation, inspection and surveillance of the operations of their businesses." In this connection, all BLGF Regional Directors are hereby instructed to disseminate the contents of this Circular to all Provincial, City and Municipal Treasurers and all others concerned within their respective jurisdictions. All concerned are enjoined to comply strictly and be guided accordingly. This Circular shall take effect immediately. CcAHEI (SGD.) ATTY. SALVADOR M. DEL CASTILLO OIC-Executive Director