Bureau of Local Government Finance Opinion

October 23, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Provincial Assessor Kalibo, Aklan S i r : This pertains to your letter dated October 27, 2005 relative to the letter of Mr. Edgar Isada, dated October 11, 2005 addressed to the Municipal Mayor of Kalibo, that province, requesting exemption in behalf of his client, the Cooperative Rural Bank of Aklan Incorporated (CRBAI), from the payment of real property tax pursuant to Section 234 (d) of Republic Act (R.A.) No. 7160, otherwise known as the Local Government Code of 1991, and Article 62 (1) of R.A. No. 6938, also known as the Cooperative Code of the Philippines. As submitted by Mr. Isada, the subject cooperative is registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. FF-113 issued on June 10, 1991, copy attached. Likewise, the attached Certificate of Good Standing (CGS No. QC 04-0040) shows that for the preceding year, the subject cooperative has a net surplus of P627,728.67, and is entitled to all the benefits accorded to cooperatives pursuant to R.A. No. 6938. In this regard said Section 234 (d) of Republic Act No. 7160 provides as follows: "Section 234. Exemptions from Real Property Tax . The following are exempt from payment of real property tax: "xxx xxx xxx. "(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938." On the other hand, Article 62 (1) of R.A. No. 6938, as implemented under DOF-CDA Joint Circular No. 1-90 dated November 7, 1990 further clarified the granting of real property tax exemption to cooperatives viz. : "In line with Article 2 of Republic Act No. 6938; otherwise known as the "Cooperative Code of the Philippines," the Department of Finance and the Cooperative Development Authority hereby issue Joint Circular No. 1-90 establishing the procedural guidelines for the availment of the privileges of Article 62 (1) of the said Act, which provides: 'Article 62. Tax and Other Exemptions . Cooperatives transacting with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions: IDScTE '(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. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry. . . .'" Evidently, CDA-registered cooperatives, like CRBAI, shall enjoy real property tax exemption if its accumulated reserves and undivided net savings is not more than Ten Million Pesos (P10,000,000.00). However, as mentioned earlier, the said cooperative has a net surplus of P727,728.67. The issue to be resolved, therefore, is whether or not the term "net surplus" is the same as "accumulated reserves and undivided net savings." ADCTac In this connection, attention is invited to Section 2 of Revenue Regulation No. 20-2001, copy enclosed of the Bureau of Internal Revenue (BIR), Quezon City, which provides in part, to wit: "Section 2. Definitions . "xxx xxx xxx. "(g) Net Surplus/Net Savings refers to the net amount arising from the operations of the cooperative, belonging to its members, not construed as profit, but as excess of payments made by the members for the loans borrowed or the goods and services bought from the cooperative which shall be made available to them in the form of interest not to exceed the normal rate on investments and patronage refund. "(h) Undivided Net Savings refers to the amount arising from net surplus or any portion thereof which the Board of Directors of the General Assembly of the cooperative decides not to divide or make available to members in the form of interest on share capital, patronage refund, reserve fund, education and training fund, optional fund or any other statutory reserve; this also included the amount arising from the net surplus or any portion thereof which the cooperative is unable to divide because the General Assembly of the cooperative has not been convened for more than two (2) years; "(i) Accumulated Reserves refers to the amount of accrued sum of money annually retained and deducted from the net surplus which is not intended for allocation or distribution to the members, usually deposited in the bank for the protection of and stability of the cooperative commonly referred to as the General Reserve Fund. Clearly, therefore, "net surplus/net savings" should not be construed to mean the same as "accumulated reserve and undivided net savings", for purposes of determining whether a cooperative would qualify for real property tax exemption. In view hereof, this Bureau opines that CRBAI is exempt from the payment of real property tax only if they can show proof/certification that the " accumulated reserves and undivided net savings " of the said cooperative do not exceed Ten Million Pesos (P10,000,000.00). It is likewise noteworthy to mention hereon that, in addition to the exemption from the payment of real property taxes, cooperatives are exempt from the payment of local taxes, fees or charges as provided for under Section 133 (n) of the same code. However, subject cooperatives are still liable to the payment of service charges or rentals for the use of property and equipment or public utilities owned by local governments such as charges for public roads and bridges and the like (BLGF Memorandum Circular No. 02-97 dated March 18, 1997). caADSE We trust that this clarifies matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director