Bureau of Local Government Finance Opinion

January 24, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the Municipal Treasurer, Tayabas, Quezon, his within letter dated January 13, 2011 seeking clarification on the coverage of the exemptions granted to cooperatives under R.A. No. 6938, as amended by R.A. No. 9520, also known as the Cooperative Code of 2008, and as clarified in BLGF Memorandum Circular No. 031-09 dated October 7, 2009. Perusal of the attached letter dated January 11, 2011 of Mr. Teodoro J. Racsag, General Manager, Tayabas Community Multi-Purpose Cooperative (TCMPC) shows that TCMPC is seeking exemption from regulatory fees and service charges under the pertinent provisions of the aforementioned laws. TCMPC, by invoking Section 133 (n) of R.A. No. 7160, otherwise known as the Local Government Code of 1991 (LGC) and Articles 60 and 61 of R.A. No. 9520, submitted that said Cooperative being a registered entity under R.A. No. 6938, as amended, enjoys rights and privileges such as exemption from national taxes and payment of local taxes, fees and charges. Further, it is alleged that under BLGF Memorandum Circular (MC) No. 031-09, cooperatives are only subject to P500.00 Community Tax and an amount not exceeding One Thousand Pesos (P1,000.00) for the cost of regulation, inspection and surveillance of the operation of the cooperatives. HDAaIS Perusal of the attached unsigned Assessment Records shows that TCMPC is engaged in the operation of the following business undertakings, namely: financing, retailing, gift shop, medical clinics, pharmacy/drugstore, piggery, milling, and construction/hardware supplies. On the other hand, that Office is assessing TCMPC on the following Fees: 1) Garbage Fee 2) Sanitary Permit Fee 3) Mayor's Permit Fee 4) Billboards/Signboards Fee 5) Building Inspection Fee 6) Laboratory Fee (Fecalysis) 7) Laboratory Fee (X-ray) for 19 employees @ P200 each 8) Medical/Health Certificate 9) Occupation Fee In consideration of the above premises, the particular issue to be resolved is as to whether TCMPC, being a cooperative registered under the Cooperative Code of the Philippines, is liable to the payment of "Regulatory Fee" enumerated in the Assessment Record of that Office. In this connection, quoted hereunder are the pertinent provisions of law and the clarification made on MC No. 031-09: 1) Section 133 (n) of the LGC "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. 69 38) otherwise known as the "Coop eratives Code of the Phili ppines" respectively; . . . ." (Emphasis ours) 2) BLGF MC No. 031-09 provides the following: ASaTHc "ART. 60. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which DO NOT TRANSACT ANY BUSINESS WITH 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. "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 with nonmembers 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. . . . ." "xxx xxx xxx ". . ., 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 commensurate cost of regulation. inspection and surveillance of the operation of its business but not exceeding One Thousand Pesos (P1,000.00) . 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. "In addition, said cooperatives are still liable to the payment of service charges or rentals for the use of property and equipment or public utilities owned by the local government such as charges for actual water consumption, electric power, toll fees for the use of public roads and bridges and the like." (Boldfacing and underscoring supplied for emphasis) In view of the abovequoted provision of law and the pertinent portions of BLGF MC No. 031-09, it may be said that TCMPC, based on the attached Assessment Records, is exempt from the payment of the following regulatory fees: HTSaEC 1. Garbage Fee 2. Sanitary Permit Fee 3. Mayor's Permit Fee 4. Billboards/Signboards Fee 5. Building Inspection Fee but is liable to the following "service charges" for the services rendered by LGU-Tayabas: 1) Laboratory Fee (Fecalysis) 2) Laboratory Fee (X-ray) for 19 employees @ P200 each 3) Medical/Health Certificate In view hereof, clarifications have to be made on the following subjects so as to make a distinction between a "regulatory fee" and a "service fee/charge": First, it may be argued that MC No. 031-09 abovequoted refers only to "Mayor's permit". However, a careful analysis of the statement on its entirety will prove that the P1,000.00 fee covers not only the Mayor's permit but other regulatory fees imposable on cooperatives if otherwise not exempt in accordance with the abovequoted provisions of the LGC and the Cooperative Code of 2008. To reiterate this point, it states: . . . and pay the commensurate cost of regulation, inspection and surveillance of the operation of its business but not exceeding One Thousand Pesos (P1,000.00) . Clearly, therefore, the P1,000.00 imposition will cover not only Mayor's permit fee but other regulatory fees that local government units are authorized to collect on cooperatives. Second, it may be clarified that fees/charges like laboratory fees for Fecalysis, X-ray, and Medical/health Certificates fall within the so called "service charges". As can be observed from the abovequoted portion of MC No. 031-09, the elucidation is clear that " cooperatives are still liable to the payment of service charges " thus, liable to such charges for medical/health services rendered to personnel employed by TCMPC. Third, in the case of "Occupation Fee", it is informed that while it is correct to claim that the fee is undoubtedly a regulatory fee, attention should be directed to the character of the imposition. Evidently, the regulation is not imposed on the cooperative but on an individual person to be able to practice his/her calling or occupation, or for other purpose such as to seek employment. Clearly therefore, the regulation does not contravene the provision of law granting exemptions to cooperatives registered under the Cooperative Code of the Philippines or the Cooperative Code of 2008. And fourth, it is clarified that the tax exemptions granted to cooperatives under the aforementioned law is not absolute. To prove our point, quoted hereunder are the pertinent provisions of R.A. No. 9520: HaIESC "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 with nonmembers 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. . . . ." "(2) Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: "xxx xxx xxx "(c) All other taxes unless otherwise provided herein ; . . . (Emphasis ours) To summarize, TCMPC, as a Cooperative registered under R.A. 6938, as amended by R.A. No. 9520, shall be exempt from the payment of local business tax (LBT) provided that its accumulated reserves and divided net savings are not more than Ten million pesos (P10,000,000.00) otherwise, its transaction with non-members shall be subject to tax as provided in the abovequoted provision of R.A. No. 9520, specifically Article 61 (2) (c) thereof. TCMPC shall also be exempt from the payment of regulatory fees, including "Occupational/Calling Fee" but not when imposed on person/s employed by the TCMPC, or for that matter, persons who are employed by cooperatives. TCMPC, under the specific provision of BLGF MC No. 031-09, shall be liable for the payment of service charges to LGU-Tayabas for the medical/health services rendered to its employees. Lastly, that Office is advised to revise or modify the Assessment Record. All medical/health services and the like should be itemized under the heading "Service Fees/Charges" and all regulatory fees such inspection fees, permit fees, etc. under the heading "Regulatory Fees" so as to distinguish one from the other. Be guided accordingly. AcHSEa (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director