Bureau of Local Government Finance Opinion

February 25, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Rafael C. Gayaso Chief Executive Officer Northern Luzon Federation of Cooperatives and Development Center (NORLU CEDEC) 108 Bokawkan Road, Cresencia Village 2600 Baguio City Sir : This refers to your letter dated February 15, 2011 requesting clarification on the coverage of BLGF Memorandum Circular No. 31-2009 dated October 7, 2009. Representations are made that Northern Luzon Federation of Cooperatives and Development Center (NORLU CEDEC) is located in Baguio City. It was organized on October 1975, registered with the Securities and Exchange Commission (SEC) as a training center then expanded its thrust to development centers and finally as a confederation of cooperatives. It was re-registered with the Cooperative Development Authority (CDA) under the new R.A. 9520 known as the Philippine Cooperative Code of 2008. As informed, a Certificate of Tax Exemption was issued by the Bureau of Internal Revenue, Cordillera Administrative Region, Revenue Region No. 02, Baguio City. The Office of the City Treasurer, Baguio City assessed NORLU CEDEC for Mayor's Permit Fees, Sanitary Business Fee, Tax Clearance Fees, Certificate Fees, Garbage Fees, Sewerage Fees, Puso Inspection Fees, Sanitary Inspection Fees and Fire Inspection Fees, hence, the said request for clarification. In this connection, please be informed of the pertinent provisions of R.A. 9520 known as the Philippine Cooperative Code of 2008, quoted as follows: "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. IDTSEH "Art. 61. Tax and Other Exemptions. Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions 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 regulation 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. 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 (DTI). All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and/or duties. "(2) . . . "(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 except sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority. "xxx xxx xxx." Accordingly, this Bureau expresses the view that for as long as a cooperative is duly registered with the Cooperative Development Authority (CDA) under the provisions of R.A. 6938 and R.A. 9520, it shall remain exempt from the payment of local taxes. aIAcCH It bears emphasis, however, that pursuant to BLGF Memorandum Circular No. 31-2009 dated October 7, 2009, copy enclosed, 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 power of the 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. (Emphasis supplied) 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 a local government such as charges for actual consumption of water, electric power, toll fees for the use of public roads and bridges, and the like. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director