Bureau of Local Government Finance Opinion

May 18, 1998 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the City Treasurer, Butuan City. This refers to the letter dated January 20, 1998 of Mr. Romeo O. Dagani, General Manager, Agusan del Norte Electric Cooperative (ANECO), seeking clarification concerning the tax exemption privileges accorded to electric cooperatives. ANECO allegedly received a letter from that office informing that said cooperative is no longer entitled to tax exemption privileges by the National Government. In this connection, it is informed that the Department of Finance has expressed a consistent view on previous similar cases that for so long as a cooperative is duly-registered with the Cooperative Development Authority (CDA) under the provisions of RA 6938, it shall be exempt from the payment of local taxes. It was emphasized, however, that the exemption enjoyed by such cooperatives does not include payment of service charges or rentals for the use of property and equipment or public utilities owned by local governments such as charges for actual consumption of water, electric power, toll fees for use of public roads and bridges, and the like. ADSIaT In addition, enclosed for your information and guidance is a copy of BLGF Memorandum Circular No. 02-97 dated March 18, 1997 the pertinent portion of which is quoted as follows: ". . . cooperatives duly registered under R.A. 6938 that TRANSACT BUSINESS SOLELY WITH ITS MEMBERS are EXEMPT FROM OBTAINING THE MAYOR'S PERMIT. However, duly registered cooperatives which transact business with NON-MEMBERS are required to obtain said mayor's permit but are EXEMPT from paying the fee corresponding to such permit (EMPHASIS ALL OURS)." Accordingly, that office in the issuance of Mayor's permit to ANECO, may be guided on the basis of the exemptions granted to cooperatives which deal only with members and those who also deal with non-members under RA 6938 as follows: 1. Duly registered cooperatives which do not transact any business with non-members or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. 2. Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. 3. Cooperatives dealing with 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. 2. Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: a) Income Tax On the amount allocated for interest on capitals; b) Sales Tax On sales to non-members; c) All other taxes unless otherwise provided herein. 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 transaction with banks and insurance companies: Provided , That all sales or services rendered to non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives. Be guided accordingly. TAIESD (SGD.) LORINDA M. CARLOS Executive Director