Legality of Imposition of Local Taxes upon Duly Registered Cooperatives

September 21, 2015 DILG LEGAL OPINION NO. 036 S. 2015 Hon. Orlando R. Ravanera Chairman Cooperative Development Authority 827 Aurora Blvd., Service Road, Brgy. Immaculate Conception 1111 Cubao, Quezon City Dear Chairman Ravanera : This refers to your 10 July 2015 request for appropriate action concerning the alleged imposition of local taxes upon duly registered cooperatives, notwithstanding the latter's exemption from local taxes pursuant to Section 133 (n) of the Local Government Code (hereinafter, the "Code"). SaIEcA Based on your letter, the above request sprung from AIMCoop's Resolution No. 47, s. 2015, dated 16 April 2015, which requests the CDA's assistance/intervention in the implementation and interpretation of tax exemptions on cooperatives. Allegedly, different local government units (LGUs) have varied interpretations and implementation of the statutory LGU tax exemption of cooperatives. It is your Office's position that Section 133 (n) of the Code categorically exempt cooperatives duly registered under Republic Act No. 6938 (RA 6938) (as amended by Republic Act No. 9520 (RA 9520)), from local taxes, fees, or charges, except as provided under DILG Memorandum Circular (MC) No. 2010-120, which reiterates BLGF MC No. 31-2009. The legislative intent to exempt certain entities from local taxation, such as cooperatives duly registered under RA 6938, is provided under Section 193 of the Code. As such, a local tax ordinance cannot supplant the legislative intent to exempt cooperatives from local taxes. This Department's Opinion We concur with your Office's position concerning the exemption from local taxes, fees and charges of cooperatives registered under RA 6938, as amended by RA 9520, the pertinent provisions of which provide, as follows: "ART. 60. Tax Treatment of Cooperative. 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 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 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: CcSTHI "(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 a 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/or duties. 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: 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. " [Emphasis & underscoring supplied] The intent to exempt CDA-registered cooperatives from local taxes, fees, and charges is reiterated under par. (n) of Section 133 of the Code, which enumerates the common limitations on the taxing powers of local government units, to wit: "Section 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 registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively;" SDTIaE Notably, DILG MC No. 2010-120 emphasized the exemption of duly registered cooperatives from payment of applicable taxes, fees and charges subject to compliance with BLGF MC No. 31-2009, which requires cooperatives transacting with both members and non-members to perform the following: "1. Obtain or secure a Mayor's permit and pay the commensurate cost of regulation, inspection and surveillance of the operation of its business but not exceeding One Thousand Pesos (Php1,000.00); 2. Secure a Community Tax Certificate, as juridical entity and pay the basic tax of Five Hundred Pesos (Php500.00); and 3. Pay service charges or rentals for the use of property and equipment of 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." Relative to AIMCoop's request for intervention on the implementation of local tax exemption of registered cooperatives, rest assured this Department shall conduct its fact-finding investigation to facilitate appropriate action on the matter. We hope the foregoing sufficiently addresses your concern. Very truly yours, (SGD.) AUSTERE A. PANADERO Undersecretary