Enforcement of Local Tax Exemptions Granted by RA 9520 in Connection with Renewal of Business Permit in Pasig City

November 4, 2011 DILG LEGAL OPINION NO. 086-11 Catindig Flores & Palarca Unit 508, The Taipan Place Don Francisco, Ortigas, Jr. Road Ortigas Center, 1605 Pasig City THRU : Atty. Jeremy P. Montalbo Gentlemen/Mesdames : This has reference to your 02 September 2011 letter, in behalf of your client Medical Mission Group Metro Manila East Hospital and Health Services Cooperative (Mission Cooperative), seeking this Department's assistance in the enforcement of the local tax exemptions granted by RA 9520 in connection with the renewal of its business permit in the City of Pasig. As noted in your letter, BLGF MC No. 31-2009 as reiterated in DILG MC No. 2010-120, clearly laid down the exemptions from local taxes and fees of cooperatives based on Article 61 of RA 9520, viz. : "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: "(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 and/or duties." Furthermore, Section 133 (n) of the Local Government Code (LGC), in general, exempts cooperatives registered under RA 6938, as amended by RA 9520, from the payment of taxes, fees and charges imposed by provinces, cities, municipalities and barangays ; and real property taxes imposed by cities/municipalities under Section 234 (d) of the LGC. However, cooperatives transacting business with both members and non-members are still required to do the following, viz. : cADEHI "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 a 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 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." Assuming that Mission Cooperatives is qualified of the tax exemption under Article 61 of RA 9520, then the assessed Mayor's Business Permit fee and local taxes, fees and charges amounting to P153,425.20 is an erroneous assessment considering that cooperatives registered with the CDA are exempt from local taxes, fees and charges under conditions laid out under Article 61 of RA 9520, with the exception of the above-quoted fees/charges which cooperatives transacting business with both members and non-members are required to pay. As alleged in your letter, BPLO Head Atty. Dianeth L. Valencia contends that Pasig City enjoys fiscal autonomy under the LGC that cannot be defeated by mere memorandum circulars which cannot circumvent the right of LGUs in fixing the cost of regulation, inspection and surveillance of the cooperatives operation to an amount not exceeding one thousand pesos (P1,000.00). This contention is erroneous. The basis for the exemption from local taxes, fees and charges of qualified cooperatives is RA 9520, which is a special law on cooperatives. While it may be said that LGUs enjoy fiscal autonomy, this is not absolute since the grant of fiscal autonomy to LGUs is subject to the limitations imposed by law, in this case RA 6938, as amended by RA 9520. This is pursuant to Section 5, Article X of the 1987 Constitution, viz. : "Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide ,consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government." It must be noted that direct/indirect circumvention of Articles 60 and 61 of RA 9520 by public officials/employees is punishable by fine or imprisonment, or both as provided under Section 140 thereof, viz. : "ART. 140. Penal Provisions. The following acts or omissions affecting cooperatives are hereby prohibited: xxx xxx xxx "The Authority may motu proprio ,initiate complaints for violations of this provision. xxx xxx xxx "(3) Direct or indirect violation or circumvention of the provisions of Articles 60 and 61 of this Code committed by any public official or employee of any bureau, office or agency of the government that deprives, diminishes or in any manner hinders or restricts any duly registered cooperative from the full enjoyment of the exemption from the payment of the taxes, fees and charges enumerated therein, shall upon conviction, suffer a penalty of not less that one (1) year but not more than five (5) years imprisonment or a fine in the amount of not less than Five thousand pesos (P5,000.00) or both at the discretion of the court and shall further be disqualified to hold any other office; "In case of violation of any provision of this Code, the individual or individuals, and in the case of organizations or government agencies, its officers, and directors shall, upon conviction by a Court, each suffer a penalty of not less than two (2) years but not more than five (5) years imprisonment or a fine in the amount of not less than Twenty thousand pesos (P20,000.00), or both at the discretion of the court. In the case of a public official or employee, the offender shall upon conviction, suffer the accessory penalty of temporary absolute disqualification." In order to fully address the issue on the alleged circumvention of Article 61 of RA 9520 by the City of Pasig thru its BPLO Head Atty. Dianeth L. Valencia, we deem it appropriate to refer the matter to DILG-NCR for fact-finding investigation to determine the appropriate action of the Department on the matter. ADEaHT Very truly yours, (SGD.) JESSE M. ROBREDO Secretary