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DOF: Fake co-ops, 3 Trillion Target, Undeclared Transactions

MALATE, MANILA – Co-op leaders met with Department of Finance Undersecretary Karl Kendrick Chua last April 17 to submit a Position Paper stating reasons why co-ops deserve to continue being tax-exempt.
 
Present at the meeting were representatives of the NATCCO Network, Philippine Federation of Credit Cooperatives, Philippine Federation of Teachers’ Cooperatives, Tagalog Cooperative Development Center, MASS-SPECC (Mindanao), Philippine Cooperative Center, NATCCO Network, and officials of the Cooperative Development Authority.  Also present were Congressman Anthony Bravo of the COOP-NATCCO Partylist and Rico Geron of AGAP Partylist.
 
Undersecretary Chua gave a Powerpoint presentation, illustrating the Philippines as one of the countries in Southeast Asia with the highest value-added tax rate of 12%, and yet, VAT collection was relatively low. He mentioned inefficiencies in tax monitoring and collection, 
 
But he focused on 87 tax exemptions – the highest number in Southeast Asia.  Among these tax exemptions are co-op tax exemptions as stipulated in Articles 60 and 61 of the Cooperative Code of 2008.  
 
House Bill 4774, known as the Tax Reform for Acceleration & Inclusion Bill or “TRAIN Bill” was drafted by the DOF and filed by House Ways & Means Committee Chairman and Quirino Representative Dakila Cua, is still pending in Congress, and proposes to retain only the tax exemptions of senior citizens and persons with disabilities.
 
He mentioned that among the reasons the DOF wants co-ops to be taxed was that the tax exemption was being abused by many.  In simple terms, many “fake co-ops” were put up by opportunists to avail of tax exemptions.
 
Chief among these were labor recruiters who put up service co-ops, rice traders using agricultural cooperatives to skirt import duties, and usurers who put up credit co-ops to leverage the tax exemptions as well.
 
Chua also reiterated that the tax exemption of co-ops is not absolute, since co-op transactions with non-members is supposed to be taxable.  
 
He cited a school employees’ cooperative when he was in college, that operated the school cafeteria, transacted with students (who were non-members) and yet did not pay tax on their revenue.  We are asking help from the CDA to help us with the co-op reporting.
 
Chua, asked for a list of co-ops with reserves above P10 Million way back in 2016 but had not received any data.  CDA Executive Director, Ray Elevazo, admitted he did not have a list but said there are  430  large cooperatives with assets above P100 Million.   
 
Asked if the 430 paid taxes, no data could be presented.
 
Chua said: “I remember requesting for this data as early as last year, yung breakdown ng coops below and above P10 Million and their transactions with members and non-members.  This will help the DOF decide on how big this concern is.  If we can have that data. . . (if we cannot don’t know that)  we cannot be sure if the co-ops are complying  with the law.  That is DOF’s concern, if we really have the handle on co-ops to avoid leakages.”
 
He assured the co-op leaders that the DOF’s proposed reforms “is not singling out co-ops.”
 
“It is just about fixing a broken system .  we are supposed P2 Trillion on VAT revenues but we collect only 700 Billion – so are losing 1.4 Trillion,” he added.
 
Chua said: 
1) “Hindi gagalawin ang lahat ng tax exemptions.  Exempt naman talaga ang agriculture.  Hindi coops ang singled out.  Gusto lang naming gawin patas ang tax system so we have to remove tax exemptions.  It really has to be across-the-board  kasi kausap ko po kayo and you are asking for preferential treatment .  Over the long-term we want the tax system to be broad-based, including the VAT system except for raw food, education and health. And we want to lower the VAT of 12% because it really is too high.  
 
2. VAT exemption is not the only way to help cooperatives.  DOF is ready to help co-ops with the budget to help vulnerable sectors and the priority next year is to make the budget an anti-poverty tool.  Kung may matatanggal na VAT exemption, gagawin naming ng paraan para mai-pasok ang subsidy sa various vulnerable sectors.
 
3.  Package of reform and not just VAT. VAT is not a tax on profit but on goods and services.  It has been done on Boy Scouts and Senior Citizens.  We feel what happened was wrong.  
 
4.  We also focus on budget allocation.  Revenues generated from VAT will go to farmers and rural areas by 2022.  So all sectors that need help will be given more budget.   The current system cannot do that.  That is why I appeal for all to see the big picture.
 
You naturally defend your sector.  But we in the DOF have a difficult job of generating P3 Trillion revenues for government every year and it goes higher to fund all the programs of government.  
 
5.  We are open to work with you to improve the administration.  We just need data.  We want our decisions to be based on data.  For example, yung below and above P10 Million reserves na co-ops and transactions of co-ops with members and non-members.  You can be assured that micro-coops will not be touched.
 
6.  Marami po kasing coops na lumilitaw na medyo hindi consistent sa original na principles.  May mga insurance agent, doctors, and even labor-only contracting. We are having difficulties here and we should help each other.  Ito ang sumisira sa magandang pangalan ng coop.  And we understand that the BIR cannot audit coops, pero meron nang usapan na mag-examine ang BIR.
 
"So whether it is a corporation, a sole proprietorship, or cooperative, all will be taxed fairly.  In the end, we want a fair tax system though we have to help certain sectors like the coops.  You mentioned that there are 10 million co-op members, there are also 90 million non-coop members that need help."  
 
7. On Electric Co-ops, there are 13 CDA-registered electric co-ops not paying taxes while 117 NEA-registered pay VAT.  Why is there inequality? In Sorsogon one electric co-op is registered with the CDA and the other with NEA, which both claim to be co-ops.  
 
(Cong Geron butted in, saying the CDA-registered electric co-ops practice co-op principles such as democratic member control, membership ownership, and distribution of dividends, and the excess in their payments are given back to them as patronage refund.  While in the NEA-registered co-ops subscribers have no ownership.  Other co-op leaders present leaders agreed, saying the NEA-registered electric co-op was owned not by the subscribers. )
 
Chua concluded: “DOF would like to know who is really benefiting from the tax exemption.”
 
In conclusion, Chua said: “I have heard your concerns, I hope you will consider my concerns as well.  We’re here not to single out the coop sector. We are ready to discuss with other agencies how the coop sector can be helped.  But we need your help.  Because by exempting co-ops from VAT – and 100 other interest groups – we are throwing away P1.4 Trillion worth of VAT collection.  We need to look at the big picture.  The 6 to 10 billion that can be collected from co-ops will be returned in the form of services needed by the co-ops.  I cannot believe that tax exemption alone is the reason that you survive!”
 
Chua has spent 12 years in development work.  He has been around the country, and was in Mindanao overseeing development projects of the World Bank.   He has worked with MASS-SPECC for two years to help farmers in Mindanao.  

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