PASAY CITY -- Finance Secretary Ralph G. Recto submitted to the Senate on December 2, 2024 his Department's official position on the proposed amendments to the tax treatment of cooperatives as contained in the Cooperative Code.
And cooperative leaders may be disappointed.
Secretary Recto submitted his position paper to Senate President Francis Escudero. Recto referred to the Senate Bill 2811 on amendments to the Cooperative Code filed by Senator Imelda Marcos in September 2024.
Recto stated that the DOF recognized that the SB 2811's intent is to grow and develop cooperatives. But, there's a "however"!
He wrote: "However, we caution against proposals that can breed inequity in the tax system and prone to abuse and leakages."
The Position Paper began with a list of "salient provisions" proposed by the Bill.
First was "exemption of cooperatives from payment of any taxes, fees, and chrges on member's share capital and deposits of transacting members to the cooperative and agricultural cooperatives and non-agricultural cooperatives with reserve funds P100 Million and below.
COOP-NATCCO Partylist Rep. Ben Canama had proposed to raise the reserve fund from P10 Million to P100 Million so that larger cooperatives are not pressured to keep reserves low just to comply with tax exemption requirements. It has been a dangerous balancing act as cooperative leaders have had to choose between tax exemption or financial risk.
The DOF suggested that what will not be taxable is "members' INTEREST ON share capital and deposits . . ."
On the increase in reserve fund threshold of cooperatives to P100 Million, Recto said it would "narrow the tax base of cooperatives, since a larger number of cooperatives that transact with both members and non-members would be able to avail of the tax exemptions - resulting "in an estimated revenue loss of P683.19 million."
The DOF's counter-proposal is "if the threshold for reserve fund should be increased, it should be for agricultural cooperatives only."
Recto cited President Ferdinand Marcos' 2023 State of the Nation Address where the President spoke of amending the Cooperative Code in the light of the importance of cooperatives in consolidating Filipino farmers and helping them earn higher incomes - but "without unduly eroding government revenues."
Recto also proposes to provide VAT exemption only to “cooperatives catering to the poor”, and not credit surety fund, logistics, labor service, technology service cooperatives so that there would be no “further inequity in the tax system, wherein similar entities that sell the same goods and services are being taxed differently.”
Another controversial statement by Secretary Recto is that “the proposal to use “reserve funds” as the basis of the tax exemption threshold will not reflect the true financial situation of the cooperative.”
It may be recalled that COOP-NATCCO Partylist Representative Sabiniano “Ben”Canama” during his term in Congress, had always advocated that the Article 61 of the Cooperative Code that stipulates a maximum reserve of Php 10 Million to avoid being taxable, is “anti-development” and not good for cooperatives for it forces them not to have reserves just to comply with tax exemption requirements.
Secretary Recto further complained that while cooperatives are given VAT exemption, this is “unfair competition as micro, small and medium enterprises with gross sales above P 3 Million are imposed VAT and those with net income below P5 Million pay income tax of 20 percent.”
Recto said that cooperatives already inherently have a big advantage over other enterprises because the benefits of economies of scale – and yet they have not taken advantage of that.
Recto also disagrees to the proposal that the CDA’s list of cooperatives in good standing as the ‘sole basis’ for the issuance of Certificate of Tax Exemption is not sufficient.
He said big businesses may organize as cooperatives just to enjoy the tax benefits. He cited a 2019 BIR audit that uncovered enterprises that ‘claim to be (cooperatives) so that they can enjoy tax privileges.
Recto reiterated that cooperatives will continue to be required to submit the Tax Identification Numbers of their members as a requirement to be issued a Certificate of Tax Exemption (CTE).
On the proposal to allow cooperative banks to act as depository banks of government funds, he reiterated that only the Land Bank, the Development Bank of the Philippines, Overseas Filipino Bank, Al Amanah Islamic Investment Bank and the Philippine Veterans Bank are designated.