Lifting tax exemptions to cooperatives 

would be adverse to their purpose 

 Over 300 members of various cooperatives last week protested in front of the Senate building on the plan of the Department of Finance (DOF) to tax cooperatives. 

Secretary Ralph Recto submitted its position paper on Senate Bill 2811 which Senator Imee Marcos filed in December last year proposing amendments to Republic Act 9520, also known as the Cooperative Code of 2008 that seeks to reinforce and retain the tax exemptions granted to cooperatives under RA 9520. 

The secretary of finance is asking the deletion of the phrase “including members’ share capital and deposits” from Section 70 of the bill since it is already provided under RA 9520 and does not need restating.

The DOF said that increasing the threshold from P10 million to P100 million should apply solely to agricultural cooperatives. According to Recto, expanding tax exemptions beyond agricultural cooperatives would risk government revenues to reduce gratuitously.

The DOF cited that extending tax exemption to all cooperatives would create a potential manipulation and lack of transparency of the “reserve fund” which is embodied in the proposed bill of Senator Marcos which it said should be deleted to ensure that it reflects the true financial standing of cooperatives.

The DOF raised concerns about the misuse of reserve funds as a basis for tax exemptions, citing the potential for manipulation and lack of transparency. Recto proposed redefining the term “reserve fund” to ensure it reflects the true financial standing of cooperatives.

One vital concern raised by the DOF not to expand the exemption to cooperatives offering non-essential services, since some of them are operating under the guise of cooperatives to exploit tax benefits. Another concern is to require the cooperatives to submit members’ Tax Identification Number in obtaining Certificate of Tax Exemption which the cooperatives contradicted saying that it violates privacy and due process rights, citing a ruling of the Supreme Court.

Cooperative leaders, in expressing their opposition to the DOF proposal said that cooperatives are member-owned and operating not for profit but for the benefit of its members, and any surplus generated from their operations are not considered as profit but distributed to its members in various forms.

The taxation issue on cooperatives can be intricate. The sole purpose of cooperatives is generally for the benefit of their members, not to capitalize on profit, unlike traditional businesses. Such distinction persuade government to grant special tax consideration to cooperatives. The money saved from tax exemptions are reinvested back to the cooperatives more for the benefits of the members.

Developing countries like the Philippines in which cooperatives play a vital role in socio-economic growth can be spelled out to various forms such as creating employment opportunities for their members, and even extending to non-members. Our countries has a high percentage of unemployment, and cooperatives are filling the gap on this. Pooling resources and profit-sharing among cooperative members enable them to acquire livelihood and get away from poverty, especially the marginalized sectors like farmers and fisherfolk. Creating jobs, generating earnings support the local economy. 

Cooperatives are able to bring together people from different backgrounds and empower them to have a voice in decision-making, and given equal opportunities to grow economically. Not only cooperatives are devoted to uplifting the status of its members, but they have various program that are aligned to the protection and preservation of environment adopting different practices in organic farming, renewable energy and replanting. They advocate for the responsible use of natural resources and protecting our environment.

The government, instead further suppressing cooperatives to sustain the challenges they face, should support them in the way of providing access to finance services and affordable credit. Cooperatives need more capacity-building. 

Despite the cast potentials of cooperatives to grow, many of them are eternally facing financial challenges like limited access to capital, even exposed to undue competition from bigger businesses, and they are expecting from government to support them to endure those challenges.

Instead of pointing its eyes to the cooperatives by lifting their tax privileges, government should help them so they would be able to play even greater part in the socio-econo0mic growth of our country.

Cooperatives have every reason to oppose the imposition of tax for reasons that they a larger part of the socio-economic engine of our society. What they want is the continuous support from government, and not suppress their growth by imposing tax and strict regulatory policies that are opposed to the very objective that cooperatives are created.

The Senate should rally behind Senator Imee Marcos to put into law her proposed bill, all for the benefit of cooperatives and its members, and the community they are committed to serve.