Finance Secretary Carlos Dominguez III has ordered the Bureau of Internal Revenue (BIR) to step up its ongoing audit of the country’s close to 30,000 registered cooperatives to weed out those that have abused the tax incentives granted to them under the law.
In a report to Dominguez, the BIR said it has so far sent audit notices to 474 cooperatives across the country resulting in tax assessments amounting to P1.62 billion from which the agency has so far collected P250.35 million.
BIR deputy commissioner Arnel Guballa reported during a recent Department of Finance (DOF) Executive Committee (Execom) meeting that the BIR has on record a total of 29,623 registered cooperatives whose tax compliance amounted to P3 billion combined in 2017, but which declined by 5.4 percent to P2.84 billion in 2018.
Upon hearing the BIR’s report, Dominguez directed the BIR during the Execom meeting to intensify its efforts in determining which cooperatives are true to their mandate of promoting self-reliance and social change, and which ones have apparently organized themselves into cooperatives as a ruse to exploit the tax benefits granted to such organizations.
“You have the right to audit already, so please exercise it,” Dominguez told BIR officials led by Commissioner Caesar Dulay during the Execom meeting.
Guballa said the ongoing audit has uncovered enterprises with business models that are not cooperatives, but claim to be one so that they can enjoy tax perks. He cited, for instance, a “cooperative” that the BIR had discovered to own several gasoline filling stations.
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which took effect on Jan. 1, 2018, cooperatives, through the Cooperative Development Authority (CDA) are required to submit regular reports on the fiscal incentives they are enjoying.
The CDA, in turn, will submit a consolidated report to BIR for inclusion in the DOF database created under the Tax Incentives Management and Transparency Act (TIMTA).
Under TRAIN, the report includes “information on the income tax, value-added tax (VAT), and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act (RA) No. 6938” or the Cooperative Code of the Philippines.
Joint Administrative Order (JAO) No. 1-2019 between the CDA and BIR was signed by Dominguez last May 16 to implement these new regulations under TRAIN.
With this directive, all registered cooperatives are required to file their tax returns and pay their tax liabilities, if any, using the electronic system for filing and payment of taxes of the BIR.
All registered cooperatives that were issued Certificates of Tax Exemption (CTEs) and which subsequently availed of tax incentives are required under the JAO to submit to the CDA their respective Annual Tax Incentives Reports on or before April 30 of the succeeding year or 15 days from the deadline of filing of their Annual Income Tax Returns, depending on the accounting period used.
A registered cooperative that fails to comply with the reportorial requirements will have its CTE revoked, the JAO states. The erring cooperative will also be prohibited from availing of the tax exemption for a number of years or from re-applying for the tax exemption.
After the CDA has submitted its masterlist of registered cooperatives and a Consolidated Annual Tax Incentives Report, the BIR will collate a list of cooperatives which did not comply with the reportorial requirement, “for endorsement to the concerned Revenue District Offices (RDOs) for assessment and collection of applicable taxes,” the JAO states.
A first offense by a non-compliant cooperative will result in the revocation of its CTE and a prohibition on availing of tax exemptions for a period of one (1) year from the date of revocation.
A second offense prohibits a coop from availing of tax exemptions for three years, while a third offense bars it from tax exemptions for five years.
A fourth offense prohibits a coop from ever re-applying for any tax exemption.
“Registered cooperatives shall be liable for the payment of taxes immediately upon revocation of the certificate of tax exemption, inclusive of surcharge, interest and compromise penalty. Upon payment of taxes, registered cooperatives can re-apply for the issuance of certificate of tax exemption which shall be effective only upon the lapse of the period of prohibition to avail of the tax exemption,” the JAO states.
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