Retaining the value-added tax exemptions for all cooperatives that already enjoy almost all types of tax-free privileges–including the 750 prosperous ones that earned a whopping P34 billion combined in 2015 alone–is grossly unfair to the almost 100 million Filipinos who are non-coop members and have to pay their fair share of taxes.

Finance Undersecretary Karl Kendrick Chua said that studies show that only 7.6 million members of the country’s 9,431 registered cooperatives benefit from the VAT exemptions, of which more than half—or about 4.2 million Filipinos—belong to rich cooperatives that have annual gross sales of over P5 million.

“The VAT leakage in this sector is big because the Cooperative Development Authority (CDA) cannot audit coops properly and distinguish sales to members and non-members. There are also many fake coops that take advantage of the system,” Chua said.

“Moreover, not all coops are poor, some can be very rich,” he added.

CDA data show that cooperatives with gross sales of over P5 million reported a combined total income of P34.2 billion in 2015. This figure still excludes their income from credit operations and only involves 750 cooperatives, Chua noted.

On the other hand, 8,314 coops with gross sales of below P3 million earned only P3.3 billion, excluding income from credit operations, during the same period.

“There are many ways to help coops, but VAT exemption is not the right way as it goes against the principle of a VAT. The VAT is a consumption tax and is wrong to use it as an incentive. It is not a tax on profit. We can use the budget to target their specific needs,” Chua said.

Chua said the government can also improve ways of providing assistance to members of cooperatives through better credit information and other regulatory reforms to ease their way of doing business and land administration.

According to Chua, only the Philippines and Kazakhstan provide VAT exemptions to cooperatives.

The substitute bill containing moderate modification to the first package of the proposed Comprehensive Tax Reform Program of the Duterte administration, which was already approved by the House ways and means committee last May 3, removes the VAT exemptions for cooperatives, except for those selling agricultural produce and those falling below the VAT threshold of P5 million.

These cooperatives exempted from the VAT will instead pay the smaller 3 percent percentage tax, Chua said.

In one of the earlier hearings on the CTRP’s first package, Albay Rep. Joey Salceda, a senior vice chairperson of the House ways and means committee, advised cooperatives to focus on sound fiscal management, rather than relying on continued tax incentives, to ensure the success of their economic endeavors.

Salceda said that although the benefits enjoyed by cooperatives amount to P6 billion, the leakages arising from the VAT exemptions given to them reach around P25 billion because the system has already been abused by some enterprises that have sought to shield themselves from taxes by forming cooperatives and taking advantage of the tax perks such organizations enjoy.

Salceda pointed out that in his province, the Albay Capitol Employees Multi-Purpose Cooperative, which had an initial capital of P3 million, was able to grow this amount to P103 million, not because of the tax incentives given to it, but because of sound financial management.

Under the first package of the CTRP that aims to lower personal income tax rates, the accompanying revenue-enhancing measures include the expansion of the VAT base, which will be done by removing over 100 exemptions found in special laws, except those enjoyed by seniors and persons with disabilities.

VAT-exempt privileges will be limited only to raw food, education and health.

Chua said the government’s goal is not to take away benefits enjoyed by the poor who are members of cooperatives, but to directly provide them these benefits and ensure that these reaches them by way of direct transfer programs such as cash transfers and other forms of subsidies.