Business Option
By NAPOLEON T. CABELLO
November 29, 2011, 2:03am
It’s also interesting to note that cooperatives have a special mention in our Constitution. Section 1 of Article XII mandates among others, that the state shall promote industrialization and full employment through private enterprises, including corporation, cooperatives, and similar collective organizations. The entire Section 15 under same article further provides that “the Congress shall create an agency to promote the viability and growth of cooperatives as instruments for social justice and economic development.” Thus, under our Constitution, we could reasonably argue that when we need a job, there are three alternatives legally available: get a job provided by somebody else (corporate employment); invent a job and work by yourself (entrepreneurship); or work in cooperation with others (cooperatives).
Sadly, after more than two decades, our cooperative development efforts still urgently need the light of day. In 2009, there were 78,611 cooperatives existing on paper but only a third or 23,836 were reported operational. These active cooperatives were composed of 5,856,000 members or a mere 6.0 percent of our total population. This is a far cry from Singapore’s 50.0 percent! We are also lagging behind our other Asian neighbors. As measured against their total number of family households, cooperative members in Indonesia and Japan represent 27.5 percent and 33.0 percent, respectively. South Korea is also much ahead with 40 percent of their agriculture produce being marketed via cooperatives.
On Feb. 17, 2009 our 18-year old law was finally amended to further strengthen the regulatory powers of the Cooperative Development Authority (CDA), an agency tasked to oversee the operation of all cooperatives nationwide. The new code (R.A. 9520) further grants limited banking functions, expands the types or categories of cooperatives, and provides enhancements to their existing tax exemption privileges and non-tax benefits. Some of the salient features of the new code are itemized below.
Tax-Exemption Benefits
A cooperative must be duly registered with CDA and must hold a BIR Certificate of Tax Exemption before it could officially avail of tax exemptions. R.A. 9520 differentiates cooperatives which transact business only with their members and those that deal with both members and non-members. For the first classification, cooperatives are fully exempted from paying all existing taxes and fees such as: the 32 percent income tax, 12 percent VAT, percentage tax, customs duties, donors’ tax, excise tax, documentary stamp tax, and annual registration fee. Exemption also covers taxes on transactions with banks and insurance companies, including but not limited to the 20 percent final withholding tax on interest deposits and 7.5 percent final tax on interest income derived from foreign currency deposits.
For cooperatives that deal with both members and non-members, if the accumulated reserves and undivided net savings do not exceed P10 million, the same tax exemption privileges apply, otherwise, only transactions with members are tax-exempt. Overall, however, incomes that are not related to the cooperative’s main business are still subject to certain applicable taxes such as capital gains tax as well as withholding tax on other extraordinary compensation or income.
Non-Tax Privileges
Cooperatives may enter into contracts with local government units to have preferential right to supply agricultural and marine products to government institutions and agencies. They are also exempted from prequalification bidding requirements when transacting business with the government. They can also deposit important documents in the safe of municipal/city treasurer and other government offices free of charge. They can also be represented pro-bono by the provincial or city prosecutor or the Office of the Solicitor General except when the adverse party is the government. Cooperatives are also exempted from paying court/sheriff fees and putting up a bond during court litigation.
The new code also allows the conversion of Credit Cooperatives into Financial Services Cooperative to provide savings and credit to their members and other financial services subject to the regulations of the Bangko Sentral ng Pilipinas (BSP). Certain cooperatives like housing and transport services are also entitled to financial support from various government financing institutions.
Other Major Conditions and Features
R.A. 9520 prohibits members of the board of directors from assuming management functions directly involved in day-to-day operation (this was the source of conflicts among members and their officers and directors under the old law). The new code has also professionalized the management and operation of cooperatives and provided monitoring tools for the cooperative in conducting self-assessments of their managerial, financial, and social objectives. However, newly-organized cooperatives are not allowed to function as multi-purpose cooperatives except after two years of operation.
To provide more livelihood opportunities, R.A. 9520 has also expanded the types of cooperatives allowed from six to about seventeen that now specifically includes: advocacy, cooperative bank, agrarian land reform, electricity, water, dairy, education, financial services, health services, housing, fishermen, insurance, transport, workers coops, and others.
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(The author is a member of the Financial Executives Institute of the Philippines (FINEX). For comments, his email address: napcabello@yahoo.com).
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