DOF orders probe of cooperatives for alleged tax abuses nearly 30,000 enjoying fiscal incentives

MANILA, Philippines — The Department of Finance (DOF) has ordered the Bureau of Internal Revenue (BIR) to expedite its audit of almost 30,000 cooperatives to weed out those that abuse the tax incentives.

Based on a report to the DOF, the BIR has sent audit notices to 474 cooperatives across the country resulting in tax assessments of P1.62 billion.

Of this amount, the BIR has collected P250.35 million so far.

Internal Revenue Deputy Commissioner Arnel Guballa said the BIR has on record a total of 29,623 registered cooperatives which remitted P2.84 billion in taxes in 2018, lower than the P3 billion recorded in the previous year.

Guballa said the ongoing audit has uncovered enterprises that pretend to be cooperatives so they can enjoy the tax perks given to cooperatives.

Guballa cited, for instance, a “cooperative,” that the BIR discovered to own several gasoline filling stations.

Following BIR’s report, Finance Secretary Carlos Dominguez then directed the BIR to intensify its efforts to audit cooperatives in order to determine which among them are exploiting the tax benefits.

“You have the right to audit already, so please exercise it,” Dominguez told BIR officials led by Commissioner Caesar Dulay during a meeting.

Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which took effect on Jan. 1, 2018, cooperatives are required to submit regular reports on the fiscal incentives they are enjoying through the Cooperative Development Authority (CDA).

The CDA, in turn, will submit a consolidated report to BIR for inclusion in the database created under the Tax Incentives Management and Transparency Act (TIMTA).

The report should include “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) 6938” or the Cooperative Code of the Philippines.

In line with this, the CDA and BIR signed Joint Administrative Order No. 1-2019 last May 16.

Under 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.

Cooperatives that were issued Certificates of Tax Exemption (CTEs) and availed of tax incentives are also required to submit to the CDA their respective Annual Tax Incentives Reports.

A registered cooperative that fails to comply with the reportorial requirements may have its CTE revoked, according to the JAO. 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.