Cooperatives entitled to tax perk — high court

Savings and time deposits of credit cooperatives are exempted from the 20-percent final withholding tax, the Supreme Court has ruled, dealing a blow to government efforts to hike revenues given a widening budget gap. In a decision penned by Associate Justice Mariano Del Castillo, the high court's Second Division said "cooperatives, including their members, deserve a preferential tax treatment because of the vital role they play in the attainment of economic development and social justice." "Thus, although taxes are the lifeblood of the government, the state's power to tax must give way to foster the creation and growth of cooperatives," it added. Nelson M. Aspe, deputy commissioner of the Bureau of Internal Revenue (BIR), noted that while the high court's decision "will have minimal impact on revenue collection," the BIR would nevertheless appeal the ruling. The Dumaguete Cathedral Credit Cooperative earlier sued the BIR, which assessed the cooperative for around P3 million in deficiency withholding taxes on the interest from the savings and time deposits of its members for 1999 and 2000. The BIR also charged the cooperative a yearly delinquency interest of 20 percent. The Court of Tax Appeals later sided with the revenue agency. In bringing the case to the high court, the cooperative debunked the BIR's claim that it is taxable under Section 24(B)(1) of the National Internal Revenue Code. The clause imposes a 20-percent final tax on interest "from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements." The cooperative said its savings and time deposits are not included in the enumeration. The high court agreed. It also cited BIR Ruling 551-888, which said cooperatives do not have to withhold taxes on the interest from the savings and time deposits of their members. The Cooperative Code of the Philippines should also be cited in this case, it added. Since the law encourages the formation of cooperatives and to create an atmosphere conducive to their growth, "the state extends all forms of assistance to them, one of which is providing cooperatives preferential tax treatment." No less than the Constitution guarantees the protection of cooperatives, it added. Section 15, Article 12 provides that cooperatives are instruments of social justice and economic development. — Ira P. Pedrasa, BusinessWorld