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New Rules on Tax Exemption of Cooperatives under the Tax Reform for Acceleration and Inclusion (TRAIN) Law

The passage of the TRAIN Law effective last January 1, 2018, had also affected the rules on the exemptions of cooperatives. Under the TRAIN Law, the Cooperative Development Authority is required to submit tax incentives report enjoyed by the exempt and registered cooperatives to the Bureau of Internal Revenue which in turn submit the same to the Department of Finance for inclusion in its database. The said rules were explicitly declared in  Section 3 of the TRAIN Law amending Section 5 of the NIRC read as follows:

Section 3. Section 5 of the National Internal Revenue Code of 1997 (NIRC), as amended, is hereby further amended to read as follows:
“Sec. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons.— In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
“(A) x x x
“(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their members: Provided, That the Cooperative Development Authority shall submit to the Bureau a tax incentive report, which shall include information on the income tax, value-added tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended: Provided, further, That the information submitted by the Cooperative Development Authority to the Bureau shall be submitted to the Department of Finance and shall be included in the database created under Republic Act No. 10708, otherwise known as ‘The Tax Incentives Management and Transparency Act (TIMTA)’.
“x x x.”

As a result of the new regulations, the Bureau of Internal Revenue issued the Revenue Memorandum Circular No. 59-2019 dated June 7, 2019, publishing the full text of Joint Administrative Order No. 1-2019 between the Cooperative Development Authority and BIR to implement the said regulations. The administrative order highlights the roles of the CDA, BIR and the DOF as well as the reportorial requirements of the registered cooperatives for compliance.

For compliance, the registered cooperatives are required to:

1.) File their tax returns and pay their tax liabilities, if any, on or before the deadline using the electronic system for filing and payment of taxes of the BIR.

2.) All registered cooperatives which were issued a Certificate of Tax Exemption (CTE) and availed of tax incentives shall submit to the CDA the Annual Tax Incentives Report on or before April 30 of the succeeding year or 15 days from the deadline of filing of Annual Income Tax Return depending on the accounting period used.

Failure to comply with the reportorial requirements by a registered cooperative will result in the revocation of the Certificate of Tax Exemption and the registered cooperative will be prohibited from availing of the tax exemption for a number of years or from re-applying for the tax exemption.

A copy of the said order is furnished below for your guidance and information:


JOINT  ADMINISTRATIVE ORDER  NO. 1-2019

RULES   AND  REGULATIONS IMPLEMENTING SECTION 3 OF REPUBLIC  ACT (RA)  NO.  10963,  OTHERWISE  KNOWN AS  THE  "TAX  REFORM FOR ACCELERATION AND INCLUSION LAW"  IN RELATION TO SECTION 5(b) OF RA NO. 8424  OF THE NATIONAL INTERNAL REVENUE CODE,  AS AMENDED.

WHEREAS,   Section  3  of  RA  No.  10963 requires the Cooperative  Development Authority (CDA) to submit to the Bureau of Internal  Revenue  (BIR)  a tax incentive report availed by cooperatives registered with CDA and enjoying incentives under RA No. 9520, which information shall be included in the database created under RA No. 10708,  otherwise known as the "Tax Incentives Management and Transparency  Act   / (TIMTA)".

WHEREAS,  Section 244 of RA No. 8424 or the National Internal Revenue  Code, as amended,  provides for the power of the Secretary of Finance, upon recommendation of the Commissioner of Internal   Revenue, to promulgate all needful rules and regulations for the effective enforcement of the provisions of the Code.

WHEREAS,  Section 4 of RA No. 8424, as amended, provides for the power of the Commissioner of Internal Revenue to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the Code or other laws.

WHEREAS,  Section  84 of RA No. 10963  or the Tax Reform for Acceleration and Inclusion (TRAIN) Act, mandates the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue to promulgate the necessary rules and regulations for its effective implementation.

WHEREAS, Section 13 of RA No. 6939 or the Cooperative Development  Authority Act authorizes the CDA to promulgate such rules and regulations as may be necessary to implement  the Act.

NOW, THEREFORE, these Rules and Regulations are issued as Joint Administrative Order No. 01-2019 to guide all concerned departments,  offices, agencies, and stakeholders,  in the implementation of Section 3 of RA 10963.

RULE  I
GENERAL PROVISIONS

Section 1.  Declaration of Policy.  - It is the policy of the State to promote fiscal accountability and transparency in the grant and management of tax incentives by developing means to promptly measure the government's fiscal exposure on these grants and to enable the government  to monitor,  review and analyze the economic impact thereof, and thereby optimize the social benefits of such incentives.

Section 2. Definition of Terms.

a.  Bureau of Internal Revenue- refers to the government agency entrusted with the power to assess and collect all national internal revenue taxes, fees and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, and hereinafter referred to as the BIR.

b.  Cooperative  Development  Authority  - refers to the government agency organized and existing by virtue of RA No. 6939,  whose aim is to promote the viability and growth of cooperatives as instruments of equity, social justice, and economic development,  and hereinafter referred to as the CDA.

c.  Registered Cooperatives- refers to any cooperative organized and existing under Philippine laws and registered with the CDA.

d.  Tax  Exemption - refers to fiscal incentives as provided by law to registered cooperatives.

e.  Certificate of  Tax  Exemption (CTE) refers to the ruling issued by the BIR granting a tax exemption to the cooperative.

f. Annual Tax Incentive Report - refers to the report submitted by the registered cooperatives to the CDA containing claims for income-based tax incentives, value­ added tax and duty exemptions, and other tax incentives as well as other information as may be required by the CDA.

g.  Consolidated Annual Tax Incentives Report- refers to the report to be submitted by the CDA to the BIR containing information on the income tax, value-added tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended and a comprehensive data/information of registered cooperatives.

RULE II
COMPLIANCE  REQUIREMENTS FOR REGISTERED COOPERATIVES

Section 1. Filing of Tax  Returns and Payment of Tax Liabilities. - All registered cooperatives shall file their tax returns and pay their tax liabilities, if any, on or before the deadline as provided under the NIRC, as amended, using the electronic system for filing and payment of taxes of the BIR.

For purposes of availing income-tax based incentives,  only electronically filed tax returns shall be considered except when manual filing is allowed in accordance with BIR revenue issuances, in which case, the return manually filed must be duly stamped by the BIR.  Notwithstanding the manual filing, the registered cooperatives are still required to file electronically within thirty days (30) days reckoned from the time the electronic filing/payment system is operational/available.  The BIR and the CDA shall render assistance to the registered cooperatives in the electronic filing of tax returns.

Section  2.   Submission of Annual   Tax  Incentives   Report.  -  All registered cooperatives which were issued a Certificate of Tax Exemption (CTE) and availed of tax incentives shall submit to the CDA the Annual Tax Incentives Report (Annex "A") as mandated under Section 4, paragraph (2), of RA No. 10708 and Section 3 of RA No. 10963. The Report shall be duly signed by the Chairman and/or the General Manager of the concerned registered cooperative, and submitted to the CDA in accordance with the following schedules:

Accounting Period
Year Ending On
Deadline of Cooperative Submission
Calendar Year December 31 April 30 of the succeeding year
Fiscal Year January- November 15 days from the deadline of filing of Annual Income Tax Return


RULE Ill
INCENTIVES MONITORING MECHANISM 

Section 1. Role of the CDA.  -The CDA shall:

a.  Submit to the BIR, the Registered Cooperative Master List (Annex "C") which shall contain the list of all registered cooperatives within thirty  (30) days after the approval of these Rules. The Registered Cooperative Master List shall be updated every thirty (30) days after the close of each calendar/ fiscal year.

b.  Submit to the BIR the Consolidated Annual Tax Incentives Report (Annex "8"), within sixty (60) days from the statutory deadline for filing of Annual Income Tax Return and payment of taxes due thereon, if any.

The  Consolidated   Annual  Tax  Incentives  Report  shall  cover  the  information reflected   in  the  Annual   Income  Tax  Incentives   Report  filed   by  registered cooperatives depending on the accounting period used, whether calendar or fiscal year to wit:

Accounting Period
Year Ending On
Deadline of Cooperative Submission
Calendar Year December 31 60 days from the date of the statutory date of filing
Fiscal Year January- November 60 days from the deadline of filing of Annual Income Tax Return

c.  Submit to the BIR a Master List of Cooperatives which failed to submit the Annual Tax Incentives  Report required under Section 2 of these Rules, within thirty (30) days from the deadline of the submission of said Report.

d.  Issue a Memorandum  Circular (MC) to all cooperatives for the implementation of this JAO.


Section 2. Role of BIR.- The BIR shall

a.  Submit to the Department  of Finance  (DOF) the Registered  Cooperative  Master List (Annex "C") which shall contain the list of all registered  cooperatives  within sixty (60)  days after the close of each calendar year;

b.  Submit to the DOF on or before August 15 of the current year, the Consolidated Annual Tax Incentives Report (Annex "B") submitted  by the CDA; and

c.  Submit to the DOF within 90 days after the lapse of the close of each calendar year an updated report with income-based tax incentives as evaluated and determined by the BIR.

d.  Collate the list of cooperatives which are non-compliant with the submission of the required  Annual Tax Incentives  Report required under Section 2 of these Rules, for endorsement to the concerned Revenue District Offices (RDOs) for assessment and collection of applicable taxes.


Section 3. Role  of DOF. -The DOF shall include in the database created under RA No. 10708  the reports herein submitted by the BIR to the DOF.


RULE IV
NON-COMPLIANCE WITH FILING REPORTORIAL REQUIREMENTS

Section  1.  Effect of failure to submit the Reportorial Requirements by a Registered Cooperative. -  Submission of the reportorial requirements under Rule II, Section  2 of this Order shall be a continuing requirement for the effectivity of the Certificate of Tax Exemption of a registered cooperative.

Failure to comply  with the reportorial  requirements  by a registered  cooperative  shall have the following  effects:

First Offense - CTE shall be deemed revoke and registered cooperative shall be prohibited to avail of tax exemption for a period of one (1) year from the date of revocation.

Second Offense - CTE shall be deemed revoked and registered cooperative shall be prohibited to avail of tax exemption for a period of three (3) years from the date of revocation.

Third Offense - CTE  shall   be   deemed   revoked   and   registered cooperative  shall be prohibited  to avail of tax exemption for  a period  of five (5) years from the date of revocation

Fourth Offense - CTE shall be deemed revoked and cooperative shall be prohibited from re-application.

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.

Pursuant to Art. 140, 6 (b) and (f) of RA 9520, providing information, reports or other documents  to the CDA which the person knows to be false or misleading,  and failure to comply with an order or written instructions issued or given by the CDA are punishable by imprisonment  of not less than one (1) year nor more than five (5) years or a fine of not more than Fifty thousand pesos (P50,000.00) or both at the discretion of the court.

Section 2. Penalty for Non- compliance of Government Official or Employee with the provisions of this JAO. - Any government official or employee who fails, without justifiable reason, to provide or furnish the required tax incentives report or other data or information within the prescribed period as required under this Joint Administrative Order shall be penalized, after due process, by a fine equivalent to the official's or employee's  basic  salary  for  a  period  of  one  (1)  month  to  six  (6)  months  or  by suspension  from  government  service  for  not more  than  one  (1)  year,  or both,  in addition to any criminal and administrative penalties imposable under existing laws.

RULE V
FUNDING

Section 1. Funding.  Such amount necessary to carry out the implementation of these Rules shall be sourced from the regular budget of the agencies involved herein from the current General Appropriations Act.

For this purpose,  the DOF, the BIR, and the CDA may apply for the supplemental budget, subject to DBM Rules and  Regulations, for the development and/or enhancement of systems and database with a view to generating data and reports electronically.

The CDA, BIR, and DOF shall endeavor within a period of three (3) years to automate their systems with a view to generating data and reports electronically.  For this purpose, the said agencies shall be granted their budgetary requirements to meet the objectives of these Rules.


RULE VI
INFORMATION DISSEMINATION

Section 1.   Information Dissemination.   This JAO shall be disseminated nationwide. Information campaign and dissemination programs and activities shall be undertaken by the CDA and the BIR.


RULE  VII
TRANSITORY PROVISIONS

Section  1. Transitory  Provisions.- The CDA shall submit to the BIR a Registered Cooperative  Master  List (Annex  "C") covering the taxable year 2018 within thirty (30) days after the approval of this JAO.

The CDA shall submit to the BIR a Consolidated Annual Tax Incentives Report (Annex "8") covering the taxable year 2018 on or before September 30, 2019. BIR shall submit to the DOF Annex B on or before December 15, 2019.

For this purpose, the BIR and the CDA shall undertake to enhance its database system in order to provide the information on actually availed incentives of registered cooperatives.


RULE  VIII
REPEALING AND EFFECTIVITY CLAUSES

Section  1.  Separability   Clause.  -  If any provision of this JAO is subsequently declared invalid or unconstitutional, other provisions hereof which are not affected thereby shall remain in full force and effect.

Section 2. Effectivity.  - This JAO shall take effect fifteen (15) days following its publication in a newspaper  of general circulation and filing of three (3) copies hereof with  the  Office   of  National  Administrative   Register   (ONAR),   University   of  the Philippines   (UP)   Law   Center,   Diliman,   Quezon   City pursuant  to   Presidential Memorandum Circular No. 11 dated 09 October 1992.


(Original Signed)
HON. CARLOS G. DOMINGUEZ
Secretary
Department of Finance


RECOMMENDING APPROVAL:

(Original Signed)
CAESAR R. DULAY
Commissioner
Bureau of Internal Revenue

(Original Signed)
HON. ORLAND R. RAVANERA
Chairman
Cooperative Development Authority

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About Vincent Perdiguez

The above article was shared by Vincent on this website. He is currently working as a government employee. He is an accountant by profession and his field of interest is audit and taxation. He is writing about business and he loves sharing his knowledge. He is also a practicing Christian and loves to talk about the Bible. He is an active promoter of the 1611 King James Bible. You can reach him through email at cpadavao@gmail.com or through mobile number +63-916-276-4585. You can also post your comments or suggestions about the subject below. Thank you for subscribing to us!
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