BIR seeks to unmask ‘fake’ cooperatives in audit campaign

The Bureau of Internal Revenue (BIR) has expanded its audit of big cooperatives to determine which were “fake” ones taking advantage of tax perks to the detriment of the government’s revenue collection effort.

Internal Revenue Commissioner Caesar R. Dulay last Feb. 10 issued BIR Revenue Memorandum Order (RMO) No. 7-2020, which covered the issuance of electronic letters of authority to audit and investigate cooperatives starting taxable year 2018 until the present.

A letter of authority is an official document that empowers revenue officers to examine and take a closer look at taxpayers’ books in order to determine their correct tax liabilities.

In the order, Dulay noted that Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act had authorized the BIR commissioner to “examine any taxpayer and the assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of any government agency or instrumentality.”

He said this meant the BIR no longer has to secure the nod of the Cooperative Development Authority (CDA) before examining books of accounts and accounting records of cooperatives.

Dulay said the audit will not only ensure that cooperatives don’t abuse their tax exemptions but also effectively monitor their tax payments.

Cooperatives with net savings of P10 million or more are priority for audit by revenue district officers, Dulay said.

He said other cooperatives, which derive income from operations not related to their main business, would also be covered by the audit.

In 2019, Finance Secretary Carlos G. Dominguez III directed the BIR to fast-track the audit of nearly 30,000 cooperatives.

The audit, according to Dominguez, would determine which cooperatives were “true to their mandate of promoting self-reliance and social change and which ones have apparently organized themselves into cooperatives as a ruse to exploit tax benefits.”

Following audits that started in 2019, the BIR said it had “uncovered enterprises with business models that are not cooperatives but claim to be one so that they can enjoy tax perks.”

The TRAIN Act had mandated cooperatives, through the CDA, to regularly submit reports on tax incentives they get. These would be consolidated in a DOF database for the Tax Incentives Management and Transparency Act.

Cooperatives’ reports must include data on income tax, VAT and other tax perks enjoyed by the groups enjoying incentives through the 1990 Cooperative Code of the Philippines.

The DOF, BIR and CDA in 2019 issued a joint order requiring all cooperatives to file tax returns and pay unpaid taxes using electronic systems.

Edited by TSB