BIR after big, but fake co-ops

The Bureau of Internal Revenue (BIR) is closely looking into big cooperatives to filter the “fake” ones taking advantage of the tax perks offered by the government.

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

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

In the order, Dulay noted that Republic Act 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.”

“Thus, the requirement of securing authorization from the Cooperative Development Authority (CDA) before the examination of the books of accounts and other accounting records of the cooperative as provided under Section 61(3) of RA 9520 otherwise known as the Philippine Cooperative Code of 2008, is no longer applicable,” Dulay said.

Cooperatives with accumulated reserves and undivided net savings of more than P10 million as well as those with income not related to the main business would be prioritized.

Last year, Finance Secretary Carlos Dominguez III directed the country’s largest tax-collection agency to fast-track its audit of almost 30,000 cooperatives in the country to determine which ones 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 the tax benefits granted to such organizations.”

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

The TRAIN Law had mandated cooperatives to regularly submit reports detailing the tax incentives they have received. These would be consolidated in a Department of Finance (DOF) database established under the Tax Incentives Management and Transparency Act.

The DOF had said cooperatives’ reports must include “information on the income tax, value-added tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under RA 6938” or the earlier Cooperative Code of the Philippines enacted into law in 1990.

To implement these regulations mandated under the TRAIN Law, the DOF, the BIR and the CDA last year issued Joint Administrative Order No. 1-2019, under which “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.”