Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 72-2003)
Electric Cooperatives (ECs) registered with the NEA are exempt from franchise tax under Section 119 of the Tax Code of 1997, value-added tax on sales related to electricity generation and distribution and on importation of related machinery and equipment, income taxes they are directly liable for, all national government taxes and fees including franchise and permit fees, and the 3% percentage tax under Section 116 of the Tax Code. These exemptions end 30 full calendar years after the cooperative's organization or until all indebtedness incurred by borrowing is fully paid, whichever comes first.
The tax exemption for ECs registered with the NEA shall end on December 31 of the thirtieth full calendar year after the date of the cooperative’s organization or conversion, or until the cooperative becomes completely free of indebtedness incurred by borrowing, whichever occurs first.
These ECs are exempt from franchise taxes (Sec. 119), income tax on operations, value-added tax on sales related to electricity generation and distribution, 3% percentage tax (Sec. 116), donors tax on donations to duly accredited charitable institutions, excise tax, documentary stamp tax (where the other party not exempt is liable), and annual registration fee of P500 under Sec. 236(B) of the Tax Code.
Yes. ECs transacting with members are liable for all national internal revenue taxes they are directly liable for; ECs transacting with nonmembers with accumulated reserves and undivided net savings not exceeding P10 million enjoy exemptions from customs duties and certain taxes on importation of machinery; those with reserves over P10 million are exempt from income tax for 10 years from CDA registration provided at least 25% of net income is returned as interest or patronage refund, VAT on sales and importation of machinery, and annual registration fees.
If an EC transfers tax-free importations (machinery, equipment, spare parts) within five years, the EC and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or duties applicable on such items.
All ECs are subject to: a) 20% final income tax on interest from bank deposits and monetary benefits from deposit substitutes and royalties; b) 7.5% final income tax on interest from expanded foreign currency deposit systems; c) capital gains tax on sales or exchanges of capital assets or shares; d) documentary stamp taxes on transactions with nonmembers if accumulated reserves exceed P10 million; e) VAT on purchases of non-exempt goods and services; and f) all other taxes not expressly exempted.
Yes, all Electric Cooperatives are considered withholding agents and are required to file withholding tax returns and remit withholding taxes on all income payments subject to withholding.
Donations made by ECs registered with the CDA to duly accredited charitable, research, and educational institutions and investments in socio-economic projects within their area of operation are tax deductible. However, donor’s tax is exempted on such donations, and there are conditions based on the EC’s transactions and accumulated reserves that affect taxability.
Yes, examination of the books of accounts or other accounting records of ECs by duly authorized internal revenue officers is allowed for internal revenue tax purposes only, and such examination requires prior authorization by the Cooperative Development Authority (CDA).
After the expiration of the income tax exemption period, ECs with accumulated reserves over P10 million are subject to income tax on the amount allocated as interest on capital, provided that the same tax is not imposed on interest individually received by the members. Sales to nonmembers are also subject to sales tax, and all other applicable taxes apply unless otherwise provided.