Law Summary
Tax Exemptions and Obligations for Electric Cooperatives Registered with the Cooperative Development Authority (CDA) Without Nonmember Transactions
- ECs not transacting with nonmembers/general public are exempt from:
- Franchise tax (Section 119, Tax Code of 1997)
- Income tax on operations
- VAT on generation/distribution sales and imported machinery/equipment (Section 109(s))
- Three Percent (3%) Percentage Tax (Section 116)
- Donor's tax on donations to accredited charitable, research, educational institutions and reinvestment to socio-economic projects within operational area
- Excise tax (Title VI)
- Documentary Stamp Tax, except when the other party is not exempt
- P500 Annual Registration Fee (Section 236(B))
Tax Treatment for Electric Cooperatives Engaging Both Members and Nonmembers
- For ECs transacting with members, all national internal revenue taxes directly liable as listed for non-transacting ECs apply
- For ECs transacting with nonmembers and having accumulated reserves/net savings ≤ P10,000,000:
- All national internal revenue taxes directly liable as listed apply
- Exempt from customs duties, advance sales or compensating taxes on importation of machinery/equipment not available locally (certified by DTI)
- Import restrictions: Tax-free imports cannot be transferred within five years; violation incurs double tax/duties liability on EC and transferee
- For ECs transacting with nonmembers and having accumulated reserves/net savings > P10,000,000:
- Exempt from income tax for 10 years from CDA registration if at least 25% of net income is returned to members as interest/patronage refund
- Exempt from VAT on eligible sales and importation
- Exempt from Annual Registration Fee
- Donations to charitable/research/educational institutions and socioeconomic reinvestments may be tax-deductible
- Post-exemption taxes apply on:
- Income tax on interest on capital (provided no double taxation on members’ interest)
- Sales tax on sales to nonmembers
- Other taxes unless otherwise provided
- All such ECs are exempt from taxes on transactions with banks and insurance companies
- Sales/services rendered to nonmembers are subject to applicable percentage taxes, except those by producers, marketing, or service cooperatives
- Books of accounts may be examined by internal revenue officers for tax purposes with CDA authorization
Tax Obligations Applicable to All Electric Cooperatives (NEA or CDA Registered)
- Subject to the following final income taxes and other applicable taxes:
- 20% final tax on interest from any currency bank deposit, monetary benefits from deposit substitutes, trust funds, and Philippine-source royalties
- 7.5% final tax on interest income from expanded foreign currency deposit system
- Capital Gains Tax on sales/exchanges of capital asset real property or shares of stock
- Documentary Stamp Taxes on transactions with non-members if accumulated reserves/net savings > P10,000,000
- VAT on purchases of non-exempt goods and services
- All other taxes unless expressly exempted by law
- ECs are withholding agents required to file withholding returns and remit withholding taxes on income subject to withholding
General Provisions and Enforcement
- The tax exemptions and liabilities are subject to specific timeframes and conditional requirements, ensuring fair taxation balanced with cooperative support
- Custom duty exemptions on machinery/equipment require certification of non-availability locally
- Transfer restrictions on tax-free imports impose penalties to prevent abuse
- Internal revenue officers may examine EC records with authorization from the CDA to ensure compliance
- Noncompliance or improper tax treatment may expose ECs and involved parties to penalties and tax liabilities