The Philippines’ Department of Finance (DoF) is proposing a comprehensive tax reform that threatens to leave co-operatives worse off.
Sales by co-operatives to their members, sales of co-op produce, and gross receipts from lending by credit unions or multipurpose co-operatives are all currently exempt from VAT.
Submitted to the country’s national Congress in September 2016, the reform is aimed at lowering personal income taxes while increasing revenues to help fund the government’s drive for inclusive growth.
Introducing the reforms, DoF secretary Carlos Dominguez said they were “crucial” to the reconfiguration of the country’s economy.
“Without reforming our tax system so that it becomes fairer, simpler and more efficient,” he said, “government cannot undertake the volume of spending required in achieving our goals of reducing poverty from 26% to 17% in six years and elevating the Philippines to the status of a high-income country in one generation.”
But the reforms are opposed by the co-operative sector, which would lose some of the advantages it currently enjoys.
At the National Co-operative Forum in February, Cooperative Development Authority chair Orlando Ravanera said the changes could pose considerable challenges to co-ops.
And the co-op case found support in Congress, where senator Juan Miguel Zubiri questioned the removal of tax exemption for co-operatives.
“Do we want to make the Philippines more attractive so that we have more jobs? And reverberate to the countryside? Or heavily tax these people?” he said.
Coop Natcco Partylist (CNP), the movement’s political arm, also opposes the tax changes.
A statement from the organisation said: “We would like to emphasise that co-operatives are people-based enterprises and are not profit-driven. Unlike corporations where profits are divided to only few individuals, co-operatives have massive memberships and net surplus is divided among them equitably.”
CNP says more than 90% of Philippine co-ops fall into the category of small and micro enterprises whose existence could be threatened by the removal of tax exemptions.
“Tax exemption enjoyed by co-operatives are a balancing measure to level the playing field of doing business between corporations owned by only few shareholders and co-operatives co-owned by hundreds or thousands members,” it added.
“This proposal on taxation will directly hit 7,421 agricultural co-ops owned and managed by the poorest sectors such as the farmers and fishermen.”
The Philippines has over 26,000 co-operatives registered with the Cooperative Development Authority, with a membership of 14 million Filipinos. In 2010 the sector contributed over 3.12% to the country’s GDP.