Paraguayan Senate approves amendment giving co-ops exemption from VAT

Since VAT was imposed on co-ops in 2016, members have been more reluctant to take loans

Co-operatives in Paraguay will no longer have to pay VAT when trading with their members.

The country’s Senate approved an amendment to the Co-operative Law, which proposes eliminating VAT on activities performed by co-op members, such as taking loans from the co-op, or activities between various co-operatives.

“I feel very glad and excited. Now the law will go to the Chamber of Deputies to be examined,” said senator Carlos Núñez, who proposed the amendment.

The senator is president of the 8 de Marzo saving and credit co-operative, which serves police personnel. He argued that VAT had affected individual members of saving and credit co-operatives, who ended up paying for it when getting a loan from their co-op.

The co-operative sector argues that since VAT was imposed on co-ops in 2016, members have been more reluctant to take loans from their co-ops. Those who had had loans approved were also unwilling to withdraw the money once they saw they had to pay VAT on it.

According to the co-operative confederation, Conpacoop, over 40% of Paraguay’s economically active population is a member of co-ops. Last year, around 80 co-operatives managed to obtain Supreme Court rulings in their favour, freeing them from VAT.

Currently at 10%, VAT applies to brought and sold goods and services.

Hernando Raichakowski, lawyer and coordinator of government relations at Conpacoop, told Co-op News that co-ops did not have intermediaries looking to make profit. They not trade only with their members, but are also operated by them, for them.

Conpacoop estimates that 1.5 million co-operators were affected by the introduction of VAT back in 2016.

While initially intended only for loans, the measure ended up affecting all provision of goods and services between members and their co-ops, impacting not only saving and credit co-operatives, but also multi purpose co-operatives and federations.

The amendment still needs to be approved by the Chamber of Deputies and the executive.

“It will be, in short, a claim that (i) co-operation is not regular trading and members are equal (ii) the member is not a client, but the owner of his co-operative, and, (iii) no one can gain from it, so that a tax levy cannot be imposed on the co-operative act, which, demonstrably, it is not the ‘[profit] generating event’ described by the Tax Law,” added Mr Raichakowski.