The COOP-NATCCO Party hails the Supreme Court for ruling that the savings and time deposits of cooperative members are not subject to 20% final withholding tax. Recently, SC declared that cooperatives including their members deserve preferential tax treatment because of the vital role they play in the attainment of economic development and social justice.

In the recent case of Dumaguete Cathedral Credit Cooperative vs Commissioner of Internal Revenue promulgated on 22 January 2010, the Court assailed the Court of Tax Appeals for disregarding BIR Ruling No. 551-888 wherein BIR affirmed that cooperatives are not required to withhold taxes on interest from savings and time deposits of their members which was reiterated in BIR Ruling DA-591-2006.

“This is one of the enumerated exemptions that is now included in the Implementing Rules and Regulations of RA 9520, which the BIR refused initially. But due to my insistence it is now part of the IRR,” Coop-NATCCO Representative Jose Ping-ay said.

The Supreme Court decision undermines the interpretation of the BIR that Section 24(B)(1) of the NIRC does not apply to cooperatives and validates that such ruling carries out the legislative intent.

According to the Court: “There is nothing in the ruling to suggest that it applies only when deposits are maintained in a bank. Rather, the ruling clearly states, without any qualification, that since interest form any Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, cooperatives are not required to withhold the corresponding tax on the interest from savings and time deposits of their members.”

“This is a very positive boost for our credit cooperatives. The Supreme Court decision will serve as precedent that savings and time deposits are indeed tax-free. We believe in the correctness of this judgment and with this, we are assured that the rights of cooperatives are protected. So, the BIR should be guided by this ruling,” Coop-NATCCO Representative Cresente Paez added.

The High Court also held that the tax exemption under Art 61 and 62 of RA 6938, as amended by RA 9520, extends to members. It gave more consideration in the legislative intent embodied in the law.

“It must be emphasized that cooperatives exist for the benefit of their members. In fact, the primary objective of every cooperative is to provide goods and services to its members to enable them to attain increased income, savings, investments, and productivity. Therefore, limiting the application of the tax exemption to cooperatives would go against the very purpose of a credit cooperative. Extending the exemption to members of cooperatives, on the other hand, would be consistent with the intent of the legislature,” the SC decision said.