By Siesta-friendly
There is a type of business entity that is not common in the Philippine context. Yet, this is arguably the most helpful in uplifting people’s social and economic welfare. Clearly, cooperatives have yet to lead the way in our economic arena the way they have done so abroad.
Being based on the principle of self-help, co-ops are well-suited to provide services especially in a country often lacking adequate basic services. In other countries, co-ops have been established to provide electricity, telephone services, health services, insurance, etc. to their members. Imagine how easily product/services can be availed of, how much costs can be cut, or how damage, injury or loss can be compensated, if the reliance was shifted from the government to the cooperative.
Banking on collective power, co-ops can obtain/sell for their members products/services at terms more advantageous to them than if the same were obtained/sold by an individual acting alone. Retail store co-ops are classic examples but the principle applies across the board. In fact, co-op members can avail of their co-op’s products/services at cost because a co-op is primarily established to serve them (not to reap profits). The potential of having a powerful lobby group is another plus for the co-op system. Our neglected farmers, for one, can be better heard banded together than if individually pushing for government support.
The principle of cooperation ensures the maximization of production, processing, marketing and/or purchasing strength to come up with quality products/services and offer them at cost to its members. Members can readily share in the use of expensive machinery, equipment, tools, etc. previously beyond their reach. Having a co-op also ensures a captive market for the co-op’s products/services thereby guaranteeing regular business.
The co-op policy of one vote per member promotes a more democratic decision-making process and better protects each member’s interest.
Co-ops are of different types and have different purposes. They are formed when people combine their resources (funds, property, skills) to fulfill a common need. The Cooperative Code of the Philippines[1] allows at least 15 persons to form a co-op for any or all of the following purposes:
1) To encourage thrift and savings mobilization among the members;
2) To generate funds and extend credit to the members for productive and provident purposes;
3) To encourage among members systematic production and marketing;
4) To provide goods and services and other requirements to the members;
5) To develop expertise and skills among its members;
6) To acquire lands and provide housing benefits for the members;
7) To insure against losses of the members;
8 ) To promote and advance the economic, social and educational status of the members;
9) To establish, own, lease or operate co-op banks, co-op wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;
10) To coordinate and facilitate the co-op activities; and
11) To undertake any and all other activities for the effective and efficient implementation of the provisions of the Code.
Accordingly, the Code recognizes these types of co-ops:[2]
a. Credit Cooperative - promotes thrift among members and creates funds for loans for productive and provident purposes;
b. Consumers Cooperative - procures and distributes commodities to members and non-members;
c. Producers Cooperative - undertakes joint production whether agricultural or industrial;
d. Marketing Cooperative – supplies production inputs to members and markets their products;
e. Service Cooperative - engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and
f. Multipurpose Cooperative - combines 2 or more of the business activities of the other types of co-ops.
Difference with Corporations
Although the co-op’s General Assembly (comprising all its members) is the principal policy-making body, like corporations, the co-op’s daily affairs are managed by the board of directors. However, unlike corporations, the co-op’s director/officer/employee handling the co-op’s funds, securities or property is required to provide adequate bond for the faithful performance of his duties and obligations.[3]
Like corporations, co-op members also have shares but a member cannot own or hold more than 20% of the co-op’s share capital.[4] And unlike corporate shareholders, a co-op member is liable for the co-op’s debts to the extent of his contribution to the co-op’s share capital.[5]
Co-op members don’t have dividends but they share proportionately in the co-op’s net surplus. The net surplus comprises the excess of payments made for the products/services bought from the co-op.[6] At the end of the fiscal year, the net surplus is distributed as follows: 1st at least 10% to the reserve fund (more like a revolving capital), then 2nd no more than 10% to the education and training fund (for members), and 3rd no more than 10% to an optional fund (for necessary expenses, say, for real property), the balance takes the form of the ROI (return on investment) and patronage funds.[7]
When a member purchases his co-op’s goods/services, he pays full price and only gets the difference between the net price and the mark-up upon the distribution of the net surplus, usually at the end of the fiscal year, in the form of patronage funds.
Tax Benefits
Apart from the social and economic benefits, the tax benefits granted to co-ops add further attraction. Consider: co-ops transacting business with both members and non-members shall not be subject to tax on their transactions to members. In addition, such co-ops when dealing with non-members shall enjoy the following tax exemptions:
1) Co-ops with accumulated reserves and undivided net savings of not more than P10M shall be exempt from all taxes. They are also exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the DTI.
2) Co-ops with accumulated reserves and undivided net savings of more than P10M shall pay the following taxes at the full rate:
(a) Income tax on the amount allocated for interest on capitals, provided that the same tax is not consequently imposed on interest individually received by members;
(b) Sales tax on sales to non-members, provided that all co-ops are exempt from the payment of income and sales taxes for a period of 10 years from registration.
For co-ops whose exemptions were removed by E.O. 93,[8] the 10-year period shall be reckoned from the E.O’s effectivity date. Co-ops created after the Code’s approval shall be granted the same exemptions, the period of which shall be reckoned from the date of registration with the Cooperative Development Authority (CDA); provided that at least 25% of the net income of the co-op is returned to the members in the form of interest and/or patronage refunds;
(c) All other taxes unless otherwise provided herein; and
(d) Donations to charitable, research and educational institutions and reinvestment to socio-economic projects within the co-op’s area of operation may be tax deductible.
3) All co-ops shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies, provided that all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service co-ops.
4) Any judge in his capacity as notary public, ex officio, shall render service, free of charge, relating to either the administration of oath or acknowledgment of (a) articles of cooperation of a co-op and (b) instruments of loan from co-op not exceeding P50,000.00.
5) Any register of deeds shall accept for registration, free of charge, any (a) instrument relative to a loan by a co-op which does not exceed P50,000.00 or (b) the deeds of title of any property acquired by the co-op or (c) any document drawn in connection with any action brought by the co-op or with any court judgment rendered in its favor or (d) any instrument relative to a bond of any accountable officer of a co-op for the faithful performance of his duties and obligations.
6) Co-ops shall be exempt from the payment of all court and sheriff’s fees in connection with all actions brought under the Code.
7) All co-ops shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or seeking to set aside any third party claim.
8 ) Any security issued by a co-op, shall be exempt from provisions of the Securities Act provided such security shall not be speculative.[9]
Economic Survey
If you want to consider the co-op way, one of the first things you must do is to come up with an economic survey containing the structure, purposes and economic feasibility of the proposed co-op, including the area of operation, the size of membership and other pertinent data.[10] Not only will this help you figure out all the details you need to determine if you need to, can, and will push through with the proposed co-op, but this survey is 1 of the primary documents required by the CDA prior to registration.
Once you’re ready, just go to the CDA and have your co-op registered there.
[1] Section 6,Republic Act No. 6938.
[2] Section 23, ibid.>
[3] Section 57, ibid.
[4] Section 74, ibid.
[5] Section 30, ibid.
[6] Section 86, ibid.
[7] Section 87, ibid.
[8] “Withdrawing All Tax And Duty Incentives, Subject To Certain Exceptions, Expanding The Powers Of The Fiscal Incentives Review Board And For Other Purposes.” December 17, 1986.
[9] Section 62, ibid.
[10] Section 11, ibid.
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