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Chapter 1

The Problem and Its Background

Introduction

Cooperatives are businesses organizations that are owned and run by a

group of individuals for their mutual benefit. Within a legal context they are an

association or corporation established for the purpose of providing services on a

non-profit basis to its shareholders or members who own and control it.

Cooperatives exist for all types of reason, to provide housing, food, and energy to

running businesses such as bookshops to artist cooperatives and beyond.

The cooperative tax rules are a logical combination of the unique

attributes of a cooperative and the income tax scheme in the Internal Revenue

Code. The single tax principle is applied to earnings from business conducted on

a cooperative basis in recognition of the special relationship between the

members and their cooperative associations. Cooperatives have been granted a

certain degree of flexibility in their financial and tax planning and should exercise

their options effectively to maximize benefits for members

Cooperative taxation does not occur in a vacuum. As business

corporations, cooperatives are subject to many of the tax rules applicable to

other business forms. But cooperatives also have special features that justify

unique approaches to certain aspects of income taxation.

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Cooperatives follows from all this that federal taxes must remain high for

some time to come. The way is not yet open for a substantial reduction in federal

revenues. Any revision of the tax system, any reduction in income tax rates

causing a loss of revenue will have to be justified by a corresponding increase in

revenues from other sources: by broadening the base through the reduction or

elimination of existing exemptions or deductions, and by the stimulation of

increased business activity and economic growth. This is not an easy road to

travel. Every taxpayer enjoys and appreciates tax reduction.

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Background of the Study

Cooperatives have existed in some form or another ever since human

beings began to organize themselves for their own mutual benefit, many tribes

organized themselves along cooperative lines as a means of securing resources

and allocating work within their particular group or community. These cooperative

structures were then used when trading with other tribes and communities within

the locale as a means of ensuring fairness.

The idea that people that should form into groups for their own mutual

benefit was further developed by the Welsh Social reformer Robert Owen, who in

1810 got together with his partners and purchased a Mill from his Father-in Law

David Dale.

From this point onward Robert Owen and his partners introduced better

work conditions for their workers and offered them discounted goods via their

retails shops, as well as sharing the profits from sales amongst the employees.

Owen continued to develop these cooperative ideas through writing books and

travelling round the UK doing lectures to promote these new ideas. Further to

this, in 1844 the first cooperative enterprise was developed when The Rockdale

Society of Equitable Pioneers was founded. Historically this enterprise was taken

as the model to develop further Cooperatives and is the basis of the modern

Cooperative Movement that we have today.

Along with the mission to Christianize the people in the community and

established parochial secondary schools, the Mill Hill Missionaries initiated the

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organization of credit union in Barbaza, Antique to help members meet their

financial needs. Barbaza Credit Cooperative Union (BCCUI) was founded on July

20, 1964 with Rev Fr, John Tielen, curate of the town, taking the lead and the

fourteen parochial leaders as pioneer members with six –hundred twenty five

pesos (P 625.00) as initial share capital.

To capacitate the pioneer cooperators, trainings and seminars were

conducted by Rev. Fr. Gerardus Pijnapple, parish priest of Lauan and Bishop

Cornelio de Wit, Diocesan Credit Union Coordinator with the help of the

Technical Assistants from the Netherlands.

In 1976, through the initiative of the Board of Directors to cater the basic

needs of the members, Barbaza Kilusang Bayan sa Pamimili, Inc., a consumer

store was organized.

In 1992, considering the different services and programs offered and as

approved by the General Assembly, BCCUI and BKBPI was consolidated and

renamed Barbaza Multi-Purpose Cooperative and the registration was confirmed

by the CDA on September 11, 1992.

It was only in 1997 that Barbaza MPC was able to purchase a lot at

Cubay, Barbaza, and Antique where the magnificent Main Office is now situated.
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It was first occupied on August 3, 1997. This has opened more opportunities and

increased accessibility to members.

Driven by innovations and dynamism, the coop embarked on another

project, the Coop Cable TV. It was inaugurated on January 18, 1998. With its

increasing viability, CATV services have expanded to neighboring towns. The

expansion was a joint venture with the cooperatives of the respective towns.

With the approval of the CDA on the amended by-laws on June 24, 2002,

the operation of the coop was expanded to other towns. Now, Barbaza MPC has

9 branches located strategically with Panay Island. The opening of the branches

has served more people alleviate their financial difficulties. Barbaza MPC has

paved way towards the betterment of members’ lives.

In line with its efforts and developmental directions, Barbaza MPC is an

affiliate of the Antique Federation of Cooperatives (AFFCUI), Visayan

Cooperative Development Center (VICTO), Western Visayas Alliance of

Cooperatives (WVAC), Philippine Central Fund (PCF), and the National

Confederation of Cooperatives (NATCCO).

Different programs are offered by the coop and to name a few are:

Financial Intermediary and Savings Mobilization program (Savings/Time Deposit,

Lending), Electronic Financial Services (Pinoy Coop ATM, Mobile Banking,

Money Transfer), Coop Communication and Education Advocacy (Coop Cable

TV and Internet, Marketing Programs (Rice Store) Agri-Aqua Programs

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(Otoshiami, Darag Chicken Contract Growing, Rice/Corn/Abacca Trading), Coop

Education Program (BMPC Learning Center, Scholarship Program, Gender and

Development), Coop Risk Protection Program (CAC, Lemos, Colisap, Coop

Bood Bank), Coop Industrial Assistance Program (BMPC Gas Re-Filling Station),

Community Outreach and Members’ Welfare Program (Youth Program,

Philhealth Subsidy, Care for Elderly, Bisita Selda, SPES Program, School

Feeding, Sped Sponsorship, Gugma sa Koop, Kabalaka Project, Adopt-a-School,

Brigada Skwela) Environmental Advocacy Programs (Fisherman’s Day, Tree

Growing Project, Coastal Clean-Up, Disaster Risk Reduction Program).

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Statement of the Problem

This research was undertaken to find out the advantages and

disadvantages of tax exemption on the financial management of the cooperatives

in San Jose, Antique.

Specifically, this study was conducted to seek answers to the following

problems:

1. What are the advantages of tax exemption on the financial

management of cooperative?

2. What are the disadvantages of tax exemption on the financial

management of cooperatives?

3. What are impacts of tax exemption on the financial management of

cooperatives?

4. How does the tax exemption affect the financial management of the

cooperatives?

Statement of Hypothesis

Ho: Based on the foregoing findings the hypothesis was formulated:

There was a significant study between the tax exemption in the profitability of
financial management of cooperatives.
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Scope and Delimitation of the Study

This study has determined the advantages and disadvantages of tax

exemption on the financial management of the cooperatives in the Municipality of

San Jose, Antique.

The descriptive method of research was used to identify the advantages

and disadvantages of tax exemption on the financial management of the

cooperatives in San Jose, Antique.

The participants of the study were the chief financing officers of the

cooperatives, members and the employees.

The study was conducted in 3 cooperatives of San Jose Antique such as

San Jose Multi-Purpose Cooperative, Antique Electric Cooperative Inc.,

Cooperative Insurance System of the Philippines, and Barbaza Cooperative.

The data was gathered through the use of questionnaire-checklist was

purposely constructed for this research and was validated by a panel experts.

Analysis and interpretation of the data are based on frequency counts and

ranks.
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Significance of the Study

This research is undertaken to find out the advantages and disadvantages

of tax exemption on the financial management of cooperatives in San Jose,

Antique.

Furthermore, this study is conducted for the benefit of the following:

Businessmen. They will be able to know the benefits of tax exemption to

their business.

Cooperative. The cooperative will determine the effects of tax exemption

to their operation or financial management.

Future Researchers. It can help them to have knowledge about the

financial management of the cooperatives

Members of the Cooperatives. They will be able to determine the effects

of tax exemption to their life as a member.

Researchers. It can help them to identify the advantages and

disadvantages of tax exemption to cooperatives.

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Definition of Terms

For the better understanding and for the purposes of the study, the

following terms are defined as used operationally in the discussion.

Accountability is the obligation of an individual or organization to account for its

activities, accept responsibility for them and disclose the results in a transparent
manner.

Advantages are a condition or circumstance that puts one in a favorable or

superior position.

Bureaucracyy is system of government administration in which a hierarchy of

non-elected professional officials is in control and often insists on the adherence
to standard procedure.

Cooperatives is a jointly owned enterprise engaging in the production or

distribution of goods or the supplying of services, operated by its members for
their mutual benefit, typically organized by consumers or farmers.

Disadvantages are
something that places one in an unfavorable condition or position.

Effectiveness is an act of producing a result that is wanted: having an

intended effect.

Exemption - one that exempts or is exempted; especially:  a source or

amount of income exempted from taxation.

Expenditure is an act or process of expending.

Financial management refers to the efficient and effective management of

money (funds) in such a manner as to accomplish the objectives of the
organization.

Tax is a charge usually of money imposed by authority on persons or

property for public purposes.
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Theoretical/Conceptual Framework

Figure 1: Research Paradigm

Tax Exemption of Cooperatives

Transparency
Procedure

The diagram shows the effectiveness, fairness in competition and

procedures of tax exemption to the financial management of cooperatives. The

measure of how efficient and effective an organization is – how well it achieves

appropriate objectives can be defined as cooperatives performance.

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