Income tax exemption of electric cooperatives
By: Atty. Mary Grace S. Tejada on July 16, 2026
THE income tax exemption of electric cooperatives has long been the subject of legislative developments and was recently revisited by the Court of Tax Appeals (CTA) en banc in the Commissioner of Internal Revenue v. Misamis Oriental Rural Electric Service Cooperative I Inc. (Moresco-I) case.
Here, the CTA en banc affirmed the division decision holding that nonstock, nonprofit electric cooperatives duly registered with the National Electrification Administration (NEA) continue to enjoy the permanent income tax exemption granted to them under Section 39(a) of Presidential Decree (PD) 269.
Moresco-I is a nonstock, nonprofit electric cooperative organized pursuant to PD 269. For taxable year 2016, the Bureau of Internal Revenue issued a final decision on disputed assessment dated Aug. 30, 2019, finding the cooperative liable for deficiency income tax.
In deciding whether it was liable, the CTA traced the legislative history governing electric cooperatives and examined the evolution of the income tax treatment accorded to them.
In August 1973, PD 269, the National Electrification Administration Decree, was passed and created the NEA, a body vested with the power to regulate electric cooperatives. Section 39 (a) provides that electric cooperatives registered with the NEA are permanently exempt from paying income taxes.
However, in October 1984, PD 1955 withdrew all exemptions or any other preferential treatment granted to private business enterprises, including electric cooperatives. In December 1986, Executive Order (EO) 93 was signed into law which further affirmed the withdrawal of such fiscal incentives, and vested in the Fiscal Incentives Review Board (FIRB) the authority to restore previously withdrawn tax exemptions, revise their scope and coverage, and impose conditions.
Subsequently, FIRB issued Resolution 24-87 restoring all tax exemptions provided under PD 269, with the exception of income tax exemption. It mandated that income derived by electric cooperatives from electric service operations and other sources, including the interest income from deposits, remained taxable.
In 1990, Republic Act (RA) 6938, the Cooperative Code of the Philippines, was enacted and granted electric cooperatives the option to register under the Cooperative Development Authority (CDA) in order to enjoy the preferential tax treatments accorded to cooperatives.
RA 6938 (later amended by RA 9520) expressly provides that cooperatives duly registered with the CDA transacting business with both members and nonmembers are not be subject to tax on their transactions to members. On sales to nonmembers, all cooperatives, regardless of classification, are also exempt from the payment of income and sales taxes for a period of 10 years. For cooperatives whose exemptions were removed by EO 93, the 10-year period shall be reckoned from the effectivity date of said executive order.
Section 127 of RA 6938, as amended, also provides that all other laws inconsistent with the Cooperative Code shall be deemed repealed. It, however, categorically states that it did not amend or repeal any provisions of PD 269.
On the basis of Section 127 of RA 6938, the CTA en banc ruled that any other laws, including EO 93, being inconsistent with the Cooperative Code, were deemed repealed, except for the provisions of PD 269. Accordingly, the CTA held that Section 39(a) of PD 269 which provides for the permanent income tax exemption of electric cooperatives was reinstated.
Correlatively, in 2013, RA 10531 — the National Electrification Administration Reform Act — amended PD 269 to add the definition of an electric cooperative as an electric distribution utility organized and registered pursuant to PD 269.
Thus, the CTA en banc ruled that nonstock, nonprofit electric cooperatives registered with the NEA, such as Moresco-I, are permanently exempt from income tax pursuant to Section 39(a) of PD 269.
Notably, however, a dissenting opinion was propounded. In the dissent, it was opined that the permanent tax exemption under Section 39(a) of PD 269 was effectively repealed by EO 93. While FIRB Resolution 24-87 restored the tax and duty incentives of cooperatives registered with the NEA, it however revised the scope and coverage of such incentives by excluding income tax exemption on electric service operations and other sources.
The dissent noted that nothing in the Cooperative Code, as amended, nor in any provision of RA 10531 states that the permanent tax exemption of electric cooperatives under PD 269 is restored, and thus took the view that income of nonstock, nonprofit electric cooperatives governed by PD 269 from electric service operations and other sources remain to be subject to income tax.
Mary Grace S. Tejada is an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on July 16, 2026. Please see this link.