Earlier this month Paraguayan president Horacio Cartes enacted a law that requires co-operatives to pay value added tax (VAT). The new law changes various articles of Law 438/94 on co-operatives and has been rejected by the senate in June. The Chamber of Deputies voted in favour of the law in September.
Representatives from the co-operative sector say the “co-operative act” is one of solidarity and therefore it should not be taxed. The new bill imposes the country’s standard value-added tax (VAT) rate of 10% to the co-operative sector.
The country’s co-operative sector is concerned about the potential impact of the law on start-up co-operatives. They argue that many co-operatives could be closing down.
Applying the standard VAT tax to co-ops would lead to an increase in the price of products and services offered by co-operatives, particularly the interest rate on credits to members. Co-operatives are already paying VAT on products and services offered to third parties, but not to those provided to their members. Some Paraguayan co-operatives are among the biggest VAT contributors in the country.
Another legislative change is asking co-operatives to use the D’Hondt proportional representation voting method for their board elections. Co-operatives in Paraguay currently use the nominal voting system that enables members to elect candidates they trust. The movement opposes the electoral changes proposed by the bill on the grounds that it would prevent members from directly electing the candidates they want to represent them.
Mirtha Casco Prujel, director of CONACOOP, the national confederation of co-operatives says the regulator fails to understand the distinct nature of co-operative enterprises, which do not aim to increase profits, but to meet their members’ needs.
“It is essential to consider that co-operatives play a key role in the provision of financial services to adults in Paraguay, given that the 19% of adults in Paraguay have an account in a co-operative, compared to 12% in the banks and 13% of adults are reported to have borrowed from a co-operative in the year 2013, compared with 8% that borrowed from banks. Those with a middle income are two times more likely to use a co-operative,” she said, adding that co-ops had a social purpose.
“This is why we predict that imposing the VAT will result in an increased in the price of products and services offered by co-operatives. The dividend of thousands of co-operative members is at stake,” she warned.
Photo: co-operators march in protest against the VAT tax (c) Cooperativa Ayacape Ltda