Palace defends tax hike on schools

Presidential spokesperson Harry Roque. File photo from PTV video

MANILA, Philippines — Malacañang on Thursday defended the Department of Finance (DOF) for pushing a new revenue regulation that would effectively increase the income tax rate to be imposed on private schools.

The DOF has supported the Bureau of Internal Revenue’s (BIR) regulation that would increase income taxes on proprietary educational institutions run by stock corporations from 10 percent to 25 percent.

The BIR said only nonstock and nonprofit schools could qualify for the 1-percent preferential tax rate under the Corporate Recovery and Tax Incentives for Enterprises (Create) law.

BIR chief Caesar Dulay had said the law does not intend to provide tax incentives to stock- and profit-oriented educational institutions.

Private school associations have challenged the regulation before the Court of Tax Appeals (CTA) and warned it could lead to the closure of schools already struggling amid the pandemic.

Presidential spokesperson Harry Roque Jr. said in a press briefing that the Palace supported the position of Finance Secretary Carlos Dominguez III that the BIR’s interpretation of nonprofit schools was pursuant to the Create law and established jurisprudence.

“We stand by [the] DOF opinion that [the] BIR is correct,” Roque said in a separate text message.

Absurd

In their petition before the CTA, Coordinating Council of Private Educational Associations and Philippine Association of Colleges and Universities said the BIR regulation violated the tax code and the Constitution.

They said the BIR inserted the word “nonprofit” in the definition of the term “proprietary educational institution” in the Tax Code.

The Tax Code did not contain the term “nonprofit” with regard to private schools, they said.

But senators described the BIR interpretation of the law as “absurd” and demanded that the tax agency rescind the 150-percent increase in income tax it had imposed on private schools struggling to survive the pandemic, saying the agency made an “erroneous interpretation” of a new tax measure.

Under BIR Regulation No. 5-2021 (RR 5-2021), which took effect on April 9, the income tax rate on so-called proprietary educational institutions that are run by stock corporations would be increased to 25 percent from the current 10 percent.

“It is illogical, absurd and goes against the spirit of the law,” Senate President Pro Tempore Ralph Recto said, referring to the Create law, which was passed in March. INQ