BIR clarifies tax computations imposed on private schools

MANILA, Philippines — The memorandum circular issued recently by the Bureau of Internal Revenue (BIR) only corrects mathematical computations in one of its controversial regulations instead of rectifying the 150-percent tax increase imposed on private schools, an association of private school administrators said on Tuesday.

The Coordinating Council of Private Educational Associations (Cocopea) explained that BIR Memorandum Circular No. 76-2021 (RMC 76-2021), which was issued on June 11, “merely clarifies” the computations found in Revenue Regulation No. 5-2021 (RR 5-2021).

Under the memorandum, the BIR clarified that it had made an error in the examples of how corporate income tax would be computed in Sections 3(B) and 3(D) of RR 5-2021.

The income tax for proprietary educational institutions, or private schools, were written to be P1 million in total instead of P100,000, while P558,500,000 was written for regional operating headquarters instead of P58,500,000, the BIR said.

‘Contentious issues’

“This gives us hope that the next clarification would be a substantial one that disposes the contentious issues on RR 5-2021, particularly the ‘nonprofit’ qualification which mistakenly bars stock and for-profit schools from enjoying the lowered tax rate under the Create Act, as intended by Create’s authors,” said Joseph Noel Estrada, managing director of Cocopea.

Estrada was referring to the Corporate Recovery and Tax Incentives for Enterprises Act (Create Act) signed on March 26, which further decreased the income tax imposed on private schools from 10 percent to 1 percent. Under Section 27(B) of the National Internal Revenue Code of 1997 (Tax Code), private schools, regardless of whether they are nonprofit or for-profit, enjoy a preferential tax treatment of 10 percent rather than the regular 25 percent for corporations.

The BIR’s RR 5-2021 issued on April 8, however, maintained that the law only exempted nonprofit private schools and nonprofit hospitals from paying 25-percent income tax.

Decreased rate since 1968

Cocopea had contested the inclusion of the word “nonprofit” in the regulation’s definition of proprietary educational institutions, saying that it had been enjoying the decreased tax rate since 1968.

Cocopea also pointed out in its petition to the Court of Tax Appeals that in issuing RR 5-2021 and other similar regulations, the BIR altered the wording of the Tax Code, which did not contain the term “nonprofit” in reference to private schools.

“Unless there is an official clarification from the BIR that removes the ‘nonprofit’ qualification in RR 5-2021 for proprietary educational institutions to enjoy the preferential tax rate of 10 percent under Section 27(B) of the Tax Code, … we do not see any change at all in the existing tax policy that we are appealing to be corrected,” Estrada said.