Senators urge scrapping of BIR tax rule for private schools

MANILA, Philippines — Some senators insisted on the necessity of scrapping—or at the very least suspending—a Bureau of Internal Revenue (BIR) regulation raising the tax imposed on private schools, which one lawmaker called “the final nail in the coffin” for smaller institutions struggling under the pandemic.

During a Senate ways and means committee hearing Wednesday, Senate Minority Leader Franklin Drilon urged the Department of Finance (DOF) to order the Bureau of Internal Revenue to revoke what some senators called an “erroneous” revenue regulation.

“I have not heard anything which would justify or rationalize the refusal of the good assistance secretary to withdraw this erroneous revenue regulation,” Drilon said, referring to Finance Assistant Secretary Dakila Napao, who was representing the DOF during the hearing.

The BIR is under the DOF.

“Why can you not withdraw this revenue regulation to remove the anxiety from our [educational] institutions or being subjected to a very unreasonable rate which is uncalled for,” the minority leader further asked.

Drilon received the support of Sen. Risa Hontiveros as she emphasized the urgency of the situation.

“The minority leader is asking the DOF to do the right thing now and to prevent harm now by withdrawing that revenue regulation precisely before this new school year starts,” she said.

The committee was tackling a Senate Bill No. 2272 seeking to amend a section of the National Internal Revenue Code (NIRC) in order to correct an “erroneous interpretation” of the tax imposed on proprietary educational institutions.

The measure was filed by Senator Sonny Angara after the BIR issued Revenue Regulation No. 5-2021 (RR 5-2021) wherein income tax on so-called proprietary educational institutions that are run by stock corporations would be increased to 25 percent, a 150-percent increase from the current 10 percent.

Private schools groan under new tax rule

Several senators earlier criticized the tax hike, saying it violates the spirit of the Corporation Tax Incentives Reform Act (Create), which reduced the income tax on private schools from 10 percent to 1 percent.

Under Section 27(B) of the NIRC, nonprofit and for-profit private schools are entitled to a 10 percent tax preference rather than the 25 percent paid by corporations.

But the BIR regulation maintained that law only exempted nonprofit private schools and nonprofit hospitals from paying 25-percent income tax.

Angara, during the hearing, said his bill aims to “change the wording” in the NIRC to “clarify that proprietary educational institutions should be taxed at a lower rate of 10 percent.”

“Any higher tax imposition is not only unwarranted in law, it’s also bad policy…To jump from 10 to 25 percent, that could be the final nail in the coffin for many of the smaller private schools,” the senator said.

While the DOF expressed support for Angara’s bill, Napao said the department’s position is that the measure should be applied prospectively.

The DOF official also echoed the previous stand of Finance Secretary Carlos Dominguez III, who earlier said that BIR regulation was based on Supreme Court rulings “in a number of landmark cases.”

“From what I understand from the last position of the DOF, perhaps the proper remedy will be…the enactment of the law (Senate Bill No. 2272) and prospectively apply it,” Napao added.

But Drilon, a former justice secretary, said that implementing agencies such as the DOF as well as policymakers like the Senate “have a say” on the matter regardless of previous Supreme Court rulings.

Further, he said the Senate can continue to work on the bill while the DOF withdraws the BIR regulation for the meantime “so that there is no sword of Democles hanging over the education institutions.”

“At the very least suspend [the regulation] so that there is no fear that the education institutions could be hit with something,” the senator further said.

In response, Napao said he will seek the guidance of the DOF secretary about the call for the suspension of the BIR regulation and get back to the committee within a week’s time.

Joseph Noel Estrada, managing director of the Coordinating Council of Private Educational Associations (Cocopea), backed the call to suspend the BIR regulation.

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“We strongly join the call to suspend especially because of the urgency. We are entering a very critical period,” Estrada said.

“The school opening will be by July or August, and the schools have not decided yet whether they can survive, whether they can sustain. We are also concerned about parents, about students now asking us on what would be the decision on whether to continue in the ensuing semester or school year,” he added.

Senators Richard Gordon, Imee Marcos, Francis Pangilinan and Joel Villanueva are also opposed to the BIR regulation, citing the difficulties faced by private schools following the pandemic.

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