Group says some private schools still slapped 30% income tax

MANILA, Philippines — Some regional offices of the Bureau of Internal Revenue (BIR) are still imposing a 30-percent income tax rate on proprietary educational institutions despite the suspension order from the Department of Finance (DOF), an association of private schools said on Wednesday.

Last July, the BIR stopped the implementation of Revenue Regulation (RR) No. 5-2021, which would have increased the private schools’ income taxes by 150 percent, “to ease the burden of taxation among proprietary educational institutions, especially during this time of COVID-19 pandemic.”

It also took into account the pending bills in Congress that would finally clarify the income taxation of schools. The suspension was in effect pending the passage of the appropriate legislation, the BIR added.

However, the regional offices of the BIR “continue to argue that RR No. 14-2021, which suspended RR 5-2021, applies prospectively and does not apply to assessments involving prior fiscal years,” said Anthony Jose Tamayo, chair of the Coordinating Council of Private Educational Associations (Cocopea).

Tamayo said they received reports that despite the ongoing legislative process and the DOF’s suspension, “some BIR [regional offices] continue to impose a 30-percent income tax rate,” citing the BIR’s circular issued in 2012 on the increase in tax rates.

Congress action

“These unfortunate developments only strengthen the urgency and significance of the enactment of the clarificatory bill expressed by its authors, which would serve as the lifeline of these educational institutions from the incorrect implementation of Sec. 27B of the Tax Code that puts them at the brink of closure,” Tamayo said.

The Inquirer sought comment from top BIR officials, but they declined to issue a statement pending confirmation of Cocopea’s claims.

Cocopea has called for the swift enactment of the legislation that would secure the 10-percent preferential tax rate for proprietary schools as well as the 1-percent lowered rate during the pandemic under the Corporate Recovery and Tax Incentives for Enterprises Act or CREATE law.

Tamayo said that the pending bill in Congress would provide financial assurance to private schools and help them maintain their operations for the rest of the academic year.

Despite surpassing the total number of enrolled students last year, according to the Sept. 13 data of the Department of Education, enrollment in private schools in basic education for this year reached only 1.434 million, which was 57-percent lower than the 3.376 million in the previous year.

Classification

The BIR’s RR 14-2021, which was dated July 26 and signed by Finance Secretary Carlos Dominguez III on July 27, scrapped the limitation imposed by an earlier regulation that provided income tax exemption and 10-percent preferential income-tax rate only to nonprofit and nonstock educational institutions.

Last June, Cocopea and the Philippine Association of Colleges and Universities, along with 31 private schools, petitioned the Court of Tax Appeals to stop the BIR from increasing their corporate income tax by 150 percent, saying it would violate both the Tax Code and the Constitution.

The BIR earlier explained that it based its regulation raising the tax rate on Supreme Court rulings “in a number of landmark cases” under which educational institutions needed to be classified as nonprofit to avail themselves of preferential tax rates.

Dominguez had also argued that since the CREATE law did not substantially amend Section 27(B) of the Tax Code, except for the provisional rate, the BIR could not provide a definition as to which are entitled to the preferential tax rate other than what had been provided by the high court.

However, the DOF and the BIR expressed openness to amend the Tax Code to address this problem.

Albay Rep. Joey Salceda, the House committee on ways and means chair, promised that the lower house would immediately pass remedial legislation to expand the definition of proprietary educational institutions in the Tax Code.