House bill seeks tax exemption for private schools

MANILA, Philippines – A lawmaker on Tuesday sought to strengthen and recognize the tax exemption for private educational institutions to keep them afloat financially and ensure that education was available to more Filipinos.

In a statement, House Majority Leader Neptali Gonzales II said that House Bill 5925 aims to help such agencies avail of tax exemptions by amending Section 27 (B) of Presidential Decree No. 1158, as amended by Republic Act 8424 otherwise known as the (NIRC) which states that proprietary educational hospitals and non-profit hospitals shall pay a tax of 10 percent on their taxable income. The bill excludes proprietary educational hospitals from payment of the 10 percent tax.

Proprietary educational institutions were defined by the bill to be any private school maintained and administered by private individuals or groups which have been permitted to operate by the Department of Education, or the Commission on Higher Education, or the Technical Education and Skills Development.

The bill also seeks to amend of Section 30 (H) of the NIRC to exempt non-stock and non-profit educational institutions from payment of tax on corporations. The exemption pertains “to all revenues and assets used actually and exclusively for educational purposes regardless of whether or not the same is derived in pursuance of the primary purpose.”

Gonzales explained how constitutional provisions were made to support private educational agencies after the drafting of the 1987 Constitution but that the Department of Finance, through Department Order No. 137-87 issued December 16, 1987, had put in place rules on how the institutions could get tax exemption.

The order said that for the agencies to gain tax exemption, their revenue and assets should be obtained and used exclusively for purposes of education.

Gonzales said that the tax exemption which had been granted by the Constitution to the educational agencies was “weakened, diluted and denied” because of the DOF order. “This should not be the case because Article XIV, Section 4(3) of the Constitution does not take into account how these assets and revenues are sourced. There is nothing in the deliberations of the Constitutional Convention was the manner of acquiring these assets and revenues given any relevance.”

He also pointed out how the Constitution’s mandate of allowing tax exemptions for proprietary educational institutions, including those cooperatively owned, has not been used even after 22 years from the effectivity of the 1987 Constitution.

Gonzales said that there was a need for a law strengthening and recognizing the constitutional tax exemption granted to private educational agencies, whether they were non-stock, non-profit or proprietary schools, colleges and universities should be exempted from taxes.

Such a law was “pursuant to Art. XIV, Sec. 4(3) of the Constitution and to extend the same to, subject to the limitations provided in this proposed legislation, to proprietary schools, colleges and universities by amending Sec. 27(B) and Sec. 30 (H) of the National Internal Revenue Code of the Philippines,” said Gonzales.

House Bill 5925 also seeks to free proprietary educational institutions from taxes and duties pertaining to all revenues and assets used exclusively for educational reasons regardless of their primary purpose. It said that this is subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment.

It added that proprietary schools, colleges and universities will still need to determine the amount equal to 10 percent of their net income that could have been subject to income tax if there was no exemption. From the amount determined, 70 percent will be used for increasing salaries of employees; 20 percent for additional scholarship grants to students; and 10 percent for improvement of equipment, facilities and buildings.