Dulay: Non-profit, non-stock schools are tax-exempt

Bureau of Internal Revenue building. AFP FILE PHOTO

MANILA — Internal Revenue Commissioner Caesar R. Dulay has maintained that all revenues being generated by non-profit, non-stock educational institutions are tax-exempt, reversing yet another of his predecessor Kim S. Jacinto-Henares’ policies.

Revenue Memorandum Order (RMO) No. 44-2016 issued by Dulay last July 25 excluded such institutions from the coverage of RMO 20-2013 earlier issued by Henares.

Dulay said that paragraph 3, Section 4, Article XIV of the 1987 Constitution stated that: “All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties.”

The BIR chief said this was supplemented by Section 30(H) of the 1997 National Internal Revenue Code or the Tax Code, which listed non-stock and non-profit educational institutions as exempt from tax on corporations.

“It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. This constitutional exemption gives the non-stock, non-profit educational institutions a distinct character,” Dulay explained.

“[F]or the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: the school must be non-stock and non-profit; and the income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations,” the BIR chief added.

Dulay said “the constitutional conferral of tax exemption upon non-stock and non-profit educational institutions should not be implemented or interpreted in such a manner that will defeat or diminish the intent and language of the Constitution.”

The Tax Management Association of the Philippines (TMAP) earlier sought the repeal of RMO 20-2013, citing that the order “was already declared null and void in the case filed by St. Paul’s College of Makati.”

“The requirement for non-stock, non-profit educational institutions to secure certification from the BIR is considered unconstitutional,” TMAP had noted.

Last February, Henares issued Revenue Memorandum Circular No. 24-2016, which reiterated a Department of Finance order in 1995 requiring non-stock, non-profit educational institutions to submit, on an annual basis, documents detailing the state of their finances.

Henares had said that these institutions should be “subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institution of its educational purpose or function.”  SFM