Angara files bill to amend BIR regulation on tax on schools

Senator Sonny Angara has filed a bill which seeks to amend a section of the National Internal Revenue Code (NIRC) to correct the Bureau of Internal Revenue’s (BIR) “erroneous” interpretation of the tax imposed on proprietary educational institutions.

The lawmaker filed Senate Bill 2272, which cites BIR’s Revenue Regulation No. 5-2021 issued on April 8, 2021 on the implementation of Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), specifically the section that provides a preferential tax treatment for proprietary educational institutions and hospitals.

Angara said the BIR's Revenue Regulation interprets the CREATE provision to mean that an educational institution should both be proprietary and non-profit in order to qualify for the preferential tax rate of 1% on their taxable income until June 30, 2023.

But, Angara said in SB 2272, “being proprietary and non-profit is a legal impossibility” because the term proprietary generally means one that is privately owned and managed and run as a profit-making organization.

“Thus, instead of shoring up proprietary educational institutions during the pandemic with the much-needed reduction in the income tax rate from 10% to 1% sought under the CREATE Act, this erroneous regulation would instead subject them to the regular rate of 25%,” Angara said.

“The 25% was not imposed on schools in the past. Schools are among the hardest-hit institutions during this pandemic. We can be more sensitive in our policies. Dapat mas sensitibo tayo ngayon sa pangangailangan ng ating mga kababayan lalo na itong mga paaralan ay mahalagang institusyon sa ating lipunan at ka-partner ng gobyerno sa paghubog ng ating kabataan,” Angara added.

[We must be more sensitive to the needs of our compatriots, especiallys schools, which are valuable institutions and the government's partners in shaping our youth.]

Angara said the wording of Section 27(B) of the NIRC, as amended, may also have caused the BIR's interpretation of the BIR, as “it creates an ambiguity as to whom the preferential tax rates apply to.”

The section reads: “Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income… Provided, that beginning July 1, 2020 until June 30, 2023, the tax herein imposed shall be one percent (1%).”

This also contradicts the Constitution, Angara said, citing Article XIV, Sec. 4(3) of the charter.

Article XIV, Sec. 4(3) of the Constitution provides for the entitlement of exemption from taxes and duties, all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes.

It also states that “Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law, including restrictions on dividends and provisions on reinvestment.”

He argued that the constitutional provision on proprietary educational institutions “clearly” refers to for-profit educational institutions organized as stock corporations.

Confusing and erroneous tax regulation, which contradicts the language and the intention of both the Constitution and our tax laws will only serve to add to the already difficult circumstances being faced by the educational institutions in the country, Angara said in a separate statement.

The lawmaker added that unfeasibly higher taxes could also lead to more closure of proprietary educational institutions as he pointed out that these institutions are already struggling to cope with the financial pressures brought about by the pandemic.

This will also push more teachers and school personnel to lose their job. It will also result in loss of income to the small and medium enterprises linked to the operations of these institutions.

SB 2272 will revise Section 27(B) of the NIRC, as amended, to clearly indicate that the preferential tax rate shall apply to: All proprietary educational institutions, including those that are stock and for profit; and non-profit hospitals. — BM, GMA News