Recto urges BIR to rescind 25% corporate income tax on private schools

Senate President Pro Tempore Ralph Recto on Friday urged the Bureau of Internal Revenue (BIR) to rescind its order imposing a 25% corporate income tax on private educational institutions.

In a statement, Recto tagged the BIR’s Revenue Regulation No. 5-2021 issued on April 8, 2021 as a “flawed interpretation” of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

“Yung title pa lang ng batas, malinaw na kung ano ang intensyon nito: corporate recovery and tax incentives. So how can the BIR invoke it to inflict a 150 percent increase on the income tax of private schools, which is directly opposite to what the law clearly intends?” he said.

(The law's title makes it clear what the intention behind it was: corporate recovery and tax incentives.)

“CREATE is meant to bail out distressed private schools. The BIR order further drowns them in a sea of red ink,” Recto added.

The senator said proprietary educational institutions have been paying a preferential tax rate of 10% since 1968 before the enactment of the CREATE Law.

Recto said the Senate unanimously agreed to bring down the tax to 1% as this will help them avoid bankruptcy amid the pandemic.

The BIR should have also checked the records of the Senate when it debated on the CREATE Act before it imposed the revenue regulation to determine the intention of the provision of the said law.

The Senate President Pro Tempore also welcomed Senator Sonny Angara’s bill, which seeks to amend a section of the National Internal Revenue Code (NIRC), correcting the BIR erroneous interpretation of the tax imposed on proprietary educational institutions.

“The bill corrects the ambiguity caused by a missing comma. It is an editorial correction to probably satisfy some grammar police. But in applying taxes, let the intent be the primordial consideration. One missing comma should not cause misery to many,” he said.

Part of Section 27(B) of the National Internal Revenue Code states that “proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, That beginning July 1, 2020 until June 30, 2023, the tax rate herein imposed shall be one percent (1%).”

Recto said the BIR read it to mean that proprietary educational institutions must be non-profit to qualify for the lower tax rates.

He said the BIR should unilaterally withdraw the regulation based on a wrongful interpretation of the said section.

“It is illogical, absurd, and goes against the spirit of the law,” Recto emphasized. — DVM, GMA News