Senators urge BIR to suspend imposition of 25% tax on schools

Senators on Wednesday urged the Department of Finance and its attached agency, the Bureau of Internal Revenue, to temporarily suspend the implementation of a regulation that imposes 25% tax on propriety educational institutions.

Several senators called on the agencies to defer the imposition of the taxes on the schools while the Senate debates on the bill clarifying the intent of Section 27(B) of the National Internal Revenue Code (NIRC), which was the basis of BIR Revenue Regulation No. 5-2021.

During the Senate Ways and Means Committee hearing Wednesday, Senate Minority Leader Franklin Drilon asked Finance Assistant Secretary Dakila Elteen Napao if the DOF and the BIR can just repeal the BIR regulation instead of passing a law to correct the bureau's interpretation.

He suggested this after pointing out that both agencies have expressed support for Senate Bill 2272 which seeks to correct the BIR's “erroneous” interpretation.

However, Napao told the panel that the DOF’s position, as relayed by Finance Secretary Carlos Dominguez III, is to support the measure to clarify and correct different interpretations of the NIRC provision.

“The position of the secretary of Finance that it could be perhaps better that a legislation can correct the seemingly different [interpretation]. This bill should, however, be passed in order to re-clarify the position,” Napao said.

He further noted that there are also interpretations on the Section 27(B) of NIRC from the Supreme Court.

“We can still do the legislation, but in the mean time can you withdraw the regulation so that there is no sword of Damocles hanging over the education institutions? Still, we will proceed with this measure if that is what you feel that is needed. But in the mean time, can you withdraw or direct the BIR to withdraw this BIR regulation?” Drilon suggested.

The lawmaker underscored that schools are still suffering from their closure due to the COVID-19 pandemic and the withdrawal of the BIR regulation will bring "immediate relief" to the sector.

The minority chief’s position was backed by Senator Risa Hontiveros who pointed out that now is the “right timing” to suspend the implementation of the BIR Regulation to prevent harm on schools before the academic year starts.

“Since the previous position of the DOF principal, of the DOF Secretary, is to support the passage of the measure without mentioning the existing regulation which is regulation 5-2021 will be suspended, perhaps on that note, we may have to get back on our principals and get guidance on the matter. But as mentioned, the position that was, the last position was that it should stay at the moment,” Napao responded to the lawmakers.

Drilon suggested giving Napao a week to consult Dominguez and inform the committee of the decision whether to suspend or continue the implementation of the BIR Regulation.

Backing Drilon’s suggestion, Philippine Association of Colleges and Universities (PACU) legal counsel Anna Maria Abad said they will welcome a suspension “at the very least” of the implementation of the regulation.

“We have had reports that the BIR is already trying to impose 25% tax on some of our member-schools. So it really would be appreciated if the DOF and the BIR would do so at the soonest possible time, especially that school [year] will soon be starting in a month,” she said.

Coordinating Council of Private Educational Associations (COCOPEA) managing director Joseph Noel Estrada seconded Abad’s manifestation and called on the DOF and the BIR to act on the matter with urgency.

“We strongly join the call to suspend especially because of the urgency. We are entering a very critical period madam chair. The school opening will be by July or August, and the schools have not decided yet whether they can survive, whether they can sustain and we are also concerned about parents, about students now asking us on what would be the decision on whether to continue in the ensuing semester or school year,” Estrada said.

Moreover, the Commission on Higher Education also expressed support to the bill clarifying the “erroneous” interpretation of the BIR.

CHED Legal and Legislative Services officer-in-charge Jocelyn Balanag said the commission is also backing the position of COCOPEA on the matter.

SB 2272 was filed by Senator Sonny Angara to correct what it calls the BIR's “erroneous” interpretation of 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. — BM, GMA News