Internal Revenue Commissioner Caesar R. Dulay has effectively revoked a memorandum order issued by his predecessor, which required nonstock, nonprofit educational institutions to renew every three years their constitutionally granted tax exemption.
Dulay issued Revenue Memorandum Order 44-2016, which amends Revenue Memorandum Order 20-2013 issued by former Internal Revenue Commissioner Kim Henares, to restrict the claims of tax exemptions of these nonstock, nonprofit educational institutions.
Under Henares’s repealed memorandum, nonstock, nonprofit educational institutions have to renew their tax exemptions every three years.
But Dulay’s memorandum dated July 25 clarified the nature and tax status of these educational institutions, and excluded these taxpayers from the requirement to renew their tax-exemption rulings every three years.
Dulay cited the provisions in the 1987 Constitution, which provides the tax exemption of nonstock, nonprofit educational institutions, particularly Section 4 of Article XIV, as reiterated in Section 30 of the National Internal Revenue Code.
“It is clear and unmistakable from the aforequoted constitutional provision that nonstock, nonprofit educational institutions are constitutionally exempt from tax on all revenues derived in pursuance of their purpose as an educational institution and used actually, directly and exclusively for educational purposes,” Dulay’s memorandum said.
“This constitutional exemption gives the nonstock, nonprofit educational institutions a distinct character. And for the constitutional exemption to be enjoyed, jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: that the school must be nonstock and nonprofit; and, that the income is actually, directly and exclusively used for educational purposes. There are no other conditions and limitations,” it added.
However, Dulay said that, for purposes of updating the records of the Bureau of Internal Revenue and monitoring the tax exemption of nonstock, nonprofit educational institutions, those with tax-exemption rulings or certificates issued prior to June 30, 2012, are required to apply for new tax-exemption rulings, which will no longer be required to be renewed every three years.