Despite the new memorandum circular issued by Internal Revenue Commissioner Caesar R. Dulay restoring the tax-exemption privilege of nonstock, nonprofit educational institutions, there are still some who are questioning his imposition of a onetime requirement for the exemption to apply.
Still, Dulay was commended by the Tax Management Association of the Philippines (TMAP) for his quick action on the matter.
According to one of the lawyers of Saint Paul College of Makati, the provision in the 1987 Constitution granting tax-exempt privileges to nonstock, nonprofit educational institutions is self-executory, and is clear on its face—that the Bureau of Internal Revenue (BIR) cannot restrict it by imposing additional requirements before such privileges can be availed of.
“The constitutional provision is self-executory, so why should we apply to enjoy it?” lawyer Faustino Madriaga said in an interview with the BusinessMirror.
Saint Paul College of Makati, earlier, was successful in having Internal Revenue Commissioner Kim Jacinto-Henares’s Revenue Memorandum Order (RMO) 20-2013 declared as unconstitutional by the Regional Trial Court in Makati City.
But the BIR, under Henares, was insistent that the decision in favor of Saint Paul College of Makati was only applicable to it and not to other similarly situated nonstock, nonprofit educational institutions.
To correct the situation, Dulay issued his own order—RMO 44-2016—just one month into office and upheld the tax exemption of nonstock, nonprofit educational institutions. But Dulay’s memorandum required those seeking to avail themselves of the constitutional grant of exemption to secure new tax-exemption rulings or certificates “to update the records of the bureau and for purposes of better system of monitoring.”
The requirement to secure a new tax-exemption ruling will be imposed only to those nonstock, nonprofit educational institutions the tax exemption certificates of which were issued prior to June 30, 2012.
Madriaga said this is yet another requirement imposed to schools before the tax exemption can be enjoyed, contrary to what the Constitution provides.
“We are happy with the issuance of RMO 44-2016. However, nonstock, nonprofit educational institutions are still required to file their applications for tax exemption under Section 2 and Section 6 of the new RMO,” Madriaga said.
“Does this not make the enjoyment of the constitutional exemption dependent on the action of the BIR?” he said.
But TMAP, in a statement, supported Dulay’s reinstatement of the tax exemption for nonstock, nonprofit schools.
“We really appreciate and are thankful of the quick action of Commissioner Dulay, less than a month from the start of his term. This matter was among those we included in the wish list submitted to the Department of Finance on July 20,” TMAP President Benedict R. Tugonon said.
Tugonon added the memorandum issued by Henares was not consistent with the Tax Code’s provision on the grant of tax exemption to nonstock, nonprofit schools, which was meant to ensure the affordability of quality education.
“A number of nonstock, non-profit educational institutions were affected by RMO 20-2013 to the point of being subjected to income tax on the tuition just because the inurement restriction was applied to them when they pay competitive compensation to their administrators, professors and employees,” Tugonon said.
“The new issuance will now allow the schools to hire the best and the brightest educators and pay competitive compensation without the risk of the payments being construed as prohibited form of inurement,” he added.