SENATOR Juan Edgardo M. Angara is moving to correct an “erroneous interpretation” of the Bureau of Internal Revenue (BIR) on tax perks granted to educational institutions under the Corporate Recovery and Tax Incentives for Enterprises (Create) Act.
Angara filed Senate Bill (SB) 2272 seeking to amend a section of the National Internal Revenue Code (NIRC) in order to “correct an erroneous interpretation on the tax imposed on proprietary educational institutions.”
The Angara bill (SB 2272) cited the Bureau of Internal Revenue (BIR) Regulation 5-2021 issued last April 8, 2021 on the implementation of Republic Act 11534 (Create law), zeroing in on its provision dealing with preferential tax treatment on proprietary educational institutions and hospitals.
It noted that in BIR Regulation 5-2021, the BIR interpreted the provision of Create to mean that an educational institution should both be proprietary and non-profit in order to qualify for the preferential tax rate of one percent on their taxable income until June 30, 2023.
Angara clarified in SB 2272 that “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, he added, instead of shoring up proprietary educational institutions during the pandemic with the much needed reduction in the income tax rate from 10 percent to 1 percent sought under the Create Act, “this erroneous regulation would instead subject them to the regular rate of 25 percent.”
Moreover, the Angara bill reminded that “the 25 percent was not imposed on schools in the past.”
Reminding that schools are among the hardest hit institutions during the pandemic, the senator suggests that “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,” he added. [We must now be more sensitive to the needs of our countrymen; especially these schools are important institutions in our society and partners of the government in shaping our youth.]
Angara argued that the wording of Section 27(B) of the NIRC, as amended, “may have contributed to the erroneous interpretation made by the BIR, as it creates an ambiguity as to whom the preferential tax rates apply to.”
He noted the said section of the law states that “Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of 10 percent on their taxable income; provided, that beginning July 1, 2020 until June 30, 2023, the tax herein imposed shall be one percent.”
Angara added the RR also contradicts the Constitution, particularly Article XIV, Section 4(3).
Article XIV, Section 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.
Moreover, he noted that the same provision of the Constitution 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.”
Angara affirmed that the provision on proprietary educational institutions under the Constitution clearly refers to for-profit educational institutions organized as stock corporations.
He observed that the “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.
Apart from penalizing, marginalizing and discriminating against these proprietary educational institutions, Angara said the unfeasibly higher taxes could lead to even more closures as they are already struggling to cope with the financial pressures brought about by the pandemic.
“This will lead to even more teachers and other school personnel losing their jobs and the loss of income for the extensive network of linked small and medium enterprises and livelihood activities of the host communities as well,” Angara said.
In order to correct the situation, Angara clarified that SB 2272 amends Sec. 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.
Villanueva’s call
ANGARA’S voice was amplified last Thursday as Senator Joel J. Villanueva also called on the BIR to recall RR 5-2021 that imposes a tax rate of 25 percent on private schools―a big jump from the previous 10 percent―because it is was based on an erroneous interpretation of a newly enacted law.
The BIR, in releasing RR 5-2021, cites the Create law as basis for the increase, which was signed into law in March of this year.
Villanueva cited the reduction on the tax rate as a “lifeline” to cope with the ravaging effects of the pandemic on the economy. Instead, the senator said he was surprised to find out that what happened was the polar opposite.
“Agencies cannot legislate through IRR. They should always consult House and Senate records to discover the clear intent behind the provisions, especially ones that could be subject to multiple interpretations,” Villanueva, chair of the Senate labor committee, said.
“Always, the spring (agencies) cannot rise above the source (Congress). In the case of the tax break for schools, the unanimous intent of senators is that the tax of private educational institutions be reduced from the current 10 percent to 1 percent,” he added.
Private schools belonging to the Coordinating Council of Private Education Associations (Cocopea) made their opposition to RR 5-2021 known to the public on June 3 after exhausting legal avenues to have the BIR correct the tax rate.
Villanueva agreed with the organization, saying the content of RR 5-2021 goes against the very intention of CREATE to help businesses by increasing taxes and providing relief not only to schools but to other industries as well.
“If CREATE was a measure that slashes corporate income taxes, then the legislative intent was that private schools should benefit from the across-the-board reduction,” the senator said.
“Thus, it would be illogical, unjust and baseless for the BIR to increase the tax rate of private schools as this goes against CREATE’s core principle and fundamental premise of reducing corporate income tax for all,” he added.
“If cigarette, alcohol and other makers of sin products will pay less corporate income tax under CREATE, why would BIR more than double the tax rate for schools?”