THREE senators have stepped up warnings that unless rescinded, the Bureau of Internal Revenue’s “erroneous order” imposing a 25-percent corporate income tax on private schools – already reeling from pandemic shutdowns – would force many of them to close down permanently.
The latest to issue a warning on Friday was Senate President Pro Tempore Ralph Recto, who described the BIR order as “a flawed interpretation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.”
“The title alone of the law [CREATE] clearly shows its intention: corporate recovery and tax incentives,” Recto pointed out, airing serious concern raised earlier by Senators Joel Villanueva and Juan Edgardo Angara, who had moved to file a bill redressing BIR’s interpretation of the CREATE through its implementing rules and regulations (IRR).
The BIR last week decided with finality to reject the letter-appeal of the Coordinating Council of Private Education Associations (Cocopea) opposing BIR’s RR 5-2021. The group wrote the appeal after exhausting legal avenues to have the BIR correct the tax rate. This, over Cocopea’s plea that such would effectively double the rate they have been paying, of 10 percent.
Recto asked on Friday how, given the CREATE bill’s intent to help businesses recover through CIT tax rate cuts, “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?”
CREATE, Recto stressed, “is meant to bail out distressed private schools. The BIR order further drowns them in a sea of red ink.”
Prior to CREATE’s enactment, proprietary educational institutions have been paying a preferential tax rate of 10 percent since 1968, which the association of private schools also highlighted in an open letter.
Senators, Recto said, agreed unanimously to bring it down to 1 percent “to help them evade bankruptcy during the pandemic.”
Recto said the BIR, in crafting the revenue regulation implementing the CREATE Act, should have consulted Senate records of the debate and correspondences to ascertain the legislative intent underlying that provision.
‘BIR must rectify oversight’
Recto said while he welcomed the amendatory bill filed by Sen. Sonny Angara, “nothing, however, prevents the BIR from rectifying its oversight.”
Recto explained: “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.”
The present language of Section 27(B) of the National Internal Revenue Code, the senator added, creates an ambiguity that leads to conflicting interpretation.
Part of the provision 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%).”
The BIR reads it to mean that proprietary educational institutions must be non-profit to qualify for the lower tax rates.
Private schools contend, however, that the non-profit classification applies to hospitals only.
The Angara bill rewords it as “hospitals which are nonprofit, and proprietary educational institutions shall pay…”
In Recto’s view the BIR should unilaterally withdraw a regulation based on wrongful interpretation.
“It is illogical, absurd and goes against the spirit of the law,” Recto stressed.
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, cited 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,” said Villanueva, chairman of the Senate labor committee.
“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.