THE legal team of private education stakeholders sued the Bureau of Internal Revenue before the Court of Tax Appeals in Quezon City on Monday to stop the implementation of BIR Revenue Regulations (RR) 5-2021 which jacks up the corporate income tax of private schools by 150 percent.
The petition for certiorari prohibition, with prayer for temporary restraining order (TRO) and injunction, was filed even as at least seven senators have urged the tax agency to withdraw its order, as this distorts —even does the exact opposite—of legislators’ intent in the recently enacted Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).
Lawyers John Bonifacio and Benedict Tugonon said the petitioners are seeking immediate rectification of RR 5-2021 which they fear, if implemented, will bankrupt private schools at a time when the private education sector is fighting for its survival as enrollment has plunged on account of pandemic-induced lockdowns.
According to the Philippine Association of Colleges and Universities, the Coordinating Council for Private Educational Associations (Cocopea), and 27 Proprietary Educational Institutions (PEIs) from all over the country—with 22 schools from Luzon, 3 from Visayas, and 2 from Mindanao—they strongly object to the provisions in RR 5-2021 which inserted the phrase “non-profit” in the definition of PEIs.
In a memorandum sent to Cocopea on June 1, 2021, the BIR rejected the appeal of the group, asserting that RR 5-2021 is consistent with the Tax Code.
In support of the education groups’ petition, Senator Juan Edgardo “Sonny” Angara has filed Senate Bill No. 2272 to clarify the language of Section 27 (B) of the Tax Code and to address the confusion caused by
RR 5-2021.
In his filing, Angara stated, “To remedy this apparent ambiguity and protect the Constitutional mandate of incentivizing proprietary educational institutions through a law passed by Congress, this measure seeks to amend Sec. 27(B) to clearly indicate that the preferential tax rate shall apply to: a. all proprietary educational institutions, including those that are stock and for profit; and b. nonprofit hospitals.”
Angara said, “The 25 percent was not imposed on schools in the past. Schools are among the hardest hit institutions during this pandemic. We can be more sensitive in our policies.”
Angara’s call for the BIR to redress its error is backed by Senate President Pro Tempore Ralph Recto, Minority Leader Franklin Drilon, and Senators Sherwin Gatchalian, Nancy Binay and Richard Gordon.
‘Immediate rectification’
In a statement on Tuesday, the petitioners said they are seeking an “immediate rectification” of BIR’s Revenue Regulation 5-2021, which if implemented will have “widespread consequences to stakeholders of the private education sector at a time when the private education sector is fighting for its survival amidst plunging enrollment caused by the pandemic.”
Meanwhile, independent policy analysis organization Action for Economic Reforms (AER) on Tuesday also joined calls for the BIR and Department of Finance to rectify its policy.
AER said in a statement it backs the call of senators and the private education sector for the BIR to halt the imposition of higher tax rate of 25 percent on private schools from the current 10 percent, especially given that they have been reeling from the impact of the pandemic due to decreased enrollment following the shift to online learning.
The AER said the newly signed CREATE law, which they supported, temporarily reduced the tax rates of proprietary educational institutions from 10 percent to 1 percent in a bid to lighten the financial burden of schools during the Covid-19 pandemic.
However, AER pointed out that BIR issued Revenue Regulation 5-2021 which effectively nullified the temporary 1 percent tax rate set under CREATE and instead raised tax rates on proprietary educational institutions that are for-profit to 25 percent.
“This ruling creates unfairness or horizontal inequity, wherein for-profit schools are discriminated vis-a-vis non-profit schools. Private schools also play a public function. In economic jargon, education, even if administered by the private sector, provides positive spillovers for society,” AER said.
“We urge the Bureau of Internal Revenue and the Department of Finance to immediately rectify this policy for schools to avail themselves of the much-needed 1-percent tax rate. We believe that schools need all the support they can get during this time, and doubling their tax rates will only hurt the sector more,” it added.
The Cocopea has since protested BIR’s “unilateral insertion” in its RR 5-2021 of a condition that proprietary educational institutions must be “nonprofit” to enjoy the reduced rate of 1 percent as a result of the passage of CREATE law.
But BIR last week rejected Cocopea’s letter-appeal to rectify the tax regulation, saying its policy is consistent with the Tax Code and that the tax rate reduction under CREATE law is applicable only to proprietary nonprofit educational institutions and proprietary nonprofit hospitals.
Finance Secretary Carlos G. Dominguez III, who was a signatory of RR-5-2021, has since backed BIR’s position on the issue, saying it was based on the Tax Code as well as Supreme Court decisions in a number of landmark cases.
Despite this, Dominguez has said they will welcome moves to possibly amend through legislation the Tax Code to resolve the issue.
1 comment
Excellent story:
From presentation of facts, to content orgamization, to writing and research and overall treatment .
Kudos to Bernadette and Claudeth for a job well done
You ladies are worthy of emulation. Keep up the good work.
Congrats too to Maam Chuchay and Sir Anton!