AS former South African President Nelson Mandela said, “Education is the most powerful weapon which you can use to change the world.” In general, education is the transfer of learning or knowledge from the teacher to the students through teaching, training and mentorship. Education can also be acquired informally through self-learning and personal experiences.
Nonstock and nonprofit educational institutions are essential in providing quality education to the Filipino youth and in preparing them toward their path to become productive and competent individuals. These educational institutions serve as the second home and secondary parents for the students to nurture their talents, skills and potential.
The state recognizes the importance and role of these nonstock and nonprofit educational institutions in nation-building. Thus, the state grants them a preferential income-tax rate of 10 percent compared to the normal income-tax rate of 30 percent for corporations. On top of that, the educational institution is an exempt entity and, thus, it is not liable to value-added tax or percentage taxes. It is also exempt from the payment of real property taxes for as long as the property is being used directly and exclusively for educational purposes. To avail itself of these privileges, the educational institution must be accredited with the Commission on Higher Education (CHED) or Technical Education and Skills Development Authority (Tesda). It must also be ensured that the other income, which is considered unrelated to their primary purpose, does not exceed 50 percent of its annual gross income. Otherwise, it will be treated as normal corporation that is subject to regular income tax.
Good news is in store for those accredited and compliant educational institutions. On July 25, 2016, Bureau of Internal Revenue Commissioner Caesar R. Dulay issued Revenue Memorandum Order (RMO) 44-2016, wherein educational institutions can apply for exemption of income taxes, provided that these meet two criteria: first, the school must be nonstock and nonprofit; and, second, the income is directly and exclusively used for educational purposes. The said RMO is based on Section 30 of the 1997 Tax Code, which states that nonstock and non-profit educational institutions are exempted from income tax.
Those qualified educational institutions must apply for tax exemption with the Office of the Assistant Commissioner of the Legal Service. The RMO enumerates the documentary requirements to accompany the tax exemption application such as:
- Application letter for tax exemption ruling.
- Certified true copy of Certificate of Good Standing issued by the Security Exchange Commission.
- Certification under oath of the treasurer as to the amount of income, compensation, salaries or any emoluments paid to trustees, officers and other executive officers.
- Certified true copy of the financial statements for the last three years.
- Certified true copy of permit/accreditation issued by the CHED and/or Tesda.
- Certificate of utilization of annual revenues and assets by the treasurer or his equivalent.
Other additional requirements or documents during the review of the tax-exemption application, only if necessary.
The Certificate of Tax Exemption that the BIR may grant the nonstock and nonprofit educational institution has no expiration and shall remain effective without the need for revalidation unless recalled by the BIR.
The details of the said RMO is available online at the BIR official web site www.bir.gov.ph
Jeffrey Galang Salazar is a Certified Public Accountant (CPA) and a Master in Business Administration (MBA) degree holder. He is currently connected with Tong Hsing Electronics Phils. Inc. and the Pamantasan ng Cabuyao.
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