Senate measure seeking to clear up tax treatment of private schools


SENATOR Juan Edgardo M. Angara said he has filed a measure seeking to clarify the tax treatment of private educational institutions.

In a statement Thursday, Mr. Angara, the chairman of the chamber’s committee on finance said he file Senate Bill No. 2272 which sought to amend the National Internal Revenue Code to correct the “erroneous interpretation” on the tax due from private schools.

Mr. Angara noted that Revenue Regulation No. 5-2021 states that educational institutions should be both proprietary and non-profit to qualify for the preferential tax rate of 1% on their taxable income until June 30, 2023. Private schools not qualifying are subject to the regular rate of 25%.

The regulation was issued on April 8 by the Bureau of Internal Revenue (BIR) to help implement Republic Act No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).

He said that “being proprietary and non-profit is a legal impossibility,” saying the term proprietary generally means that an institution is privately-owned and run as a profit-making organization.

“Thus, instead of shoring up proprietary educational institutions during the pandemic with the much needed reduction in the income tax rate from 10% to 1% sought under the CREATE Act, this erroneous regulation would instead subject them to the regular rate of 25%,” he said.

Mr. Angara said that 25% was not imposed on schools in the past, adding that schools are among most affected institutions during the pandemic.

The proposed amendments to the Tax Code will indicate that the preferential tax rate applies to proprietary educational institutions, including those that are stock and for profit, and non-profit hospitals.

He said that the wording in the Tax Code may have contributed to the BIR’s interpretation.

The revenue regulation also contradicted a provision of the Constitution that recognizes entitlement to exemptions by proprietary educational institutions, including those cooperatively owned, from restrictions on dividends and provisions on reinvestment, he said.

Mr. Angara said the confusion over tax regulation will only add to the difficulties of the industry and may lead to more closures.

“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,” he said.

Coordinating Council of Private Educational Associations on Wednesday questioned the revenue regulation that increased tax rate on “for-profit” educational institutions. It asked the bureau to rethink its tax treatment.

The BIR in a letter to the COCOPEA said that proprietary non-profit educational institutions “can legally exist,” citing the definition of proprietary as “private” under the Tax Code. — Vann Marlo M. Villegas