Senator Sonny Angara today thanked Finance Secretary Carlos Dominguez for suspending the implementation of the provisions of Revenue Regulations No. 5-2021 pertaining to the tax on schools.
“Maraming salamat Secretary Dominguez and BIR Commissioner Dulay for heeding the clamor private educators who share with government the burden of teaching our youth. This is what I call a taxation timeout. Now, the ball is on the court of Congress to permanently fix the confusion caused by the language of that law,”
Last Monday, the BIR issued Revenue Regulations No. 14-2021, suspending the implementation of Sections 2(C) on the definition of Proprietary Educational Institutions insofar as it includes the phrase “which are non-profit”; 2(E) on the definition of non-profit insofar as it applies to “Proprietary Educational Institutions”; and 3(B) which provides illustration on the tax treatment of Proprietary Educational Institutions that are non-profit.
In the said RR, it was stated that the suspension was meant to “ease the burden of taxation among proprietary educational institutions, especially during this time of COVID-19 pandemic.”
Reading the new revenue regulation, it is clear that the executive merely granted a reprieve. Permanent respite will come from Congress.
RR 14-2021 also took note of the bills being taken up in Congress to amend Section 27(B) of the National Internal Revenue Code of 1997 in order to clarify the tax imposed on schools.
One of these bills is Senate Bill 2272 filed by Angara to clarify that that the preferential tax rate shall apply to: 1. All proprietary educational institutions, including those that are stock and for profit; and 2. Non-profit hospitals.
Thirteen Senators: Joel Villanueva, Ralph Recto, Migz Zubiri, Nancy Binay, Win Gatchalian, Grace Poe, Richard Gordon, Francis Pangilinan, Risa Hontiveros, Manny Pacquiao, Bong Revilla, Cynthia Villar and Leila de Lima signed as co-authors of the bill.
"Naghain na po ako ng bill na amendyahan at gawing malinaw ang nakakalitong probisyon sa batas. Nagpapasalamat ako sa aking mga kasamahan sa Senado sapagkat umani agad ng suporta ang ating panukala. I-fastbreak po na natin ang pagpasa nito,” Angara said.
For over 50 years private schools have been paying a preferential tax rate of 10 percent and with the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), the rate would go down further to one percent until June 30, 2023.
Under RR 5-2021, the BIR interpreted the provision of CREATE on the preferential tax treatment on proprietary educational institutions and hospitals to mean that an educational institution should both be proprietary and non-profit in order to qualify for the lower rate.
For schools that do not meet the category of being proprietary and non-profit, RR 5-2021 stated that they would be imposed the regular rate of 25 percent.
Angara explained in his bill 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.
Private school organizations have raised their concerns about the impact of RR 5-2021 on its members, many of which have been struggling to keep their heads above water during the pandemic.
They said that an increase in their tax rate could lead to more closures since many of the schools are already experiencing financial difficulties.
The Committee on Ways and Means headed by Senator Pia Cayetano has already conducted a hearing on the bill.
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