The House of Representatives’ Committee on Ways and Means on Monday approved a substitute bill that would define the tax rates for proprietary schools to allow them to make use of the 10-percent preferential rate on taxable income.
Albay Rep. Joey Salceda, the panel’s chairman and principal author of the bill, said under the substitute measure, the preferential tax rate of 10 percent imposed on proprietary educational institutions will be reduced to 1 percent from July 1, 2020 to June 30, 2023, after which the tax rate shall be set to 10 percent.
The bill, he said, is meant to intervene in the implementation of the recent regulation of the Bureau of Internal Revenue increasing the tax rate of private educational institutions to 25 percent from 10 percent must be passed to help private schools hire more teachers and keep existing staff.
“During the briefing, we reached a consensus and came up with a draft which also adopted some recommendations of the Coordinating Council of Private Educational Associations. The draft clarified that the preferential tax rate, now one percent of their taxable income under CREATE, applies to all proprietary schools. We sent this draft Committee Report along with the notices and invitations,” Salceda said.
“However, there were several concerns this weekend. COCOPEA wanted the retroactive application specified while the BIR reminded that certain income of non-stock, non-profit educational institutions are also covered by Section 27 (B) of the Tax Code. There were also some formatting edits to ensure the clarity and consistency of the measure, so we addressed those measures,” Salceda added.
Once enacted, Salceda said, the measure “will help private schools keep their teachers. They already had to fire teachers due to the pandemic. I think the whole committee agrees we should provide them relief.”
Salceda also noted that applying the reduced one-percent preferential rate under Corporate Recovery and Tax Incentives for Enterprises (CREATE) law until 2023 would allow these schools to save an equivalent of 3.43 percent of compensation expenses, which could help them rehire at least 12,996 teachers at the start of the next school year.
No pre-CREATE legal liabilities, but no refunds applicable
Salceda said that the bill will also “absolve the private schools of the legal liability pay back taxes during the period when the law was unclear as to their treatment.”
“But the aim is also to ensure that the BIR is also absolved from any refund liabilities. It’s a good compromise and was the premise of the agreement between me and the BIR,” Salceda added in response to a request from private school associations that the clause in the bill preventing refunds due to the rate reduction be removed.