More private schools would shut down if the Bureau of Internal Revenue (BIR) will not withdraw Revenue Regulation (RR) No. 5-2021, imposing a 150% increase to their income taxes, Senator Nancy Binay warned Sunday.
Due to the pandemic, Binay noted that many private schools have been closed, as they opted to stop operating under the global coronavirus pandemic.
Under the BIR regulation issued on April 8, 2021, income tax on so-called proprietary educational institutions that are run by stock corporations would be increased to 25% from the current 10%.
Binay said imposing additional taxes on private schools is contrary to the intent of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which was passed to help ease the effects of the pandemic on businesses through lower corporate income taxes.
Binay supports Senate Bill 2272 filed by Senator Sonny Angara. It seeks to amend a section of the National Internal Revenue Code (NIRC) that aims to correct an erroneous interpretation on the tax imposed on proprietary educational institutions.
In filing the bill, Angara cautioned that the unfeasibly higher taxes could lead to even more private school closures, as they are already struggling to cope with the financial pressures brought about by the pandemic.
“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,” Angara said.
“We can be more sensitive in our policies. We must be sensitive to the needs of our people since these schools are important institution of our society and partner of the government in molding our youth,” he added.
Angara said being proprietary and non-profit is a “legal impossibility” because the term proprietary generally means one that is privately-owned andmanaged 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%,” Angara said.
He said the 25% was not imposed in the past on schools, among the hardest hit institutions during the pandemic.
As chairman of the Senate’s Committee on Finance, Angara argued that the wording of Section 27(B) of the NIRC, as amended, may have contributed to the erroneous interpretation made by the BIR.
Angara said the revenue regulation also contradicts the Constitution, particularly Article XIV, Sec. 4(3) which provides for the “entitlement of exemption from taxes and duties, all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes.”
The same provision of the Constitution also states that “proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law, including restrictions on dividends and provisions on reinvestment.”
As a lawyer himself, Angara noted that the provision on proprietary educational institutions under the Constitution clearly refers to for-profit educational institutions organized as stock corporations.
Angara said the “confusing and erroneous tax regulation, which contradicts the language and the intention of both the Constitution and our tax laws,” will only serve to add to the already difficult circumstances being faced by the educational institutions in the country.