Tax code resolve to private schools dilemma underway

    Amending the tax code in the CREATE law that deals with private schools and hospitals is supported by the both the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR).
    The House of Representatives committee on ways and means started hearing on the amendment, clarifying the language contested Section 27 B of the Tax Code to state that all proprietary educational institutions and non-profit hospitals shall continue to enjoy a 10 percent tax rate. The same will be eligible for temporary reduction tax rate to one percent for the next three years.
    However, the amendment will work against a retroactive provision in the consolidated bill should tax refunds be made, as it will cause administrative problems with the BIR.

    MANILA — The DOF draws the line here and says it cannot support the retroactive provision of the bill.

    “The DOF is not against the measure which aims to subject all proprietary educational institutions to 10 percent preferential tax rate,” says DOF Assistant Secretary Dakila Napao.

    “The DOF, however, is not keen on supporting the retroactivity provision of the bill because we believe the current position of the BIR is supported by jurisprudence… We believe it would be a challenge administratively for the BIR to process and refund. Not to mention the impact of this retroactivity provision on existing audits by the BIR on proprietary educational institutions.”

    According to Napao, 62 percent of private schools in the country have already paid the regular corporate income tax rate of 30 percent prior to the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) law. There is only abut 38 percent of private schools that have paid income tax with the 10 percent rate.

    The said committee hearing consolidates four bills that amend Section 27 (B) of the Tax Code and are authored by Representatives Jose Francisco Benitez, Rufus Rodriguez, and Jose Mari Clemente Salceda, the committee chair.

    Starting 01 July 2020 until 30 June 2023, however, the tax rate to be imposed shall be one percent.

    Definition of certain terms had been added in the new consolidated bill to specify which the tax code is applied to and when to apply, including clarifications on retroactive provisions.

    A retroactive provision was put in place to reflect the year of the Supreme Court ruling on the tax treatment of private hospitals, which was cited by the BIR as basis for the contested Revenue Regulation (RR) 5-2021.

    Meanwhile, the bill states that “schools shall not be entitled to a refund,” enabling a refund would also affect government coffers, says lawmakers.

    For those private schools that paid 10 percent tax in the past, it would mean they were compliant with the law. As to those that paid 30 percent, they will not be entitled to a refund.

    “We at the BIR abide by the position of the Department of Finance. We agree with the proposed bill to put clarity on the taxation of proprietary education institutions but we have reservations on the retroactivity if it will cause refund,” says BIR Deputy Commissioner Marissa Cabreros.

    “But if it will have a provision that no refund shall be granted, then the BIR will not have any reservations.”

    Earlier, private schools have asked the Court of Tax Appeals to review and stop the implementation of a revenue regulation that can significantly raise the tax take from proprietary educational institutions.

    Meanwhile, Congressman Salceda was able to “secure from the BIR a commitment of support for the revision by legislation of the ambiguities in the new law,” the CREATE Act.

    The BIR was willing to rectify an alleged erroneous policy imposing additional taxes on private schools.

    “One, they will be able to avail of the one percent tax rate up to 2023; and two, they will not be held liable for the regular tax rate of 30 percent which the BIR says they were constrained by the Supreme Court to implement,” says the Albay congressman. “So, it’s a clean slate legally, and lower taxes moving forward.”

    The said income tax increase, “if made effective, represents 5.72 percent of schools’ compensation income, which may force the private education sector to “shed another 21,661 jobs.

    “On the other hand, applying the CREATE rate 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 (2022),” Salceda says.

    He explains the tax rate will help private schools hire more teachers and keep their existing staff.

    “Ultimately, the principle is that because education is constitutionally recognized as a value of the State, we cannot unduly burden schools with taxes.” (LO/The MiNT)

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