HOUSE Committee on Ways and Means Chairman Jose Maria Clemente “Joey” S. Salceda filed last Thursday House Bill (HB) 9596 that defines the tax rates for proprietary educational institutions and allows these to avail of the preferential rate of 10 percent on taxable income; the same relief granted to private non-profit schools could be applied.
As private schools continue to reel from the effects of Covid-19 pandemic, a bill has been filed on Thursday. Salceda said he expects his proposed bill will put the issue to rest and leave no room for conflicting interpretations of the law as HB 9596 seeks to amend Section 27 of National Internal Revenue Code (NIRC).
The bill was co-authored by 36 lawmakers as of June 10. “The BIR [Bureau of Internal Revenue] cannot tax proprietary educational institutions in a manner that is contrary to this unambiguous view of the [Supreme] Court,” Salceda said. “Thus, it was constrained to apply the regular tax rate to private for-profit schools, even when the same have been able to avail of the 10-percent tax rate prior to the ruling.”
According to Salceda, the formulation of the NIRC, as clarified by the Supreme Court in CIR vs. De la Salle University is such that “a proprietary educational institution is entitled only to the reduced rate of 10-percent corporate income tax.”
“The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit and (2) its gross income from unrelated trade, business or activity does not exceed 50 percent of its total gross income,” the High Tribunal said.
In the same ruling, he said the SC also observed that “[w]hile a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by Section 27 (Rates of Income Tax on Domestic Corporations).”
Under the BIR Revenue Regulation (RR) 5-2021 issued last April 8, income tax on so-called proprietary educational institutions that are run by stock corporations would be increased to 25 percent from the current 10 percent. This implemented rules on the new income tax rates of corporations after the Corporate Recovery and Tax Incentives for Enterprises (Create) Act was signed into law this year.
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