THE Department of Finance (DOF) backed the passage of the proposed Senate bill seeking to clarify the issue on the tax rate applied to private schools, but it has yet to give a firm response to appeals to suspend in the meantime the implementation of the tax regulation.
Finance Assistant Secretary Dakila Elteen Napao expressed DOF’s support for the proposed Senate Bill 2272 during the Senate Ways and Means Committee hearing on Wednesday.
“The DOF is not against the proposed measure, which aims to subject all proprietary educational institutions to the reduced preferential rate of 10 percent, which is now 1 percent until 2023,” Napao said. “By removing the qualifier, ‘nonprofit’ for proprietary educational institutions in Section 27 [B] of the Tax Code as amended, private non-stock, non-profit educational institutions falling under Section 27 [B] and private stock, for-profit educational institutions will now be both subject to the 10-percent preferential rate under Section 27 [B] of the Tax Code, provided that 50-percent threshold on gross income is satisfied and achieved.”
Likewise, Bureau of Internal Revenue Assistant Commissioner Larry Barcelo added the bureau also posed no objection to the measure.
“The Commissioner already expressed support to this bill and we have our meeting with the Committee on Ways and Means at the lower house,” Barcelo said.
After hearing DOF’s and BIR’s support for the measure, Senate Minority Leader Franklin Drilon asked the DOF why it does not simply recall and rescind Revenue Regulation (RR) 5-2021 to ease the anxiety of private schools.
While they are supporting the measure, Napao explained, they believe it should be “prospectively applied.”
Senator Drilon then assured the DOF that they will put a special provision explicitly noting the prospective application of the clarificatory bill, but added this would not still invalidate their appeal for the DOF to at least suspend the implementation of the tax regulation pending passage of the measure.
Responding to Drilon, Na-pao vowed to relay this request to their principals and then inform the Senate regarding DOF’s position.
Schools press suspension
DURING the hearing presided by Senate Ways and Means committee chairman Pia Cayetano, the umbrella organizations of private schools also appealed to BIR to at least suspend RR 5-2021, adding that they have received reports that the bureau is already trying to impose the higher tax rate of 25 percent—a 150-percent increase over the 10-percent rate they used to pay.
“We really would appreciate, however, if the DOF and BIR would suspend at the very least, the implementation of this Revenue Regulation 5-2021 because we have had reports that the BIR is also trying to impose 25-percent tax on some of our member schools,” said Philippine Association of Colleges and Universities Legal Counsel Atty. Anna Maria Abad. “So it really would be appreciated if the DOF and BIR would do so at the soonest possible time, especially that schools will be starting in a month.”
Coordinating Council of Private Educational Associations (Cocopea) Managing Director Atty. Joseph Noel Estrada added that at least three schools from different regions are being asked by BIR regional offices to explain their legal basis for paying the lower rate of 10 percent for the longest time.
Estrada said they have been consistently subject to the preferential tax rate of 10 percent since 1968.
“We strongly join the call, with all due respect to the committee, to suspend, especially because of the urgency. We are entering a very difficult period…the school opening will be by July or August, and the schools have not decided yet whether they can survive, whether they can sustain, and we are also concerned about parents, about students now asking us on what would be the decision on whether to continue in the ensuing semester and school year,” he said.
‘Nonprofit’
PRIVATE schools have also since protested BIR’s “unilateral insertion” in its RR 5-2021 of a condition that proprietary educational institutions must be “nonprofit” to enjoy the reduced rate of 1 percent as a result of the passage of the recently-enacted Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (Create) law.
Private schools earlier filed a petition before the Court of Tax Appeals in a bid to stop the implementation of BIR’s RR 5-2021, which they said, if implemented, will have “widespread consequences [on] stakeholders of the private education sector at a time when the private education sector is fighting for its survival amidst plunging enrollment caused by the pandemic.”
This came after BIR rejected Cocopea’s letter-appeal to rectify the tax regulation, saying its policy is consistent with the Tax Code and that the tax rate reduction under the CREATE law applies only to proprietary nonprofit educational institutions and proprietary nonprofit hospitals.