Angara proposes measure to correct BIR's interpretation of tax perks for schools

Senator Sonny Angara is now seeking to amend a section in the country’s National Internal Revenue Code (NIRC) in order to correct the Bureau of Internal Revenue’s (BIR) wrong interpretation on the tax imposed on proprietary educational institutions.

Angara, in filing Senate Bill No. 2272, expressed alarm at the BIR’s issuance of Revenue Regulation No. 5-2021 last April 8, 2021 on the implementation of Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), particularly on the provision that deals with the preferential tax treatment on proprietary education institutions and hospitals.

The senator pointed out the BIR interpreted the provision under CREATE to mean that an educational institution should both be proprietary and non-profit in order to be eligible for a preferential tax rate of one percent on their taxable income until June 30, 2023.

Angara, Senate finance committee chief, explained that being proprietary and non-profit “is a legal impossibility” since the term proprietary pertains to one that is privately-owned and managed and run as a profit-making organization.

Angara said the wording on Section 27(B) of the NIRC could have contributed to the erroneous interpretation of the BIR as it failed to clarify whom the preferential tax rates should apply to.

“Thus, instead of shoring up proprietary educational institutions during the pandemic with the much needed reduction in the income tax rate from 10 percent to one percent sought under the CREATE Act, this erroneous regulation would instead subject them to the regular rate of 25%,” Angara said.

“The 25 percent was not imposed on schools in the past. Schools are among the hardest hit institutions during this pandemic. We can be more sensitive in our policies,” he pointed out.

The said section of the law states that: “Proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income... Provided, that beginning July 1, 2020 until June 30, 2023, the tax herein imposed shall be one percent (1%).”

Angara said the RR also contradicts the Constitution, particularly Article XIV, Sec. 4(3). Thus, he said it is necessary to correct the wording of the law.

“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,” the lawmaker said.

If not corrected, Angara said the BIR’s interpretation could lead to more school closures as many of these institutions are already struggling to cope with the financial pressures brought about by the COVID-19 pandemic.

“This would 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.

In order to correct the situation, Angara, in his bill, moved to amend Sec. 27(B) of the NIRC, to clearly indicate that the preferential tax rate shall apply to all proprietary educational institutions, including those that are stock and for profit; and non-profit hospitals.

“Dapat mas sensitibo tayo ngayon sa pangangailangan ng ating mga kababayan lalo na itong mga paaralan ay mahalagang institusyon sa ating lipunan at ka-partner ng gobyerno sa paghubog ng ating kabataan, (We need to be sensitive on the needs our people especially our schools, who are important institutions in our community and the government’s partner in shaping our youth),” the senator stressed.