Albay 2nd District Representative Joey Salceda on Friday called on the Bureau of Internal Revenue (BIR) to clarify the definition of “unrelated activities” under its Revenue Regulation 3-2022 to ensure that private schools and hospitals to reduce the any tax uncertainty.
Salceda, chair of the House Ways and Means Committee, said the BIR should cite specific cases that it would consider “unrelated business” to prevent litigation and tax uncertainty and prevent arbitrary actions on the part of its agents.
Under RR 3-2022, the regular corporate income tax rate of 25 percent “shall be imposed on the entire taxable income of the institutions ... if their gross income from unrelated trade, business or other activity ... exceeds fifty percent (50%) of the total gross income they derived from all sources.”
The House lawmaker said “clarifying what unrelated trade, business or other activity would help ensure that schools and hospitals toe the line.”
“I think it’s better if we prevent confusion by clarifying what that means and providing examples of those activities,” Salceda said in a statement.
“For example, is selling a PE shirt for related PE classes unrelated business activities? What about varsity merchandise? What about revenues from sponsorships for their school teams? I think we have to be clearer so they know what to avoid,” he explained.
“Generally, the clearer the test for ‘unrelated activities,’ the better,” said Salceda, principal author of Republic Act No. 11635, which clarified the tax regime for proprietary schools and hospitals.
Salceda said he will work with the BIR again to make sure that the definition “is consistent with prudent tax policy as well as the experience of private schools and hospitals.”
Private schools have touted Republic Act No. 11635 as a way to provide relief to these educational institutions and help keep tuition fees lower.
“Tax clarity is the clear next step after that law. I will work with the BIR and the private schools on the matter. I particularly want to know what business activities of these schools was counted as unrelated in the past, and I want to know what the gray areas are so that we can figure them out with the tax authorities,” he said.
“We have to take these steps so that we can prevent conflict and litigation. The faster and smoother tax collection is, with little dispute between taxpayers and tax authorities, the better for economic recovery,” he added.
He also said such move would make the work of tax assessors and other parties involved in the tax collection process much easier.
“Tax conflict always arises out of tax uncertainty. The result is always bad for everyone concerned. The people don’t get taxes on time. The parties pay for litigation costs. And tax still has to be paid anyway,” Salceda said.