Private schools question tax hike; BIR stands firm

By Beatrice M. Laforga, Reporter

A GROUP of private schools is questioning the Bureau of Internal Revenue’s (BIR) recent issuance that more than doubled the tax rate on “for-profit” educational institutions, saying this will be a “very heavy burden” for the pandemic-hit sector.

In a statement on Wednesday, Coordinating Council of Private Educational Associations (COCOPEA) Managing Director Joseph Noel M. Estrada said the BIR should immediately rectify the “erroneous” provision under Revenue Regulation (RR) 5-2021 which raised the tax rate to 25% from 10%.

The regulation, issued on April 8, set the tax rates under the newly signed law Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

“Whereas the recently enacted CREATE Act sought to shore up proprietary educational institutions during the pandemic with a much-appreciated temporary reduction in the tax rate from 10% to 1%, RR 5–2021 will instead cause irreparable damage to the institutions and stakeholders that the Duterte Administration and Congress sought to help, by more than doubling their tax rate from the 10% that has been applied to them since 1968, to 25%,” Mr. Estrada said.

Mr. Estrada warned that the higher tax rate could force schools to permanently close, as they continue to struggle with the transition to the K-12 system and the sudden shift to online schooling amid the pandemic.

“The imposition of RR 5-2021, especially during this deep economic recession, will penalize, marginalize and discriminate against proprietary educational institutions with unfeasibly higher taxes that may force financially distressed schools to close down and trigger a radiating wave of economic disruption that will hit not just teachers and school personnel, but also the extensive network of linked small and medium businesses and livelihood activities of the host communities,” he added.

The CREATE law reduced the corporate tax rate for proprietary educational institutions to 1% from 10% originally, for three years from July 2020 to July 2023.

However, Mr. Estrada claimed the BIR inserted the word “non-profit schools” in the definition of proprietary educational institutions, which he said effectively limits the scope of the lower tax to just non-profit schools. This meant for-profit educational institutions will be subject to the regular corporate tax rate of 25%.

However, Finance Secretary Carlos G. Dominguez III stood firm that the BIR did not change the tax rates and only followed the original definition of the Tax Code when they crafted the regulations.

In its letter to COCOPEA, the BIR argued that proprietary non-profit educational institutions “can legally exist,” citing the definition of proprietary as “private,” under the Tax Code.

The bureau also said it already clarified the definition through a circular in 2012 saying that the 10% tax rate applies to proprietary non-profit schools and hospitals.

Under the National Internal Revenue Code (NIRC), those eligible for the 10% tax, now reduced to 1% because of CREATE, are “proprietary educational institutions and hospitals which are non-profit,” maintained by private individual or groups and have a permit to operate issued by regulators.

COCOPEA said it decided to make a public appeal to the Finance department and BIR after it did not receive any response.

COCOPEA is an organization of five biggest education associations representing around 2,500 private schools and education stakeholders.

The Department of Education and Commission on Higher Education did not respond to queries.