Tax relief for private schools signed into law

A LAW that would explicitly qualify private schools and nonprofit hospitals for tax relief has been signed by President Rodrigo R. Duterte.

Republic Act (RA) No. 11635 or the Proprietary Educational Institutions Tax Act amends Section 27(B) of the National Internal Revenue Code to make clear that private schools and nonprofit hospitals are eligible for a temporary 1% tax under RA 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

The CREATE Act had lowered the tax rate to 1% for pandemic-hit enterprises from July 2020 to June 2023.

Under RA 11635, nonprofit hospitals and proprietary educational institutions will be given a tax rate of 10% once CREATE expires.

However, if private schools and hospitals’ gross income from unrelated trade, business, or other activity exceeds 50% of the total gross income, the 10% tax rate will be imposed.

Without such concessions, these institutions are liable for the regular corporate rate of 25%.

“It’s a 90% tax discount under CREATE law. That’s the biggest tax cut this country has given to any sector in recent history,” said Albay Rep. Jose Ma. Clemente S. Salceda, chairman of the House Ways and Means Committee and primary author of the law, in a statement on Thursday.

He said the committee will request the Bureau of Internal Revenue to expedite the release of revenue regulations, so the new law “expunges any liability private schools may have had when the tax treatment was not yet clear, but within the coverage of this reform.”

Coordinating Council of Private Educational Associations (COCOPEA), which represents over 2,500 private educational institutions with over 300,000 school personnel, said the new law would help “save” the education sector from “excessive taxes and collapse” as the pandemic continues.

Based on the Department of Education, at least 865 private schools in the country have already closed due to low enrollment and their inability to conduct distance learning.

“The enactment of this landmark legislation comes at a critical time when schools are in the middle of preparations for re-opening to face-to-face classes,” said Anthony Jose M. Tamayo, chairman of COCOPEA, in a statement on Thursday.

“For many of these schools, the enactment of RA 11635 gives them the needed boost for sustainability in the school years ahead, and this allows them to fully focus on the Learning Crisis and the COVID-19 pandemic that our country is currently grappling with,” he added.

Applying the tax rate until 2023 will allow these schools to save 3.43% of compensation expenses, Mr. Salceda said, which could help them rehire at least 12,996 teachers at the start of the next school year.

As of Sept. 2021, enrollment in private schools was 1.4 million, down 57% from a year earlier, and just 66% of the 4.3 million seen in 2019, according to the Department of Education’s Learning Enrollment Survey Quick Count data. — Alyssa Nicole O. Tan