MANILA, Philippines — Private schools have asked the Court of Tax Appeals to review and stop the implementation of a revenue regulation that can significantly raise the tax take from proprietary or private educational institutions.
In a petition for certiorari prohibition with prayer for temporary restraining order and injunction filed on Monday, the Philippine Association of Colleges and Universities, Coordinating Council for Private Educational Associations (COCOPEA) and 27 private schools asked the tax appeals court to stop the implementation of Revenue Regulation (RR) 5-2021 issued by the Bureau of Internal Revenue (BIR) that aims to raise the tax imposed on private schools to 25 percent from the current 10 percent.
They said the BIR order, if implemented, “will have widespread consequences to 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.” Lawyers John Bonifacio and Benedict Tugonon represent the petitioners.
The petitioners are specifically protesting a clause in the regulation that says educational institutions must be “non-profit” to be eligible for the temporary reduction in the concessionary income tax rate for proprietary educational institutions from 10 percent to one percent for the next three years under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Those not in the category should pay the regular corporate tax rate of 25 percent, significantly up from the current 10 percent rate.
The petitioners said the regulation went beyond the language of Section 27 (B) of the Tax Code, as the term “non-profit” only applies to hospitals.
The BIR earlier rejected an appeal by COCOPEA, asserting that the regulation is consistent with the Tax Code.
To address the confusion, Sen. Sonny Angara filed Senate Bill 2272 clarifying the language of Section 27 (B) of the Tax Code to indicate that the preferential tax rate shall apply to all proprietary educational institutions, including those that are stock and for profit as well as non-profit hospitals.
Finance Secretary Carlos Dominguez III said such amendment to this portion of the Tax Code should be pursued “so the issue is resolved once and for all.” He stressed his department would respect any Supreme Court decision or any enacted law on the matter.
But he added there is no pressing need to revise the revenue regulation as the final tax returns for schools this year are not due until next year.
Erroneous
Some senators, meanwhile, called the BIR regulation erroneous and urged President Duterte to have it corrected.
“I urge the President and the BIR to heed the call of private schools and senators to recall RR 5-2021. It has no basis in CREATE and it defeats the very purpose of CREATE law,” Minority Leader Franklin Drilon said.
He also called the regulation “ill-conceived and ill-timed” and “a classic case of legislation by IRR.”
“RR 5-2021 could potentially be the ‘last nail in the coffin’ for some of these private schools which barely survived the effects of the pandemic,” Drilon said.
The BIR’s order could force private educational institutions to permanently close down, leaving thousands of teachers and non-teaching staff unemployed, he added.
Citing reports from the Department of Education, Drilon said around 750 private schools closed down in 2020 due to the pandemic, affecting around 3,200 teachers. “Pity the struggling private schools in the country. Let’s not make them suffer even more. Instead, let’s help them get back on track,” he said.
Unemployment rate rose to 8.7 percent in April 2021, equivalent to 4.14 million jobless Filipinos, an increase of over 700,000 from the 3.4 million recorded last March, Drilon noted.
He said the CREATE Act, signed into law in March, introduced reforms to the corporate income tax and incentive systems and was meant primarily to ease the burden on corporations suffering from the effects of the pandemic.
“This is the reason why, for two years, the law lowers the income tax of proprietary educational institutions to only one percent. This is in recognition of the hardship that these institutions had to suffer through, many of which have been forced to close down or whose enrollment has substantially declined,” he added.
Misplaced interpretation
Drilon maintained that the BIR needs to read the legislative records and transcripts to confirm that it has gravely erred in issuing RR 5-2021.
“The prevalence of this practice is lamentable for it defeats the purpose of the law crafted by the legislature and it alters the true intent of Congress. We should put a stop to this kind of erroneous and misplaced interpretation of the law by executive agencies,” Drilon said.
Angara said many of his colleagues in the chamber are likely to approve his bill which explicitly declares that private schools are exempt from the 25 percent corporate income tax.
“The bottomline is that private schools have been paying for more than half-a-century a preferential tax rate of 10 percent so how could a law that cuts taxes for all corporations instead increases by 150 percent the taxes private schools pay?” Angara added.
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, Angara said the erroneous BIR regulation would instead subject them to the regular rate of 25 percent.
“Last year, we saw the closure of many private schools due to the pandemic which banned face-to-face education. As a result, many teachers have lost their jobs and many more are expected to be affected if the provision of RR 5-2021 of the BIR on private schools is implemented,” Angara said.
“At this time when so many Filipinos are suffering due to poverty, it is not timely to impose high taxes, particularly on private schools that are currently facing uncertainty due to the crisis,” Angara added.
Angara explained in his bill that “being proprietary and non-profit is a legal impossibility” because the term proprietary generally means privately-owned and managed and run as a profit-making organization.
“The intention of CREATE was to provide tax relief to industries affected by the pandemic and not to place an additional burden on them just like what this BIR issuance has ended up doing to the private educational institutions,” Angara said.
Book industry losing
Meanwhile, the management organization of the publishing sector Filipinas Copyright Licensing Society Inc. (FILCOLS) said the country’s book industry is estimated to have lost P3.6 billion worth of revenues last year due to the effects of the pandemic, as schools shift to online learning.
“Teachers are trained to teach. Developing learning materials like textbooks and modules require a different skill set. This department order resulted in market failure and loss of income for our authors and publishers,” FILCOLS executive director Alvin Buenaventura said in a statement yesterday.
According to the National Book Development Board, the book industry’s average revenue prior to the pandemic was at P6 billion.
Citing report from the Book Development Association of the Philippines, Buenaventura said the industry lost significant revenues last year as many private schools closed and the Department of Education (DepEd) issued an order directing teachers to produce learning materials and modules instead of procuring from publishers.
Earlier, he said one of the challenges facing FILCOLS was the public’s low regard for the rights of authors.
He also lamented DepEd’s not securing license for large-scale reuse of works for its blended learning strategy despite additional budget from the government.
In 2013, he said the DepEd secured license from the FILCOLS enabling authors, as well as their heirs and publishers to receive remuneration.
FILCOLS issues license to institutional end users for large-scale reuse of published works via photocopying and digital copying as the organization is authorized by authors, heirs of authors and publishers to manage the copyright for the reuse of their works.
“We fervently hope that our DepEd officials will show respect for copyright in the same way they teach students to respect the rights of others. We hope that they realize that like the teachers and other DepEd personnel, authors and publishers also have families to feed and care for,” he said.
“We should respect their livelihood and not violate their human rights by depriving them of their just remuneration so that they can live decent lives.” – Louella Desiderio, Cecille Suerte-Felipe