Albay Rep. Joey Sarte Salceda has urged the Bureau of Internal Revenue (BIR) to clearly define the term “unrelated activities” under its revenue regulations to ensure that affected taxpayers “would not suffer from tax uncertainty.”
Salceda, chairman of the powerful Committee on Ways and Means, said under the BIR’s Regulation 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 percent) of the total gross income they derived from all sources.”
Salceda said clarifying the meaning of “unrelated trade, business or other activity” would avoid confusion and 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,” the Bicolano lawmaker said.
“For example, is selling a PE (physical education) 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,” Salceda explained.
According to him, citing specific cases that the BIR would consider “unrelated” is a good way to prevent litigation and tax uncertainty.
“It would also prevent arbitrary actions on the part of BIR agents,” Salceda noted.
“Generally, the clearer the test for “unrelated activities,” the better,” he said.
Salceda also said he would work with the BIR to make sure that the definition “is consistent with prudent tax policy as well as the experience of private schools and hospitals.”
Salceda is the principal author of Republic Act 11635, which clarified the tax regime for proprietary schools and hospitals. Private schools touted the measure as a way to provide relief to these educational institutions and help keep tuition 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 were 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,” Salceda 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 stressed.
“We should consider an omnibus compendium of what constitutes related and unrelated business activities for hospitals and schools. That would make the work of tax practitioners, tax assessors, and other parties involved in the tax collection process easier,” he said.
“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 added.