Senators Sonny Angara and Win Gatchalian said the law that would grant tax relief to private schools would help the schools stay afloat amid the devastating effects of the COVID-19 pandemic.
The lawmakers hailed the enactment of the law clarifying the preferential tax treatment granted to private schools, saying this will save many struggling schools from closing down permanently.
Republic Act No. 11635, which President Rodrigo Duterte signed into law on December 10, 2021, further amends Section 27 (B) of the National Internal Revenue Code of 1997, as amended, to reduce the preferential tax rate from 10 percent to one percent imposed on proprietary educational institutions.
“This law effectively cuts the noose that was tied around the necks of our private schools. It is a recognition of the critical role that our private sector educators play as partners of the government in teaching our youth,” Angara said.
Under the law, a “proprietary educational institution” means any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education or Commission on Higher Education or the Technical Education and Skills Development Authority.
Angara, the principal author and a co-sponsor of the law, explained that the amendment to that particular section of the NIRC removes any confusion regarding the application of the preferential tax rate on proprietary educational institutions, as well as nonprofit hospitals.
Private schools have enjoyed a preferential tax rate of 10 percent for over 50 years and with the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) in March 2021, the rate was supposed to go down to one percent until June 30, 2023.
However, the Bureau of Internal Revenue came out with Revenue Regulation No. 5, which interpreted the provision of CREATE on the preferential tax treatment on proprietary educational institutions and hospitals to mean that an educational institution should be both proprietary and non-profit in order to qualify for the lower rate.
For schools that do not meet the category of being proprietary and non-profit, RR 5-2021 stated that they would be imposed the regular rate of 25 percent.
The chair of the Committee on Finance said the imposition of a 150 percent tax increase on the schools would result in the loss of thousands of jobs among the teachers and non-teaching personnel.
It would also have an impact on the industries dependent on the operation of the schools, including the micro, small and medium enterprises such as the food vendors, uniform makers, and school bus operators.
According to Gatchalian, the signing of the law clarifies and reinforces the intention of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) to provide relief to private schools. It can be recalled, however, that the Bureau of Internal Revenue (BIR) came up with Revenue Regulation No. 5 which said that an educational institution can avail of the lower tax rate if it is proprietary and non profit. For schools that do not meet the category, a 25 percent rate would be imposed, an equivalent of a 150 percent increase.