A tax policy threat to the private educational ecosystem

"This will cause long-term damage to our educational system."

 

The private education sector has been hit hard by this health crisis. October 2020 data from the Department of Education (DepED) counted 860 K-12 private schools that suspended operations, affecting approximately 60,000 students and 4,500 teachers. The majority of these schools that closed down cited “no or low enrollment” while others could not quickly shift to digital modes of education and comply with DepED’s distance learning requirements.

A recent survey conducted in April 2021 by the Philippine Association of Colleges and Universities (PACU) revealed that 50 percent of the respondents suffered a 10-to-50-percent decline in enrollment compared to the previous year. PACU estimates that over a million of their direct stakeholders, teachers, students, and school personnel have been affected by the combined effects of the pandemic.

A big shocker was when the over-a-century old institution of the College of the Holy Spirit of Manila (CHSM) announced that it will close down at the end of 2021-2022 school year. In a letter by CHSM provincial leader Sr. Carmelita Victoria quoted in news reports said, “The recent COVID-19 pandemic has exacerbated the situation. The reduction or loss in family income, mobility restrictions and social distancing requirements, and the new demands of distance learning have adversely affected enrolment, not only in CHSM but in most private schools as well.”

Unlike government-subsidized public schools, private schools must be financially viable not just to sustain operations but to continuously invest in its facilities, teaching technologies, and most importantly, their faculty. You can imagine the complexity of running an operation that must support an army of teachers and ensure that their population of learners in each academic program receives the best training possible.

However, there is an even more serious crisis that will further exacerbate the already precarious situation of private schools because of two words in a provision in Revenue Regulation (RR 5-2021) signed by Finance Secretary Carlos G. Dominguez on April 7, 2021. The problematic provision contradicts the preferential tax rate of 1 percent for proprietary educational institutions (private schools) under the Tax Code as amended by the CREATE Law.

To put it simply, this new requirement in RR 5-2021 is denying private schools the preferential tax treatment mandated in the Constitution and, if implemented, will impose a 25% corporate income tax on private education institutions. This apparent insertion goes against what President Duterte and Congress actually intended in the CREATE Law which rightly provides much-needed relief to the distressed private schools by a temporary reduction of the 10-percent tax rate that has been in effect since 1968, to 1 percent during the pandemic. If this is not quickly remedied, this will be a policy blunder that more than doubles the tax rate of private schools from 10 percent to 25 percent!

This will cause long-term damage to our educational system. Millions of direct and indirect stakeholders of private schools that will be forced to close because of this mistake will be affected. More jobs will be lost, the livelihood of tens of thousands of families will be gone, a preventable situation that the country does not need especially at this time.

We know how our educational system boosts economic activity through jobs, supporting allied industries, and many small and medium enterprises in its community. Before COVID-19 and despite policy challenges, the private education system was a thriving ecosystem that has been the dominant producer of the country’s professionals, managers, and technicians which according to latest PACU data is 74.9 percent compared to 25.1 percent from the State Universities and Colleges (SUCs). This translates to more than 3.5 million from the private higher education institutions (HEIs) and about 1.8 million from SUCs. This clearly illustrates the critical role of private schools in training the skilled workforce that we need for economic growth.

According to higher education data from the Commission on Higher Education, private colleges and universities produced 402,437 graduates in academic year 2019-2020, higher than the 394,139 from SUCs. From 2010-2020, approximately 3.7 million from all disciplines graduated from private schools accounting for about 50 percent of the Philippine education system’s output.

Private schools have always been widely perceived as the better choice for quality education which comes with a prestige factor associated with private school institutions. Assuming that a student will perform well, this is considered by many as an advantage for higher studies and employment. The contributions and critical role of private educational institutions in developing our human resources and economic growth is indisputable.

At this time of economic hardship and with elections coming next year, the government must act fast on this very fixable revenue provision in RR 5-2021 before it explodes into yet another crisis that may have political repercussions for this administration.