DOF wants perks for schools, hospitals performance-based
The Department of Finance (DOF) wants that the tax incentives given to non-profit private schools and hospitals should be performance based to encourage these institutions to upgrade their services.
Finance Undersecretary Karl Kendrick T. Chua said that while many of non-profit private schools and hospitals have generated huge revenues because of their income tax exemption, the quality of their services do not adhere to higher standards.
Chua noted in particular that some schools failed to meet the performance standards set by Commission on Higher Education (CHED), but continue to generate sizeable revenues and dividends to their stakeholders.
To change the system, the DOF proposed that the preferential income tax rate of 10 percent be solely given to private schools and hospitals that passed the the standards of service prescribed by the regulators.
Dubbed the “Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) Act, Chua said this would “incentivize” private hospitals and educational institutions to upgrade their quality of service in order to be granted this special tax rate.
But the bill does not cover religious schools, which under the Constitution, are exempted from paying income tax provided that they are organized as non-stock non-profit corporations and no part of their net income shall belong or benefit any member, organizer, officer or person.
Chua said the TRABAHO bill aims to ensure that students are able to go to schools that provide quality education, through a set of performance criteria to be determined and evaluated by the CHED and the Department of Education (DepEd).
The Department of Health (DOH), meanwhile, will establish the criteria for private hospitals to assess their performance and their eligibility for the tax incentive.
Chua said the absence of a system to evaluate educational institutions and encourage them to improve their performance has made some of them "very profitable," citing as an example a school with a gross revenue of 11.4 billion in 2015 and a net income of P624 million.
This means that under 10 percent tax regime, the school paid taxes of only 161 million even though it did not meet any of the performance criteria set by CHED, and was able to pay dividends of 1250 million, Chua added.