Dominguez: Will still impose 150% tax hike on pvt schools
THE Bureau of Internal Revenue (BIR) still has not backtracked on its position to impose a 150-percent hike on the corporate income tax rate of private schools.
Finance Secretary Carlos G. Dominguez III clarified that what the BIR corrected through issuing Revenue Memorandum Circular (RMC) 762021 were “footing errors” in the illustrative examples under Revenue Regulation (RR) 5-2021.
“One of the RR’S illustrations involves a non-profit educational institution, hence, subjected to 1-percent tax rate not 25 percent,” said Dominguez.
Dominguez added that BIR Deputy Commissioner for Legal Group Marissa O. Cabreros told him that their new issuance does not affect the principle laid down in the previous regulation.
It’s only the RMC “because the principle laid down in the RR was not affected,” Dominguez quoted the message Cabreros sent to him. Correction and clarification are needed to rectify the two illustrations in RR 5-2021.
The finance chief made the clarification after House Deputy Speaker and Cagayan de Oro City Rep. Rufus B. Rodriguez lauded the BIR on Friday for rectifying its “error” in imposing a higher tax rate on private schools through the new RMC.
The private education sector has earlier urged BIR to halt the imposition of a higher tax rate of 25 percent from the current 10 percent.
Private schools have also since protested BIR’S “unilateral insertion” in its RR 5-2021 of a condition that proprietary educational institutions must be “nonprofit” to enjoy the reduced rate of 1 percent as a result of the passage of the recently-enacted Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (Create) law.
In its recently issued RMC 76-2021, the BIR said they needed to clarify the amounts stated in the illustrative examples in RR 5-2021 involving proprietary educational institution and Regional Operating Headquarters (ROHQ ).
The BIR explained that the income tax due and the gross income for the examples were “inadvertently written” to be in the amount of P1 million and P558.5 million instead of the correct amount of P100,000 and P58.5 million, respectively.
The same circular also clarified that the 1-percent income tax rate for proprietary educational institutions and the 1-percent Minimum Corporate Income Tax (MCIT) for ROHQ shall be imposed only for July 1, 2020, until June 30, 2023 and January 1, 2022 to June 30, 2023, respectively. Thus, beginning July 1, 2023, the income tax rate for proprietary educational institutions and the MCIT shall revert to 10 percent and 2 percent, respectively.
Private schools have already filed a petition before the Court of Tax Appeals in a bid to stop the implementation of BIR’S RR 5-2021, which they said 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.”
This came after BIR rejected Coordinating Council for Private Educational Associations (Cocopea)’s letter-appeal to rectify the tax regulation, saying its policy is consistent with the Tax Code and that the tax rate reduction under the Create law is applicable only to proprietary nonprofit educational institutions and proprietary nonprofit hospitals.
Dominguez, who was a signatory of RR-5-2021, has also since backed BIR’S position on the issue, noting that it was based on the Tax Code as well as Supreme Court decisions in a number of landmark cases.
Despite this, Dominguez has earlier said they will welcome moves to possibly amend through legislation the Tax Code to resolve the issue.