Private schools tax-hike rule suspended by BIR

THE Bureau of Internal Revenue (BIR) suspended the implementation of certain provisions of its tax regulation that would have hiked the corporate income tax rate of private schools from 10 percent to 25 percent.

BIR Revenue Regulations 14-2021 suspended RR 5-2021, pending the passage of appropriate legislation.

“To ease the burden of taxation among proprietary educational institutions, especially during this time of Covid-19 pandemic,” the BIR said in the July 26 document signed by BIR Commissioner Caesar R. Dulay and Finance Secretary Carlos G. Dominguez III. The order said it takes into account the pending bills in Congress seeking to amend Section 27 (B) of the National Internal Revenue Code (NIRC) of 1997, as amended, “to finally clarify the income taxation of schools.”

With that, the BIR said the implementation of the provisions of RR 5-2021 dated April 8, 2021, “are hereby suspended pending the passage of such appropriate legislation.”

In a Senate Ways and Means Committee hearing, private schools have earlier appealed to BIR and the Department of Finance to suspend the tax regulation after they have received reports that the bureau is already trying to impose a higher tax rate.

Barely surviving

PRIVATE schools have 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 (RA) 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (Create) law.

Private schools earlier filed a petition before the Court of Tax Appeals in a bid to stop the implementation of RR 5-2021.

They said that the implementation of the rule will have “widespread consequences [on] 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.”

The appeal came after BIR rejected an earlier appeal, this one by the Coordinating Council of Private Educational Associations (Cocopea) to rectify the tax regulation. The BIR said its policy is consistent with the Tax Code and that the tax rate reduction under the Create law applies only to proprietary nonprofit educational institutions and proprietary nonprofit hospitals.

Dealing with VAT

MEANWHILE, the BIR has also deferred the implementation of its tax regulation that would have slapped a 12-percent value-added tax on local purchases by export enterprises that were previously subjected to zero-percent VAT.

“ln view of the continuing Covid pandemic and its impact to the export industry. the implementation of RR 9-2021 dated June 9, 2021, is hereby deferred until the issuance of an amendatory revenue regulations,” the BIR said in its RR 152021 dated July 21. Exporters earlier expressed concern that the old RR could cripple the industry.

Last week, Finance Undersecretary Antonette C. Tionko, who heads the DOF’S Revenue Operations Group, said the new tax regulation that will replace RR 9-2021 will now follow the provisions of the Create law. That section of the law provides that locally-purchased goods and services “directly and exclusively used” in the registered project or activity of export enterprises shall be subject to zero-percent VAT.

The old RR (RR 9-2021) was issued in line with the provisions of RA 10963 or the Tax Reform and Acceleration and Inclusion Act (Train) that certain transactions previously considered zerorated shall be subject to 12-percent VAT after the government satisfies two main conditions. One condition is the successful establishment of an enhanced Vat-refund system that grants refunds of creditable input tax within 90 days from the filing of VAT refund application with BIR.

The second condition is that all pending Vatrefund claims as of December 31, 2017 were fully paid in cash by December 31, 2019.

No room

THE suspension of RR 5-2021 was commended by Senate President Pro Tempore Ralph G. Recto last Thursday.

Still, Recto suggested that the next step should be a “permanent solution” in the form of a remedial legislation that Recto envisions “purging all ambivalence in that provision” of the Tax Code.

“Still, it is a welcome move and I thank the good Secretary of Finance for this order,” Recto said, noting that “it would help ease the distress the private schools are going through during this pandemic.” At the same time, the Senate President Pro Tempore vowed to back “immediate passage of that simple, corrective bill so there will be a closure to the issue, leaving no room for erroneous interpretation, which may tempt future administrations to invoke.”

Recto reminded that this is one problem partially solved. “Let us move forward by adopting measures that will address the crisis in the entire educational system, which the pandemic has worsened,” he added.

Earlier, Recto had warned that the erroneous DOF revenue order “can bankrupt struggling private schools.”