LAST DECEMBER 2021, President Rodrigo Duterte signed into law Republic Act (RA) 11635, which amends Section 27(B) of the National Internal Revenue Code of 1997. This particular section of the NIRC deals with the tax treatment of proprietary educational institutions or private schools and non-profit hospitals. As the principal author of the law, we are elated with the support given by the President to the measure and in hearing the appeals made by the private school operators to save them from closure during these very challenging times.
Way back in June 2021, we filed Senate Bill 2272 in response to Bureau of Internal Revenue’s issuance of Revenue Regulation (RR) No. 5-2021 on the implementation of Republic Act 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), particularly on the provision that deals with the preferential tax treatment on proprietary educational institutions and hospitals. The said RR erroneously interpreted the provision of CREATE to mean that an educational institution should be both proprietary and non-profit in order to qualify for a preferential tax rate. Under CREATE, proprietary educational institutions are imposed a tax rate of 10 percent and this would go down further to one percent starting July 1, 2020 until June 30, 2023. In fact, private schools have been enjoying the 10 percent tax rate since 1968. But as a result of the BIR issuance, the private schools ended up being imposed with the regular tax income tax rate of 25 percent, contrary to what we in Congress intended with the passage of CREATE.
When Congress came up with the tax rates in CREATE for the private schools, it was in consideration of the very difficult circumstances faced by the education sector during this pandemic. Since March of 2020, face-to-face classes were prohibited and consequently, enrollments sharply declined. For many of these schools, they were forced to suspend their operations for the time being. Many other schools were not so fortunate and ended up closing their doors permanently.
Looking deeper into this issue, the impact of the school closures is far reaching. The first clear casualties will be the hardworking teaching and non-teaching personnel who have already been struggling to make ends meet because of the work suspensions brought about by the pandemic. Then there are the industries who depend on the operations of schools as their lifeline. Here we have the small businesses such as the school buses (tricycles and jeeps), food vendors, and uniform makers, all of which will likely close shop if the schools they rely on shut down.
Private schools have long been the government’s partners in the provision of quality education to our children. When new policies were imposed, even if it meant that they would have to take a hit—just like the implementation of the K to 12 system and the Universal Access to Quality Tertiary Education Act, they gave their full cooperation in the spirit of the provision of the Constitution that describes as “complementary” the roles of the public and private schools in the country’s educational system.
Sometime in July last year, the BIR came out with another issuance: Revenue Regulation No. 14-2021 that suspended the implementation of certain provisions of RR 5-2021. This gave a temporary reprieve for the private schools as it took into account the pending bills filed in Congress seeking to clarify the tax treatment on proprietary educational institutions.
Given all of these circumstances, we in Congress agreed that something had to be done to correct the situation brought about by the issuance of RR No. 5-2021. Because levying a 150 percent rate increase could very well end up being the final nail on the coffin for many private schools.
RA 11635 effectively cuts the noose around the necks of our private schools. We acknowledge and thank our colleagues in the Senate, including the leadership, who gave their unanimous support to this measure. The same goes to our counterparts in the House of Representatives, who acted swiftly on the bill. Our gratitude also goes out to our Secretary of Finance Carlos Dominguez for not raising any opposition to the law. And of course, to President Duterte for signing this very important measure into law. (30)
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Sen. Sonny Angara has been in public service for 17 years. He has authored and sponsored more than 200 laws. He is currently serving his second term in the Senate.
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E-mail: sensonnyangara@yahoo.com| Facebook, Twitter & Instagram: @sonnyangara/PN
