Erroneous revenue order can bankrupt struggling private schools

The BIR should rescind its erroneous order imposing a 25 percent corporate income tax on private schools, as "it is a flawed interpretation of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act," said Senate President Pro Tempore Ralph Recto.

"Yung title pa lang ng batas, malinaw na kung ano ang intensyon nito: corporate recovery and tax incentives," Recto said.

"So how can the BIR invoke it to inflict a 150 percent increase on the income tax of private schools, which is directly opposite to what the law clearly intends?" he said.

"CREATE is meant to bail out distressed private schools. The BIR order further drowns them in a sea of red ink," Recto said.

Prior to CREATE's enactment, proprietary educational institutions have been paying a preferential tax rate of 10 percent since 1968, which the association of private schools also highlighted in an open letter.

Senators, Recto said, agreed unanimously to bring it down to 1 percent "to help them evade bankruptcy during the pandemic."

Recto said the BIR, in crafting the revenue regulation implementing the CREATE Act, should have consulted Senate records of the debate and correspondences to ascertain the legislative intent underlying that provision.

Recto said while he welcomed the amendatory bill filed by Sen. Sonny Angara, "nothing, however, prevents the BIR from rectifying its oversight."

"The bill corrects the ambiguity caused by a missing comma. It is an editorial correction to probably satisfy some grammar police. But in applying taxes, let the intent be the primordial consideration. One missing comma should not cause misery to many," he said.

The present language of Section 27(B) of the National Internal Revenue Code creates an ambiguity that leads to conflicting interpretation.

Part of the provision states that "proprietary educational institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, That beginning July 1, 2020 until June 30, 2023, the tax rate herein imposed shall be one percent (1%)."

The BIR reads it to mean that proprietary educational institutions must be non-profit to qualify for the lower tax rates.

Private schools contend that the non-profit classification applies to hospitals only.

The Angara bill rewords it as "hospitals which are nonprofit, and proprietary educational institutions shall pay..."

Recto said the BIR should unilaterally withdraw a regulation based on wrongful interpretation.

"It is illogical, absurd and goes against the spirit of the law."