Since 1996, no one has availed of tax incentives under the Dual Training System Act and Adopt-A-School law - TESDA

The Second Congressional Commission on Education (EDCOM 2) found that, since 1996, no single entity has availed of tax incentives under the Dual Training System Act (RA 7686) and Adopt-A-School Law (RA 8525), according to the Bureau of Internal Revenue.

Enterprise-based training refers to Technical-Vocational Education and Training (TVET) programs delivered in the enterprise which may be in-plant or stand alone, or may be linked with a training provider. These programs are offered to industry groups or to enterprises' employees and individuals.

The discussion, held at UP BGC on February 21, 2024, focused on the incentives available related to enterprise-based training, and was joined by representatives from the Bureau of Internal Revenue (BIR), Philippine Council of NGO Certification (PCNC), Bureau of Customs (BOC), and the Technical Education and Skills Development Authority (TESDA).

Dismally low uptake of enterprise-based training

As highlighted in the EDCOM Year One Report, "Miseducation: The Failed System of Philippine Education", EBT and apprenticeship programs remain the least popular modality in TVET. This is despite its efficacy in providing skills and guaranteeing superior labor market outcomes for graduates, and despite the strong emphasis placed by the first EDCOM and by TESDA itself.

"In fact, in 2022, [EBT] accounted for only 9% of total TVET enrollment (TESDA Information and Communications Technology Office, 2023). On the other hand, enrollment in institution-based and community-based training (shorter-term skills training that does not necessarily lead to certification) accounts for the bulk of TVET enrollment.", the EDCOM Year One Report read.

Unclear guidelines and cumbersome process to avail of tax incentives

"Enterprises we have consulted have mentioned that they are unsure of how to avail of the incentives [for organizations who conduct EBT], the lack of guidelines in availing of the exemptions from taxes and duties, and that these incentives are very tedious to access", EDCOM 2 Executive Director Dr. Karol Mark Yee said.

Under the Dual Training System Act of 1994 (RA 7686), 50% of the actual expenses paid by the private enterprise for each trainee is tax-deductible. Under the same law, donation contribution, bequest subsidy, or financial aid paid for the operation of the [dual training] system..."shall be deductible from income tax in an amount not in excess of 3% of the taxable business income of the establishment".

The DTS Act also provides VAT and excise taxes for public technical-vocational institutions (TVIs) for imported essential equipment, apparatus, and materials. Meanwhile the Adopt-A-School Act of 1998 (RA 8525) provides VAT and tax exemptions for both private and public TVIs for donations of goods imported for the implementation of programs.

During the discussion however, both TESDA and BIR confirmed that not a single availment has been made.

"In the past years, how many - or year-on-year, on average - how many does TESDA recommend for [tax] exemption, and which one of these have you honored? [to BIR]", Dr. Yee asked.

"Wala. Wala pa po. Zero...None that we know...Nobody has applied. Wala din na lumapit sa mga regional offices regarding [the incentives]", TESDA Deputy Director General for Policies and Planning, Rosanna Urdaneta replied. Urdaneta then asked the BIR if they knew of anyone who had applied for tax incentives.

"So from TESDA, it would be to DOF (Department of Finance), and then from DOF, to BOC. BIR is not in the picture", BIR Chief of Audit Information Tax Exemption and Incentives Division Montserrat Axalan answered. Representatives from the BOC also answered no.

"In other words, nobody is taking advantage of this Dual Training System Act? One of the most important features of this law is the incentives. That's the whole point", EDCOM 2 Co-Chairperson Senator Sherwin Gatchalian said.

Revise and streamline policies to encourage EBT uptake

EDCOM 2 Commissioner Rep. Pablo John "PJ" Garcia urged the government agencies to streamline policies to encourage the uptake of EBT programs for private organizations.

"Instead of all these requirements, can we just have an affidavit of undertaking and willingness to be audited? Let's assume that everyone's in good faith, instead of otherwise, right? Because, you know, judging from the requirements, it seems that we are assuming that everyone is out to defraud the government. When probably, 80-90 percent, I would say 95 percent would be in good faith...", he said.

"Because I think what is intimidating are the requirements and the processes...that's why nobody is availing themselves of the incentives...Maybe there will be some that will try to defraud the government, then it's your job to catch them", Rep. Garcia continued.

Senator Gatchalian asked the BIR to work closely with EDCOM 2 to review Revenue Regulations No. 10 of 1996 (Dual Training System Act), and the Revenue Regulations No. 10 of 2003 (Adopt-A-School Act). "The purpose of this body [EDCOM 2] is not to inquire about your job. We're inquiring why the law is not effective. Why institutions are not taking advantage of the incentives - that's the end goal. We're requesting from both agencies [BIR and BOC] to work closely with the Commission", he said.