Two senators—Senate President Pro Tempore Ralph Recto and Senate finance committee head Sen. Sonny Angara—last week urged the Bureau of Internal Revenue to repeal the 150% income tax hike on private schools, which took effect last April 9.
Under the regulation, RR 5-2021, income tax on proprietary educational institutions controlled by stock corporations would balloon from 10% to 25%, forcing private schools to choose between increasing tuition fees and closing down.
Previously, managing director of the Coordinating Council of Private Educational Associations (COCOPEA)—composed of some 2,500 private schools—Joseph Noel Estrada, said that this is an increase would ultimately burden parents and students.
Some of its provisions also contradicted the CREATE Act, or the Corporate Recovery Tax Incentives for Enterprises Act. Under the measure, the tax rate on private schools should be cut from 10% to 1%. Estrada, a lawyer as well, cited the National Internal Revenue Code of 1997, which gave preferential tax treatment to private basic education institutions.
In a statement last June 1, COCOPEA asked the BIR to amend the regulation which they described as “ill-conceived and insensitive to the realities of the private education sector.”
However, BIR chief Caesar Dulay said that they had to reject COCOPEA’s plea “for lack of merit.” He added that under the law, no tax incentives are given to stock and profit-oriented educational institutions, only to nonstock and nonprofit ones. The same, he said, is the case for the income tax exemption and preferential tax rate of 1%.
“It is illogical, absurd and goes against the spirit of the law,” said Recto, pertaining to the Create Act, the intent of which was to rescue distressed companies—including private schools—from the tax system. “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?”
Angara, for his part, had filed a bill to correct the tax collection agency’s inaccurate interpretation of the law, in terms of which schools could benefit from the 1% preferential tax rate.
Schools would not be the only affected community because of this tax law, but school uniform suppliers, cafeteria workers, dormitories, janitorial and security services and school bus operators, among others.
According to data from the Department of Education, since the pandemic started, around 900 private schools have closed their doors due to financial struggles, thus putting 4,400 teachers out of jobs and leading almost 500,000 students to transfer to public schools.
Last school year, DepEd data indicated that enrollment in K to 12 schools fell by 900,000, while a survey by the Philippine Association of Colleges and Universities showed that 50% of respondents saw a drop in enrollment.