The move of the Bureau of Internal Revenue to correct the imposition of a 25-percent tax on proprietary educational institutions will save colleges, universities, and similar institutions affected by the Covid-19 pandemic from folding up.
Deputy House Speaker Rufus Rodriguez said yesterday that the prompt correction of BIR Commissioner Caesar Dulay is a relief to educational institutions experiencing low enrollment and financial difficulties.
It also prevented an increase in tuition and other school fees arising from higher tax.
“We thank Commissioner Caesar Dulay for recognizing the error early and for rectifying it in Revenue Memorandum Circular No. 76-2021 issued last week,” Rodriguez said.
Rodriguez said Congress did not intend to impose higher taxes on schools under the recently passed Corporate Recovery and Tax Incentives for Enterprises law.
Under Create, the preferential tax rate of 10 percent imposed on proprietary educational institutions was reduced to one percent from July 1, 2020 to June 30, 2023, after which the tax rate shall revert to 10 percent.
In his new issuance, Dulay corrected the tax rates that were “inadvertently written” in the “illustrative examples” he made in his April circular on how to compute income tax of affected corporations.
He said that, in the case of a proprietary educational institution with a net taxable income of P10 million, the “correct amount” of tax should be P100,000, or one percent, instead of P1 million.
“Beginning July 1, 2023, the income tax rate for proprietary educational institutions and the Minimum Corporate Income Tax shall revert to 10 percent and 2 percent, respectively,” the revised circular read.
On Monday, the House Committee on Ways and Means approved the draft substitute bill that would allow the income tax exemption and the preferential tax rate of 10 percent applicable to for-profit private schools.
Albay Rep. Joey Salceda, committee chair, said the measure is meant to intervene in the implementation of the new regulation of the BIR increasing the tax rate of private educational institutions to 25 percent from 10 percent.
Salceda, in a previous statement, said he secured from the BIR a “commitment of support” for the revision by legislation of the ambiguities in the Create law so that private schools would be able to avail of the 1-percent tax rate up to 2023.
“So, it’s a clean slate legally, and lower taxes moving forward,” he said. In an aide-memoire to Speaker Lord Allan Velasco, Salceda warned that without action, these schools will be applied a rate of 25 percent, or the regular corporate income tax rate, from the 10 percent some of them have complied with previously.*PNA