Unfair taxation of private schools

Some of the country’s private educational institutions are in for hard times this year and in the coming years, unless a court or Congress comes to their rescue, Job losses and restrictions on face-to-face classes have reduced school enrollment to the extent that several iconic private schools have shut down or announced their closure after the graduation of their first year students.

As if that problem was not bad enough, private schools that are considered proprietary (or for profit) have been ordered by the Bureau of Internal Revenue (BIR) to pay 25-percent corporate income tax pursuant to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law.

The tax rate represents a 150-percent increase on the 10-percent income tax rate they have been paying since 1968.

Those schools are questioning the BIR’s interpretation of the provision in the law, which states that “proprietary educational institutions and hospitals which are nonprofit” shall pay a 10-percent tax on their taxable income.

They claim the BIR was wrong in limiting the application of that provision to nonprofit schools because that restriction is contrary to the Tax Code and the Constitution.

Citing the wording of the law, the BIR maintains the position that only nonprofit schools are entitled to the 10-percent tax rate.

With administrative relief unavailable, two associations of private schools and some 30 private schools have filed a petition with the Court of Tax Appeals to stop the implementation of that order and to declare the tax increase as unlawful.

In addition to their legal arguments, the petitioners said the new tax rate would force many private schools to close and, in the process, render jobless thousands of academic and nonacademic personnel.

Understandably, the argument raised by the BIR in support of the tax rate increase is financial in character; the government sorely needs additional revenues to augment its coffers, especially now when COVID-19 continues to wreak havoc on the country’s economy.

There is no mention at all, even in passing, that the Department of Education (DepEd) had been consulted on the matter considering that the tax increase would have a serious effect on the viability of hundreds of private schools.

If the DepEd was consulted, did it interpose any objections? Assuming it did not or if those objections were set aside, did the DepEd suggest contingency plans on how to address the possibility of many such private schools closing down?

And what measures should be taken by the government to minimize the impact of the loss of thousands of teaching jobs and the expected migration of the displaced students to the already overburdened public schools?

At present, it is considered “normal” for primary and elementary classes in public schools to have 40 to 50 students per session. That number would definitely increase in case private schools are forced to shutter for financial reasons.

Note that because of restrictions in physical attendance in classes, the quality of education in public schools has been (and continues to be) adversely affected. Packing public school classrooms with transferees from private schools would further aggravate that.

In zeroing on proprietary private schools, it looks like the BIR has run out of ideas on improving its revenue-collection processes, or looking for legitimate sources of additional funds for the government.

Except for the handful of private schools owned by business tycoons, the majority of the private schools at the crosshairs of the BIR are not oozing with money as to justify subjecting them to a 150-­percent increase in their tax rate.

If those schools are anywhere within or at the fringes of the list of the country’s Top 500 companies, the new tax rate would be reasonable. But the problem is, they are not.

Indeed, a review of that BIR order by the Court of Tax Appeals or, better still, by Congress is clearly in order before its adverse effects are suffered by the most vulnerable sector of our society: our youth. INQ

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