PASAY CITY -- Senator Sonny Angara today lauded the enactment of the law clarifying the preferential tax treatment granted to private schools, saying this will save many struggling schools from closing down permanently.

Republic Act 11635 amends Section 27(B) of the National Internal Revenue Code of 1997 and was signed on December 10, 2021 by President Rodrigo Duterte.

“This law effectively cuts the noose that was tied around the necks of our private schools. It is a recognition of the critical role that our private sector educators play as partners of the government in teaching our youth,” Angara said.

Under the law, a “proprietary educational institution” means any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education or Commission on Higher Education or the Technical Education and Skills Development Authority.

Angara, the principal author and a co-sponsor of the law, explained that the amendment to that particular section of the NIRC removes any confusion regarding the application of the preferential tax rate on proprietary educational institutions, as well as nonprofit hospitals.

Private schools have enjoyed a preferential tax rate of 10 percent for over 50 years and with the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) in March 2021, the rate was supposed to go down to one percent until June 30, 2023.

However, the Bureau of Internal Revenue came out with Revenue Regulation No. 5, which interpreted the provision of CREATE on the preferential tax treatment on proprietary educational institutions and hospitals to mean that an educational institution should be both proprietary and non-profit in order to qualify for the lower rate.

For schools that do not meet the category of being proprietary and non-profit, RR 5-2021 stated that they would be imposed the regular rate of 25 percent.

“Dahil sa nasabing maling interpretasyon ng mga probisyon ng CREATE, nalagay sa panganib ang kalagayan ng ating mga pribadong paaralan na nakaranas na ng matinding paghihirap sa nakaraang isang taon at 10 buwan dahil sa pandemiya,” Angara said.

“Most of the private schools were forced to suspend their operations temporarily because of the sharp decline in enrollments. With the issuance of RR 5-2021, the fear was that the closures could become permanent,” Angara added.

The Chairman of the Committee on Finance said the imposition of a 150 percent tax increase on the schools would result in the loss of thousands of jobs among the teachers and non-teaching personnel.

It would also have an impact on the industries dependent on the operation of the schools, including the micro, small and medium enterprises such as the food vendors, uniform makers, and school bus operators.

“We thank the President for supporting the measure, which gained unanimous support in the Senate. We also acknowledge Finance Secretary Carlos Dominguez for not opposing the bill when we first filed it in June of last year,” Angara said. (OSSA)