2011 CEAP NATIONAL CONVENTION
21-23 September 2011, Davao City
TAX ISSUES AND CONCERNS
OF
EDUCATIONAL INSTITUTIONS
By LAW
DEAN CESAR L. VILLANUEVA
PURPOSE OF SESSION
(a) Review Certain Outstanding Issues
on Taxation Involving Educational
Institution
(b) Introduce Proposed Comprehensive
Bills for Tax and Tariff Duty
Exemptions for Educational
Institutions
COMMEND TO BETTER
AUTHORITIES
(a) ATTY. NICASIO CABANIERO, “Taxation
of Educational Institutions,”
COCOPEA Seminar
(b) ATTY. ULPIANO SARMIENTO, Manual
of Regulation for Private Schools,
“School Finance: Policy”
CONSTITUTIONAL BASIS FOR TAX REFORMS
FOR EDUCATIONAL INSTITUTIONS:
“THE STATE SHALL PROTECT AND PROMOTE THE
RIGHT OF ALL CITIZENS TO QUALITY EDUCATION AT ALL
LEVELS AND SHALL TAKE APPROPRIATE STEPS TO
MAKE SUCH EDUCATION ACCESIBLE TO.”
SEC. 1, ART. XIV, 1987 CONSTITUTION
“THE STATE RECOGNIZES THE COMPLEMENTARY
ROLES OF PUBLIC AND PRIVATE INSTITUTIONS IN THE
EDUCATIONAL
SYSTEM
AND
SHALL
EXERCISE
REASONABLE SUPERVISION AND REGULATION OF ALL
EDUCATIONSL INSTITUTIONS.”
SEC. 4(1), ART. XIV, 1987 CONSTITUTION
I
LEADING TAX ISSUES ON
EDUCATIONAL INSTITUTIONS
A. INCOME TAX ISSUES FOR
EDUCATIONAL INSTITUTIONS
(a) NON-STOCK NON-PROFIT EDUCATIONAL
INSTITUTIONS ARE EXEMPT FROM
INCOME TAXATION.
(b) PROPRIETARY EDUCATIONAL INSTITUT-
AVAIL OF PREFERENTIAL
RATES (10%) INCOME TAXATION.
IONS
MAY
A.1. INCOME TAX EXEMPTION OF
NON-STOCK NON-PROFIT
EDUCATIONAL INSTITUTIONS
“Sec. 30. The following organizations
shall not be taxed under this Title in
respect to income received by them as
such:
xxx
(H)
A
nonstock
educational institution;
and
nonprofit
xxx
SEC. 30, 1997 NIRC
HIGHLIGHTS OF DOF ORDER 137-87
•
DOF ORDER NO. 137-87 (16 December 1987):
Exemptions granted to Nonstock Nonprofit
Educational Institutions refer to internal revenue
taxes and customs duties imposed by the
National Government on all revenues and assets
of non-stock and nonprofit educational
institution.
• Duly incorporated as a non-stock corporation
• Does not pay dividends and governed by Trustees
who receive no compensation
• Devotes all its income, whether students’ fees or
gifts,
donations,
subsidies,
etc.
to
the
accomplishment and promotion of the purposes for
which it was organized.
• Exemptions not limited to revenues and assets
derived from strictly school operations, “but also
extends to incidental income derived from
canteen, bookstores and dormitory facilities.”
• In case of incidental income, the facilities must not
only be owned and operated by the educational
institutions but must be located inside school
premises.
• Canteens operated by concessionaire are taxable.
• Income unrelated to school operations like income
from such deposits or trust funds, royalties, dividends
and rental income are all taxable.
• Use of educational institutions income or assets must
all be school-related (e.g., scholarship, faculty
development, professorial chairs, building expenses,
library, sports facilities).
• A canteen, although owned and operated by a
concessionaire of the schools, is exempted from
income tax and VAT as long as the concessionaire fees
were actually, directly and exclusively used for
educational purposes.
ATENEO DE MANILA UNIVERSITY VS. CIR,
CTA CASE NO. 7246 & 7293, 11 March 2010
A.2. INCOME TAXATION OF
PROPRIETARY EDUCATIONAL
INSTITUTIONS
Proprietary educational institutions…which are
nonprofit shall pay a tax of ten percent (10%) on their
taxable income except those covered by Subsection
(D) hereof: Provided, That if the gross income from
unrelated trade, business or other activity exceeds
fifty percent (50%) of the total gross income derived
by such educational institutions or hospitals from all
sources, the tax prescribed in Subsection (A) hereof
shall be imposed on the entire taxable income.
SEC. 27(B), 1997 NIRC
• Special Tax Deductions
Educational Institutions
Allowed
for
Private
(a) Expenditures otherwise considered as
capital outlays or depreciable assets
incurred during the taxable year for the
expansion of school facilities, or
(b) Deductions allowed for depreciation.
A.3. INVESTMENTS OF DONATIONS AND
GRANTS TO EDUCATIONAL INSTITUTIONS
“All earnings from the investment of duly
established scholarship fund of any school
recognized by the government, from gifts or
contribution to the school, if said earnings are
actually used to fund scholarship grants to
financially deserving students shall be exempt from
tax until the scholarship fund is fully liquidated.”
SEC. 48, EDUCATION ACT OF 1982
• Income from school-related activities is tax
exempt, but when invested in the money market,
the income earned from such investment is
taxable.
DOF ORDER NO. 137-87
• Earnings from such passive investments are to
used directly, exclusively and actually for
educational purposes or function, shall be exempt
from the 20% final withholding tax pursuant to
Sec. 4(3), Art. XIV of the Constitution.
BIR RULING NO. 197-90
• Instant income from passive investments are
exempt from tax, provided the educational
institutions submit an annual information return
with the following:
(a) Bank certificate of the amount of
instant income;
(b) Certificate of actual utilization of said
income, and
(c) Board resolution of the administration
of proposed projects to be funded, on
or before the 14th day of the month
following the end of taxable year.
C. VAT EXEMPTION OF EDUCATIONAL INSTITUTIONS
Private
Educational
Institutions
exempted from VAT provided they
accredited by the DepEd, CHED, TESDA.
are
are
HOWEVER: VAT Exemption does not extend to
other activities involving sale of
goods and services.
SEC. 109(M), 1997 NIRC
REV. MEM. CIRCULAR NO. 76-2003
• Educational Institutions must register as a NonVAT Taxpayer to avoid shifting by VAT-Registered
seller or supplier.
• Educational Services rendered by accredited
Private Educational Institutions are exempt from
VAT.
SEC. 109(M), NIRC
D. DONATIONS, GRANTS, ENDOWMENT TO
EDUCATIONAL INSTITUTIONS
“All
grants,
endowments,
donations
or
contributions
to
non-stock
and
non-profit
educational institutions used actually, directly and
exclusively for educational purposes are taxexempt.
DOJ OPINION 130, S. 1987
“Gifts in favor of educational institutions are
exempt from donor’s tax provided not more than
30% of said gifts shall be used by such donee for
administrative purposes.
SEC. 101, 1997 NIRC
E. EXEMPTION FROM REAL PROPERTY TAXES
“. . . all lands, buildings and improvements, actually,
directly and exclusively used for . . . . educational
purposes shall be exempt from taxation.”
SEC. 4(3)(4), ART. XIV, 1987 CONSTITUTION
“All properties of educational institutions,
actually, directly and exclusively used for
educational purposes are exempt from real property
taxes.”
SEC. 234, LOCAL GOVERNMENT CODE
“RESTRICTIVE” VS. “REASONABLE”
INTERPRETATION
“’Exclusively’ is defined as possessed and enjoyed
to the exclusion of others; debarred from participation
or enjoyment; and “exclusively” is defined, “in a
manner to exclude; as enjoying a privilege
exclusively…The words “dominant use” or “principal
use” cannot be substituted for the words “used
exclusively” without doing violence to the Constitution
and the law. Solely is synonymous with exclusively.”
Lung Center of the Philippines v. Quezon City
G.R. No. L-39086, June 5, 1988
. . . Moreover, the exemption in favor of property used
exclusively for charity used exclusively for charitable or
educational purposes is not limited to property actually
indispensable therefor (Colley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as in
the case of hospitals, a school for training nurses, a nurses’
home, property used to provide housing facilities for interns,
resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities, for student nurses,
interns and residents (84 CJS 6621), such as “athletic fields”
including “a farm used for the inmates of the institution.
Herrera v. Quezon City Board of Assessment Appeals, 3 SCRA 186 (1961)
BIR v. Bishop of the Missionary District, 14 SCRA 991 (1965)
Abra Valley College, Inc. v. Aquino, 162 SCRA 106.
ARE MACHINERIES ON REAL
PROPERTY INCLUDED?
“The exemption from real property taxes
however, shall not include ‘machineries’ even
if these are actually, directly and exclusively
for…educational purposes.”
SEC. 3, DOF REGULATION 1-88
F. EXEMPTION FROM TARIFF DUTIES
“. . . all lands, buildings and improvements, actually,
directly and exclusively used for . . . . educational
purposes shall be exempt from taxes and duties.”
SEC. 4(3)(4), ART. XIV, 1987 CONSTITUTION
DOF ORDER NO. 137-87 (16 December 1987):
Exemptions granted to Non-Profit and Non-Stock
Educational Institutions refer to internal revenue
taxes and customs duties imposed by the National
Government on all revenues and assets of nonstock
and nonprofit educational institution.
II
PROPOSED BILLS
ON COMPREHENSIVE EXEMPTIONS
FROM
INTERNAL REVENUE TAXES, REALTY
TAXES AND TARIFF DUTIES
FOR
EDUCATIONAL INSTITUTIONS