Schools have nothing to fear – Kim Henares

MANILA, Philippines—Schools have “nothing to fear” from the taxman as long they comply with the rules.

Bureau of Internal Revenue (BIR) Commissioner Kim Henares gave this assurance after a militant lawmaker slammed as “unconstitutional” her July 22 directive requiring nonstock and nonprofit organizations, including schools, to obtain tax exempt certifications or risk losing their mandatory tax perks.

“[Revenue Memorandum Order 20-2013] does not impose a tax on them (schools). It recognize[s] their exemption provided they are in compliance and meet the requirement to be entitled to it,” Henares said in a text message to the Inquirer.

“If the schools are in compliance and they are entitled to the benefit, what is there to fear? They should be the first ones to understand that rules are put in place to make sure there is order. They practice the same philosophy in running their schools,” Henares said, noting that schools had always been required to get certifications to be able to enjoy tax exemption.

But Kabataan party-list Rep. Terry Ridon said the BIR order was unconstitutional because it threatened to remove the tax-exempt status of schools if they failed to secure a certification from the BIR.

“Clearly, a mere memorandum cannot remove the status of exemption granted under the Constitution. Thus, the memorandum not only threatens students with higher tuition and school fees in the coming years but the actual closure of their schools,” Ridon said.

Under the Constitution, all income and assets used by schools directly and exclusively for educational purposes are tax-exempt.

The Tax Code has a similar provision for nonprofit groups.

Henares, however, was firm about throwing the book at erring schools.

She said that while tuition and laboratory fees would still be exempt, “not a single centavo should be paid to its trustees” or other expenses not related to education.

“The exemptions granted under the Tax Code are not blanket exemptions but are subject to certain conditions, and compliance [with those] conditions is required in order for them to enjoy [tax] exemptions,” Henares said.

“When we come up with a regulation, there is no imputation that the sector [is cheating]. It is a matter of putting in order and discipline,” she said.

But Ridon insisted that the order against schools was the BIR’s latest act of throwing its weight around, and targeting institutions and individuals that it believed it could push around.

Acting the bully

“The BIR should stop acting like the country’s national bully and focus instead on its massive collection shortfall in the billions of pesos,” Ridon said, referring to the BIR’s delinquent accounts that tripled to P300 billion in 2012 according to the Commission on Audit (COA).

“We most certainly hope that this is not another high-profile shame campaign of the BIR to blunt its institutional failure to meet its collection target. No less than the COA made this report despite the shaming of celebrities like Rep. Manny Pacquiao,” Ridon said.

Decision on St. Luke’s

Henares said the order merely implemented the decision of the Supreme Court in October last year ordering St. Luke’s Medical Center Inc., a nonstock, nonprofit organization, to pay the BIR P63.9 million in back taxes.

Tax experts from Punongbayan and Araullo noted that nonstock, nonprofit organizations are rewarded with tax-exempt status (as a reward for undertaking activities that should have been the primary responsibility of the state), but this is not absolute because “income from properties and activities conducted for profit by nonstock, nonprofit corporations is subject to incom e tax.”

The BIR c an also revoke the exemption if the corporation or organization fails to revalidate or renew its tax-exempt status or fails to file a tax report.

“Initial feedback among the organizations is that compliance with this requirement may be difficult, particularly with information pertaining to future income and activities, which may or may not push through depending on the circumstances,” Punongbayan and Araullo said.

Schools that obtained tax-exempt certificates issued before June 30, 2012 (certificates issued after this date are valid for three years), should file for a certification beginning Jan. 1.

Last Friday, however, the Makati Regional Trial Court issued a temporary restraining order barring the BIR from implementing the order.

source:  Punongbayan and Araullo
(As published in the Philippine Daily Inquirer, 31 December 2013.)