BIR tightening tax exemption rules for schools

MANILA, Philippines - The Bureau of Internal Revenue (BIR) has tightened the rules on tax exemptions for  non-profit schools.

Under Revenue Memorandum Circular (RMC) 24-2016, non-stock, non-profit educational institutions are reminded to prove their income tax-exempt status every time they file their information returns or risk being subjected to audit.

The Constitution exempts all assets and revenues of non-earning schools from final income taxes of 7.5 percent and 20 percent, depending on the type of income.

But the Department of Finance, the BIR’s mother agency, issued Department Order 149-1995 instructing schools to provide BIR documents proving these exemptions during tax filing season.

“It has been observed that there are educational institutions organized and operated as non-stock, non-profit educational institutions that no longer comply with the DOF DO 149-95...,” the BIR circular dated Feb. 24 said.

“Thus, this circular is being issued to reiterate the requirements,” it added.

Under DO 149-95, certifications showing the school’s passive investment income, projects funded by the income and board resolution of future projects must be submitted.

Revenue district offices (RDOs) must ensure all documents are present every tax-filing season.

“The RDOs shall conduct an audit of the annual information return filed to determine compliance with the conditions set forth in the certificate of exemption and the tax liabilities,” the BIR said.

Sought for comment, Anthony Coloma, advocacy officer at the Catholic Educational Association of the Philippines (CEAP), said the group would review the new order.

He recalled CEAP won a court case against BIR over another order in 2013 that required schools to submit additional documents in applying for tax exemptions.

While the Constitution and certain laws provide for tax exemptions, the BIR wants concerned parties to apply for these rights for monitoring purposes.

“We actually won a case against them in the Makati RTC (Regional Trial Court) that said they should respect our exemptions even without these documents,” Coloma said in a phone interview.

“They (BIR) cannot deny us our right,” he added.

The BIR, which accounts for 80 percent of tax revenues, has been issuing a number of clarifications regarding some tax procedures.

For instance, it issued RMC 9-2016 last month to clarify income tax exemptions granted to non-stock savings and loan associations.

Even the Catholic Church was not spared. Lingayen-Dagupan Archbishop Socrates Villegas earlier said the BIR has been sending “feelers” it would soon look into taxing religious stores operations.

BIR Commissioner Kim Henares, however, clarified that under the law, religious entities in profit businesses are already being taxed.

source:  Philippine Star