Dr. Jaime Jimenez, Former Vice Chair of the Political Science Department, De La Salle University, and Former Associate Professor II at the Faculty of Arts and Letters, University of Sto. Tomas; Deputy Executive Director for Research at Stratbase ADR Institute
These pandemic times are indeed challenging governments to craft a way out of the crisis and generate as much revenue as they can to meet mounting demands to address rising poverty, hunger, unemployment, health, and social protection concerns vis-à-vis pre-pandemic times.
In this respect, a significant degree of regulatory intervention is expected from governments in order to address the overall crisis situation. However, government interventions in the time of crises have hitherto come with both intended and unintended consequences to society.
Since 1968, proprietary educational institutions have been subject to 10% tax. As relief to the struggling private schools, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act temporarily reduced the tax rate to 1% for three years. A laudable move by legislators and the President.
However, the Bureau of Internal Revenue’s (BIR) Revenue Regulations No. 5-2021 (RR 5-2021), issued on April 8, if enforced, will instead increase private schools’ tax rate to 25% — an untenable 15% increase from the sector’s regular tax rate. In effect, RR 5-2021 attempts to abolish the preferential treatment that has been accorded to private educational institutions, delivering a devastating blow to a critical sector of the country.
Intendedly, the regulation will for sure expand the revenue base of government, and, theoretically, it will have more funds to finance the delivery of public services and pandemic response.
Unintendedly though, the BIR’s RR No. 5-2021 utterly transgresses policy consistency and generates countless predicaments for the private education sector. At the policy level, the implementation of this “radical” policy change will create more problems than solutions. because such policy inconsistency will simply aggravate the already beleaguered private education sector in our country.
The deep and broad negative impacts of this drastic policy change are far more detestable on the ground level. With the effectual reclassification of proprietary educational institutions as regular corporations, the unintended consequences are quite overreaching and more appalling.
Aside from the tangible threat to the mere existence of preferential treatment for private school owners, the impact to the direct employees of private schools (teachers, the employees, and their dependents), linked or allied industries and SMEs supported by the private school ecosystem and ultimately the students will be despicable.
Worse, as we are still recovering or not yet recovering from the socio-economic and political challenges of the COVID-19 pandemic, what will happen to the families of learners who have put their hopes and aspirations in the private education sector? Perhaps, policy makers should also ask themselves: What is the evidential impact of such a regulatory measure? Does the private education sector itself need government assistance too?
The chilling and lingering threat of RR 5-2021 all the more exacerbates the following conditions and situations: the closure or suspension of numerous higher education institutions at the start of the pandemic, and the considerable drop in enrollment of private K-12 schools. Needless to describe is the definite national economic impact, where 74.9% of professionals, managers, and technicians come from private educational institutions while only 25.1% come from the State Universities and Colleges (SUCs), according to data from Philippine Association of Colleges and Universities (PACU).
Further, in terms of higher education, the survey findings of PACU point to the glaring reality that as of April 2021, “50% of respondents experienced a decline in enrollment of 10 to 50+ % in SY 2020-21 versus the prior year.”
In addition, and aggregating the impending impact of RR 5-2021, private higher educational institutions had been struggling before the pandemic and through the crisis wherein more than one million students, faculty, and school personnel in private schools have been adversely affected. On top of this, private higher education institutions with missing college enrollees from 2016 to 2021 have been indeed in a survival mode due to the large losses attributed to the K-12 transition.
Operationally, with the danger of paying an annual corporate income tax, many if not most will be obliged to cut overhead costs at the expense of the following: 1.) physical facilities or capital improvement; 2.) the number of faculty and personnel employed; 3.) research innovation and investment; 4.) personnel development; and, 5.) scholarships. The likely conclusion to this is that these adjustments greatly bear upon the quality of private education.
In a nutshell, the education policy conundrum insinuates three actionable recommendations from the concerned policy makers and the government. First, a policy rethink is in order, as government and decision-makers will have to willfully rebalance between intended and unintended consequences. Second, and in the context of a pandemic, the overwhelming negative impact of such a dangerous policy move, inconsistent with existing laws, prods government to instead move forward and craft alternative and sensible tax measures and revenue-making programs.
Third but not the least, as public and human interests are directly at stake, it is incumbent upon policy makers to judiciously weigh between public and private educational institutions. These recommendations presume the conduct of a multi-stakeholder dialogue between government, the private education sector, and concerned interest groups.
Rather than being at loggerheads with each other, government should see these institutions as performing both vital complementary and supplementary roles in the country’s education ecosystem. Undermining or neutralizing any sector will be disastrous, thus, posing serious constraints to national advancement and development.
This article was originally published in BusinessWorld.