An out-of-bounds tax regulation

Edwin P. Santiago, Fellow and Member of the Editorial Board, Stratbase ADR Institute

Legislation is regarded as the domain of Congress. When the implementing agencies in the executive branch issue conflicting policies, then there are controversies that often involve a wide spectrum of stakeholders because of the detrimental effects of a provision that often snowballs into a national political issue with complex dimensions. We have seen how disjointed policies, whether deliberate or unintentional, can negate the laudable intentions of lawmakers and cause great damage to stakeholders if left uncorrected.

A new controversy of unaligned policy making has been exposed involving the wide spectrum of educational stakeholders who have been hardest hit by this pandemic crisis. The private educational sector, already heavily burdened by the disruptions of this crisis and, like most industries, in survival mode, must focus their resources and energies to delivering the quality of education of their learners. This critical sector is instead facing a hostile tax regulation never before seen in the history of Philippine education.

This serious threat to educational stakeholders is a provision in the recently released revenue regulation of the Bureau of Internal Revenue (BIR) that will significantly affect all private educational institutions. The agency issued Revenue Regulation 5-2021, slapping private educational institutions with a tax rate of 25%, making this regulation very controversial on so many levels.

Currently, the income tax rate for proprietary educational institutions stands at 10%. However, the new BIR revenue regulation — signed in April 2021 — will now exact 25%, a whopping 150% increase.

The rate of 25% in the revenue regulation released by the BIR wantonly disregards the will of Congress to grant a 1% tax rate for proprietary educational institutions from July 2020 until the end of June in 2023 as tax relief under the CREATE Law. In March of this year, after several reincarnations — from TRABAHO to CITIRA to CREATE — the second package of the administration’s Comprehensive Tax Reform Program finally passed into law. After failing to pass Congress in its earlier versions, the CREATE law — when it finally passed — was repackaged to supposedly make it more relevant and responsive to the needs of businesses negatively affected by the COVID-19 pandemic.

It is ironic that the revenue regulations released by BIR will accomplish the exact opposite of what the administration worked so hard to achieve — passing the CREATE bill — to the point of resorting to tax relief provisions to make the measure gain more support. Considering government pronouncements about its supposed response to businesses affected by the pandemic, this move is callous, insensitive, and a mockery to the stakeholders in the education sector. Increasing the tax rate by 150% at this time — or any other time — will have ripple effects that would all make the price of education much higher. It is, therefore, unconscionable, and contrary to the provisions of the Constitution that provides in Article XIV, Section 1 that the State shall take appropriate steps to make quality education accessible to all.

Any attempt to argue that accessible quality education can be achieved through the public school system may fall flat on its face. According to higher education data from the Commission on Higher Education, private colleges and universities produced 402,437 graduates in academic year 2019-2020, higher than the 394,139 from state universities and colleges (SUCs). From 2010-2020, approximately 3.7 million students from all disciplines graduated from private schools, accounting for about 50% of the Philippine education system’s output.

Aside from these reasons, the controversial revenue regulation strikes at the very heart of rule of law that dictates the fundamental need to respect the hierarchy of laws. In general, the Constitution which contains the principles that its government is obligated to uphold, reigns supreme. Next in line are the statutes or laws enacted by Congress. As we often hear, these laws must conform to the Constitution. Following statutes are the rules, regulations, and guidelines issued to provide administrative and technical details to carry out the purpose of the statute. These may be seen as delegated legislation.

How can a mere BIR issuance that fixes the income tax rate for private educational institutions at 25% be considered valid when the form and spirit of the Constitution is patently subverted and when Republic Act No. 11534 or the CREATE Law made by Congress puts that tax rate at 1%? Even removing all these technicalities, the burning question remains — how can an administration that professes to care for its people do something that clearly hurts education and, eventually, its people, especially now, during these trying pandemic times?

The BIR should immediately rectify this serious error that jeopardizes a strategic sector of the country.

Edwin P. Santiago has been an educator for 25 years in a private higher education institution. His main field is in development management and development finance.

This article was originally published in BusinessWorld.

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