Tax exemption for nonprofit
schools
By: Artemio V. Panganiban - @inquirerdotnet
Philippine Daily Inquirer / 12:22 AM September 18, 2016
Internal Revenue Commissioner Caesar R. Dulay deserves commendation for clarifying
that non-stock, non-profit educational institutions are constitutionally exempt from tax
on all revenues derived in pursuance of [their] purpose as an educational institution and
used actually, directly and exclusively for educational purposes.
Only two requirements. Last July 25, within his first month in office, Commissioner
Dulay issued Revenue Memorandum Order (RMO) 44-2016 excluding these nonstock,
nonprofit schools (NNS) from the coverage of an earlier order (RMO 20-2013) issued
on July 22, 2013.
RMO 20-2013 lumped these NNS with corporations and associations which are granted
tax exemptions by the National Internal Revenue Code (NIRC). This RMO allowed
them tax exemption by reason of the privilege granted by law and subjected them to
very strict conditions, requirements and procedures.
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In his recent RMO, Dulay correctly distinguished NNS from the other corporations and
associations granted tax exemptions in the earlier RMO, saying that the NNS were
given tax exemption directly by the Constitution and not merely by law, the NIRC.
Indeed, the Constitution granted NNS tax relief in these simple and unmistakable
words: All revenues and assets of non-stock, non-profit educational institutions used
actually, directly and exclusively for educational purposes shall be exempt from taxes
and duties.
Consequently, to enjoy tax relief, all they need to show are two requisites: 1) they are
organized as nonstock and nonprofit entities, and 2) their income or revenue is
actually, directly and exclusively used for educational purposes.
Consequently also, they should not be lumped with, and required to undergo the same
conditions, requirements and procedures as, those given tax exemption only by the
ordinary legislation (like the NIRC) and not by the Constitution. The Bureau of Internal
Revenue cannot add, much less vary, the two simple requirements of the Constitution.
Although Dulay segregated the NNS from other corporations and associations that are
granted tax exemptions by ordinary statute (and not by the Constitution), still some
critics bewail the documentary requirements imposed by the new RMO 44-2016 as too
bureaucratic and burdensome.
But I believe that, compared with those imposed by the earlier RMO, these
requirements are few and reasonable. They are needed to satisfy the two requisites
earlier cited: 1) that the applicant-school exists and currently operates in good standing
as certified by the Securities and Exchange Commission and the Commission on Higher
Education, or the Department of Education or the Technical Education and Skills
Development Authority, and 2) that the funds it earns are spent for educational
purposes only, and not for any other purpose.
Assistance to state. The Constitution mandates the state to establish and maintain a
system of free public education in the elementary and high school level It adds that
elementary education is compulsory for all children of school age.
Because of the foregoing mandate, the state allocates the biggest portion of the annual
budget to education. And yet, the budgethuge as it already isis not enough to
educate all children of school age. Private nonstock, nonprofit schools fill the gap and
relieve the state of this constitutional duty to educate all children of school age up to the
elementary and high school levels.
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If only for this, and for no other reason, the least the state can do is to exempt these
schools from the burden of taxes. After all, the funds they receive, whether in the form
of tuition or donations, really, directly and ultimately benefit the children, and
indirectly, the state. In fact, I think the state should not only exempt them from taxes
but should also financially assist them, especially those catering to basic education.
Religious schools. These NNS are operated mainly by the various Catholic dioceses
and religious orders, like the Jesuits and Dominicans. But they could also be owned and
operated by foundations, like the Tan Yan Kee Foundation, Metrobank Foundation and
Angeles University Foundation.
Catholic schools are found all over the country. They are banded together in the 75-
year-old Catholic Educational Association of the Philippines (CEAP). Founded in 1941,
the CEAP counts 1,252 members, of which a big majority (about 700) are mission
schools offering basic education to the poor and the marginalized.
It aims for the total development of the human person through a Catholic orientation
consistent with the norms of the Church and the national development goals expressed
in the Constitution.
On the other hand, the Association of Christian Schools, Colleges and Universities
(ACSCU) unites the nonstock, nonprofit Protestant educational institutions affiliated
with Christian churches or denominations. Organized in 1946, the ACSCU has 118
members, composed of six universities, three seminaries, 40 colleges and 69 basic
education schools.
Although there is an Association of Muslim Schools in the world, I am not aware of any
Philippine affiliate or, for that matter, of any local association of Muslim schools
similar to the CEAP or the ACSCU.
In any event, RMO 44-2016 will benefit all religious schools, provided of course that
they can document the two requisites of being nonstock and nonprofit and of the use of
their income and assets actually, directly, and exclusively for educational purposes
only.
Read more: http://opinion.inquirer.net/97427/tax-exemption-for-nonprofit-
schools#ixzz4oCV1FOiA
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