Action for Economic Reforms (AER) supports the call of senators and the private education sector for the Bureau of Internal Revenue to exclude private schools from the tax increase to 25%.
The newly signed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which AER supported, temporarily reduced the tax rates of proprietary educational institutions from 10% to 1%. This temporary reduction was designed to lighten the financial burden of schools during the COVID-19 pandemic, as they deal with decreased enrollment during the shift to online learning. Many schools have shut down due to the pandemic.
However, in the Revenue Regulation 5-2021, the Bureau of Internal Revenue raised tax rates on proprietary educational institutions that are for-profit to 25%, effectively nullifying the temporary 1% rate set in CREATE, and instead increasing their tax rates by 150%.
This ruling creates unfairness or horizontal inequity, wherein for-profit schools are discriminated vis-a-vis non-profit schools. Private schools also play a public function. In economic jargon, education, even if administered by the private sector, provides positive spillovers for society.
Fiscal policy, moreover, has to be sensitive to the shocks that private schools have faced within the last decade. The introduction of K-12, free college education in state universities and colleges, and the COVID-19 pandemic have had a huge impact on private schools, decreasing enrollment drastically.
We urge the Bureau of Internal Revenue and the Department of Finance to immediately rectify this policy for schools to avail themselves of the much-needed 1% tax rate. We believe that schools need all the support they can get during this time, and doubling their tax rates will only hurt the sector more.