Hout OF REPRESENTATIVES

Republic of the Philippines RECEIVED
HOUSE OF REPRESENTATIVES pare, 13 ul 2018
Quezon City, Metro Manila a
Tine: __ 90
Seventeenth Congress 8
First Regular Session
£ 5 3 REHAETRATON UNIT
HOUSE BILL NO. __~ BILLS AN) ANEX SERVICE

Introduced by Honorable Alexandria P. Gonzales

EXPLANATORY NOTE

‘The fundamental constitutional policy of education is that itis the duty of the State to
make quality education available while the same time affordable to as large a segment of the
population as possible. Further, itis the fundamental democratic policy that students should
be able to go to schools of their choice, whether public or private.’ This policy is summed up in
Article XIV, Section 1: “The State shall protect and promote the right of all citizens to quality
ation at all levels of education and shall take appropriate steps to make education
ble to all.”

edu

a

It isa known fact, however that quality education is a rare commodity in the
Philippines and that the State itself is not able to maintain mass quality education. Much less is
the State able to give subsidy to private schools which much therefore rely on their income to

support their operations. The Constitutional Commission therefore found it necessary to at
least provide for a significant tax relief to private educational institutions, whether nonstock,
and universi

non-profit or proprietary schools, coll

As a result of the aforementioned thrust, Art. XIV, Sec. 4(3) of the 1987 Constitution
provides that “(all revenues and assets of nonstock, non-profit educational institutions used
rely for educational purposes shall exempt from taxes duti
ation of the corporate existence of such institutions, their assets

actually, directly, and exclusi

Upon the dissolution of cess
shall be disposed of in the manner provided by law. Likewise, proprietary educational
institutions, including those cooperatively owned, may likewise be entitled to such exemptions,
subject to the limitations provided by law, including restrictions on dividends and provisions
for reinvestment.”

The constitutional provision thus has a threefold rationale. It is intended to (1)
tutions to improve their

preserve the democratic choice of students; (2) enable educational in:
quality; and (3) make quality education affordable to students:

* Bernas, Joaquin G., $., “The 1987 Constitution of the Republic of the Philippines: A Commentary” p. 1285;
2009 Edition.


These points were emphasized during the deliberations of the 1986 Constitutional
s C

s to educational institutions, not only to keep them finan

Commission where Commi
grant tax exemptioi
also to make education truly affordable and available to a greater number of Fili

ssionel

scon, Nolledo, Bacani and Ople highlighted the need to

Clearly, even during the drafting of the 1987 Constitution, the problems of private
educational institutions, whether non-stock, non-profit ot proprietary schools, colleges and
univers

ies have already been highlighted and as a result of said realization, several
Constitutional provisions have been formulated providing financial support through tax
exemptions.

However, the Department of Finance issued Department Order No. 13787 dated
December 16, 1987 outlining the rules and regulations for educational institutions to avail of
the subject constitutional tax exemption. This department order provided that in order to avail

of the exemption, all revenues and a aside from being actually, directly and exclusively used

suance of their primary purpose.

for educational purposes must also be derived in pu

Asa result of the above department order, the constitutional tax exemption granted to
educational institutions, whether non-stock, non-profit ot proprietary schools, colleges and
universities pursuant to the Constitution has weakened, diluted and denied. This should not
be the case because Article XIV, Sec. 4(3) does not take into account how these assets and
revenues are sourced. They could be derived from donations, school operations and other

modes of income generation. There is nothing in the deliberations of the Constitutional

Convention pertaining to the manner of acquiring these assets and revenues given any
relevance.

Moreover, the mandate of the Constitution to likewise entitle proprietary educational
institutions, including those cooperatively owned, to such exemption has not been made
operative even after the 22 years from the effectivity of the 1987 Constitution which
necessitates the passing of an enabling legislation that should have been done a long time ago.

There is therefore the need for a law to be enacted to strengthen and recognize
constitutional tax exemption granted to non-tock, non-profit educational institutions pursuant
to Art. XIV, Sec. 4(3) of the 1987 Constitution and to extend the same to, subject to the
limitations provided in this proposed legislation, to proprietary schools, colleges and
universities, by amending Sec. 27(B) and Sec. 30 (H) of the National Internal Revenue Code of
the Philippines.

In view of the foregoing, the passage of this bill is earnestly sought.

ALEXAND) P. GONZALES



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Seventeenth Congress
First Regular Session

1

HOUSE BILL NO. ___°

Introduced by Honorable Alexandria P. Gonzales

AN ACT
RECOGNIZING AND STRENGTHENING THE TAX EXEMPTIONS
GRANTED TO EDUCATIONAL INSTITUTIONS PURSUANT TO ART.
XIV, SECTION 4(3) OF THE 1987 CONSTITUTION BY AMENDING
SEVERAL PROVISIONS OF PRESIDENTIAL DECREE NO. 1158 AS
AMENDED BY REPUBLIC ACT NO. 8424 OTHERWISE KNOWN AS
THE NATIONAL INTERNAL REVENUE CODE OF THE PHILIPPINES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled

SECTION 1. Section 27(B) of the National Internal Revenue Code of the
Philippines is hereby amended to read as follows:

SEC. 27. Rates of Income Tax on Domestic Corporations. ~

xxx xxx xxx

B) Proprietary Educational Institutions and Hospitals. ~ Proprietary
Educational Institutions and Hospitals which are nonprofit shall pay a tax of ten
percent (10%) on their taxable income except those covered by Subsection (D)
hereof: Provided, that if gross income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income derived by such educational
Institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof

shall be imposed on the entire taxable income. For purposes of this Subsection, the

&


term ‘unrelated trade, business or other activity’ means any trade, business or other

activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital of its primary purpose or
function. A ‘Proprietary educational institution’ is any private school maintained and
administered by private individuals or groups with an issued permit to operate from
the Department of Education, Culture and Sports (DECS), or the Commission on
Higher Education (CHED), or the Technical Education and Skills Development
Authority (TESDA), as the case may be, in accordance with existing laws and

regulations

SEC. 2. Section 30 (H) of the National Internal Revenue Code of the Philippines is
hereby amended to read as follows:
SEC. 30. Exemptions from Tax on Corporations. - The following
corporations shall not be taxed under this Title in respect to income received by

them as such:

(H) A nonstock and nonprofit educational institution pertaining to

all revenues and assets used actually, directly and exclusively for

educational purpose regardless of whether or not the same is

derived in pursuance of the primary purpose.

Proprietary educational institutions. ~ Proprietary educational

institutions shall exempt from taxes and duties pertaining to all

revenues and assets used actually, directly and exlusively for

educational purposes regardless of whether or not the same is

derived in pursuance of primary purpose and subject to the



limitations provided by law, including restrictions on divi

and provisions for reinvestment. Provided, that the proprietary

schools, colleges and universities shall still deter

tine the

amount equal to ten percent (10%) of their net income that

could have been subject to income tax if they were not exempt

from said income tax. Provided further, that the amount so

determined shall be strictly utilized in the follo

ing manner:

seventy percent (70%) for increases in salaries of employees;

twenty percent (20%) for additional scholarship grants to

students and ten percent (10%) for improvement of equipment,

facilities and/or buildings. A “Proprietary educational

institution” is any private school maintained and administered

by private individuals or groups with issued permit to operate

from the Department of Education (DepEd), or the Commission

on Higher Education (CHED), or the Technical Education and

Skills Development Authority (TESDA), as the case may be, in
accordance with existing laws and regulations.
(D4) Government educational institutions;
(KB xxx xxx xxx
SEC. 3. Implementing Rules and Regulations. ~ Within Ninety (90) days from the
effectivity of this Act, the Department of Finance and other concerned agencies shall
promulgate the necessary rules and regulations to effectively implement the provisions of this
Act.
SEC. 4. Separability Clause. - If any provisions of this Act shall be declared
unconstitutional or invalid, the other sections and provisions not affected thereby shall

remain valid


SEC. 5. Repealing Clause. — All laws, presidential decrees, executive orders,

proclamations and rules and regulations which are inconsistent with this Act is hereby

aled and mended accordingly

SEC. 6. Effectivity Clause. — This Act shall take effect fifteen (15) days after its

publication in any newspaper of national circulation

Approved,

6