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[Fe oye, 28 SEP 2016
TIME:

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

SEVENTEENTH CONGRE
First Regular Session

3816

steal Bill No.

Introduced by Representative Arthur R. Defensor, Jr.

EXPLANATORY NOTE

‘The 1987 Constitution stands as the fundamental law of the Republic of the Philippines.
By its provisions, the paramount policies to be undertaken by the State are delineated which
serve as guidelines for legislation. Education is recognized as among priority sector for
development which aims “to foster patriotism and nationalism, accelerate social progress, and
promote total human liberation and development.” To further emphasize the preferred status of
education as an area for development, the Constitution mandates the State to institute a
complete, adequate, and integrated system of education through a free public education system,

scholarship for the unde
systems that enable the People to acquire skills for livelihood or to respond to community

privileged, as well as vocation and non-formal or indigenous learning,

needs?

In order to complement the foregoing thrusts, the Constitution likewise granted an all-
encompassing exemption from income taxes in favour of non-stock, non-profit educational
institutions under Article XIV, Section 4(3), The said provision reads:

(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly ancl
exclusively for educational purposes shall be exempt from taxes and duties, Upon the dissolution or
cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner

provicled by law

‘CONST, artll, 817,
2CONST,, art.XIV, 82,

JOAQUIN BERNAS, S)., THE 1987 CONSTITUTION OF THE PEULIPPINES: A COMMENTARY 1235-40 (2003); See
also IV RECORD OF THE 1986 CONSTITUTIONAL COMMISSION 400-404.

‘IV RECORD OF THE 1986 CONSTITUTIONAL COMMISSION 401-408 (Per Comms.Gascon, Bacani and Ople.
Batas Pambansa Bly.232, $30.43



Fr, Joaquin Bernas §.. explains that Article XIV, Section 4 (3) of the 1987 Constitution
has a threefold rationale: (i) to preserve the democratic choice of students; (ii) to enable
educational institutions to improve their quality, and (iii) to make quality education affordable
to students.

The 1986 Constitutional Commission explicitly intented that the State should support
non-stock, non-profit educational institutions through the form of tax breaks in the hopes that it
will assure students of lower tuition fees and to improve the overall quality of education in the

country.

Under the law, non-stock, non-profit educational institutions, whether governmental or
proprietary, are authorized to engage in auxiliary enterpris
educational operations or reduce tuition fees. ‘To the mind of the undersigned, any form of
income derived by non-stock, non-profit educational institutions from auxiliary activities must

es to generate income to finance ils

perforce be exempt, even if the purpose of the activity is for profit, so long as inc

me generated

satisfies the test of actual direct, and exclusive use for educational purposes.

Jurisprudence is well-settled that the status of an entity as a non-stock, non-profit entity
depends upon the manner of organization of the entity or corporation and is not affected by the
actual earning of profit by the entity or the conduct of auxiliary profit-generating businesses.
So long as the juridical entity is not organized as a stock corporation the entity remains to be
organized for non-profit purposes regardless of whether any profit is actually received by the
organization or it undertakes a profit generating activity.

This constitutional conflict is one proper for legislative correction in accordance with the
duty of the members of Congress to uphold and defend the Constitution. Accordingly, this bill
merely seeks to introduce the necessary amendment to cure the latent conflict between Section
30 of the NIRC and Article XIV, Section 4 (3) of the 1987 Constitution.

The foregoing duly considered, the approval of this bill is earnestly sought
i
Lie
IGE
ARTHUR R. DEFENSOR; JR>

‘Jesus Sacred Heart College v. Collector if Internal Revenue, G.R.No,L-6807, 24 Mat 1954, 95 Phil 16;
Collector of Internal Revenue v. V.G. Sinco Educational Corporation, 100 Phil. 127 (1956), U.S.T. Press v
National Labor Union, GR. No. L-17207, 30 October 1962; University of Santo Tomas Hospital v. UST
Hospital Employees Association (NLU), G.R. No, L-12919, 30 October 1962, 95 Phil. 40,


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

2

VENTEENTH CONGRESS
First asta Session

3816

HOUSE BILL

Introduced by Representative Arthur R, Defensor, Jr,

AN ACT
REALIZING THE CONSTITUTION TAX EXEMPTION GRANTED TO NON-
STOCK, NON-PROFIT EDUCATION INSTITUTIONS BY AMENDING SUCTION
30 OF THE REPUBLIC ACT NO. 8424, AS AMENDED, OTHERWISE KNOWN AS
THE NATIONAL INTERNAL REVENUE CODE

Section 1, Section 30 of Republic No. 8424, as amended otherwise known as the National
Internal Revenue Code is hereby amended to read, as follows:

SEC.30. Exemptions from Tax on Corporations - ‘The following organizations shall not
be taxed under this Title in respect to income received by them as such:

(A) Labor, agriculture or horticultural organization not organized principally for profit;

(B) Mutual savings bank not having a capital stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual purposes
and mutual profit;

(C) A beneficiary society, order or association, operating for the exclusive benefit of the
members such as @ fraternal organization operating under the lodge system, or
mutual aid association or a npn-stock corporation organized by employees
providing for the payment of life, sickness, accident, or other benelits exclusively to
the members of such society, order, or association, or non-stock corporation or their
dependents;

(D) Cemetery company owned and operated exclusively for the benefit of its members;


(8) Non-stock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of vete

ns, No part of its net income or asset belong, to or inures to the benefit of any
member, organizer, officer or any specific person;

(F) Business league chamber of commerce, or board or trace, not organized for profit
and no part of the net income inur
individual;

es to the benefit of any private stock-holder, or

(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;

(H) A non-stock and non-profit educational institution OR A NON-STOCK, NON-
PROFIT EDUCATIONAL FOUNDATION UNDER SECTION 50 OF BATAS
PAMBANSA BLG, 232 AND REPUBLIC ACT NO. 6055;

(I) Government educational institution;

(J) Farmers’ or other mutual typhoon or fire insurance company, mutual ditch or
irrigation company, mutual or cooperative telephone company, or like organization

of a purely local character, the inco:e of which consists solely of assessments, dues,

and fees collected from members for the sole purpose of meeting ils expenses; and

(K) Farmers’, fruit growers’, or like association organized and operated as a sales agent
for the purpose of marketing the products of its member and turning back to them
the proceeds of sales, less the necessary selling, expenses on the basis of the quantity
of produce finished by them;

Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to tax imposed under this Code, PROVIDED,
THAT INCOME BY ORGANIZATIONS FALLING WITHIN SUBSECTIONS (H) AND
() WHICH ARE ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR
EDUCATION PURPOSES SHALL BE EXEMPT FROM TAX UNDER THIS CODE.



Section 2, The Commissioner of Internal Revenue, subject to the approval of finance,
Shall provide the necessary implementing rules and regulations within thirty (30) days after the

approval of this Act and its publications in at least two (2) newspaper of general circulation

Section 3. All provisions of laws and rules inconsistent with the provisions of this Act
are hereby repealed or amended accordingly.

Section 4. If, for any reason, any section or provision of this Act is declared
unconstitutional or invalid, the other sections or provisions not affected thereby shall remain
full force and effect.

Section 5. This act take effect after fifteen (15) days following its publication in a
newspaper of general circulation.

Approved,