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For tax income tax purposes, educational institutions are classified as follows:
- Proprietary educational institution;
- Non-stock, non-profit educational institution; or,
- Government educational institution.
In this Article, let us uncover how a proprietary educational institution is being subjected to income tax.
Under the Tax Code, ‘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.
Income tax rates
As a rule, it is subject to a special income tax rate of ten percent (10%) on their taxable income except on certain passive income. Notably, this is much lower than the regular corporate income tax rate of 30% of taxable net income. However, they must dedicate their operations to providing educational services because if they does not, then, they will cease to enjoy the benefit of 10%. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources, they shall be taxed at 30% on the entire taxable income. ‘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 of its primary purpose or function.
It is allowed to claim from its gross income, allowable deductions in like manner as an ordinary taxpayer engaged in trade or business. In addition to the expenses allowable as deductions, it may at its option elect either:
(a) to deduct expenditures otherwise considered as capital outlays of depreciable assets incurred during the taxable year for the expansion of school facilities, or
(b) to deduct allowance for depreciation thereof.
In other words, capital outlays which would have been normally considered as an asset subject to depreciation maybe claimed by proprietary educational institutions as an outright deduction from its gross income.
Finally, passive income of proprietary educational institutions is taxed in the same manner as ordinary corporations. Examples of passive income are interest income from Philippine bank deposits and royalties.
Authority of the Internal Revenue Officer to Make Arrests and Seizures
An internal revenue agent who make arrests and seizures for violation of internal revenue laws or regulations assume the category of peace officers and are, therefore entitled to the privileges of such officers under the Revised Penal Code and Rules of Court. (U.S. vs. Viado, 39 Phil 10)
Revenue agents have no authority to search, without a warrant, a business establishment for supposedly fraudulent records. But they are empowered to seize said records, discovered in the course of their investigation, pursuant to Sec. 15. (People vs. Rubio, 57 Phil 886)
Pursuant to SEc. 15, only the commissioner, etc. are authorized to arrest and apprehend suspected tax evaders and therefore, the BIR is without authority to authorize any person to help in in apprehending susoected tax evaders. (BIR Ruling No. 10, Jam 1, 1992)
BIR Commissioner may revoke, repeal or abrogate the acts or previous rulings of his predecessor
An administrative officer such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office– the construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given. (Philippine National Oil Company vs. Court of Appeals, 457 SCRA 5, July 14, 2005)
Retroactive Application of rulings and circulars, rules and regulations promulgated by the CIR
Rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive effect application if to so apply them would be prejudicial to the taxpayers.
Instances when retroactive application will still be allowed even if prejudicial to the taxpayer:
1. A taxpayer deliberately misstates or omits material facts from his return or any document required by the BIR
2. Where subsequent facts gathered by the BIR are materially different from which the ruling is based.
3. Where the taxpayer acted in bad faith. (Commissioner of Internal Revenue vs. Benguet Corporation, 495 SCRA 5, July 14 2006)
Sources of Revenues (Taxation)
Sources of Revenues; the following taxes are national internal revenue taxes:
1. Income Tax
2. Estate and donor’s taxes
3. Value-Added tax
4. Other percentage taxes
5. Excise taxes
6. Documentary Stamp taxes
7. Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue
Authority of Officers to Administer Oaths and Take Testimony
The Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue Regional Directors, Assistant Revenue Regional Directors, Chiefs and Assistant Chiefs of Division,Revenue District Officers, special deputies of the Commissioner, internal revenue officers and any other employee of the Bureau thereunto especially deputized by the Commissioner shall have the power to administer oaths and to take testimony in any official matter or investigation conducted by them regarding matters within the jurisdiction of the Bureau. (Sec. 14)
In the absence of showing of materiality, and in the absence of any particularity in specifying what is wanted by a subpoena commanding him toproduce his commercial books will be sustained. (Sy Jong Chuy vs. Reyes, 59 Phil 244)