Private schools deserve full support as our partners in education

RA 11635 brings much-needed reprieve to private schools

Statement of Senator Pia S. Cayetano
Chair, Senate Ways and Means Committee
Principal sponsor, RA 11635

Private schools are the government’s partners in education. In this time of pandemic, they need as much assistance as they can get to continue delivering quality education to Filipino learners.

Thus, the enactment of Republic Act (RA) 11635 comes as a welcome development for them amid the uncertainties of the times, as rising COVID-19 cases forced us to restrict face-to-face classes to start the New Year.

This timely measure, which I sponsored, amends Section 27(B) of the National Internal Revenue Code, to clearly indicate that all proprietary educational institutions, whether for profit or non profit, shall enjoy the 10% preferential tax rate.

This shall also allow them to be covered by a provision under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which reduced the tax rate of such institutions from 10% to 1% starting July 1, 2020 to June 30, 2023.

With this measure, private schools would be given much-needed reprieve to cope with the continuing challenges caused by the pandemic, starting with their own financial viability and sustainability.

It must be emphasized that this law resulted from continuous dialogue and cooperation among the various stakeholders. We worked with the Bureau of Internal Revenue (BIR) and the private schools, led by the Coordinating Council of Private Educational Associations of the Philippines (COCOPEA), to root out the issues and find a common solution.

We need to continue working with our partners in education for long-term solutions in terms of policy and budget, using strategic foresight and futures thinking to help this sector recover from the pandemic, and beyond.

This is part of our country’s commitment under Sustainable Development Goal No. 4, which is  to ensure inclusive and equitable quality education for all by year 2030. #

The new law will allow all private schools to be covered by a provision under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which reduced the tax rate of such institutions from 10% to 1% starting July 1, 2020 to June 30, 2023.

Pia: Bill clarifies private schools’ tax rates under CREATE

Senator Pia S. Cayetano welcomed the passage of Senate Bill No. (SBN) 2407 on third and final reading on Monday (September 27), saying that the measure will clarify that all private schools – both ‘non-profit’ and ‘for profit’ – are entitled to the 1 percent preferential tax rate under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, which was enacted last March.

The Senate Ways and Means Committee Chair and sponsor of SBN 2407, Cayetano acknowledged private school institutions as the government’s “partners in delivering quality education for the youth, and in molding them to become changemakers and responsible leaders of the future.”

“This partnership is even more crucial today as our nation struggles with COVID-19, which has disrupted educational systems and the formal learning of our current generation of students,” Cayetano added.

She noted that many private schools are in a critical state, citing data from the Coordinating Council of Private Educational Associations of the Philippines (COCOPEA) showing that enrollment among its member-schools has declined to 60 percent this school year, compared to 2020.

It may be recalled that in her sponsorship speech, Cayetano recounted the circumstances that led to the filing and approval of the tax relief measure:

•The passage of CREATE (RA 11534) on March 26, 2021, brought reprieve to proprietary educational institutions by lowering their 10% preferential tax rate to 1% for a period of 3 years, specifically from July 1, 2020 until June 30, 2023.

•On April 8, 2021,  the Bureau of Internal Revenue (BIR) issued Revenue Regulation No. (RR) 5-2021, which specifically stated that only ‘non-profit’ proprietary educational institutions can avail of the preferential tax rate under CREATE – basing its policy on previous Supreme Court rulings.

•This then prompted the filing of SBN 2272 by Senator Sonny Angara, which sought to clarify the issue. In the hearing held by the ways and means panel on June 30, 2021, senators asked the Department of Finance (DOF) to suspend implementation of BIR’s RR 5-2021 to avert its impending ill-effects on “for profit” private schools.

•In response, DOF, through a letter to the Senate dated July 21, 2021, gave its commitment to issue the appropriate revenue regulations suspending the relevant provisions of BIR’s RR 5-2021.

•As a result, the BIR issued RR 14-2021, which suspended the inclusion of “for-profit” private schools in the regime of regular income tax.

Cayetano said that it is important to give the public a fair and full picture of the circumstances that led to the filing of Sen. Angara’s SBN 2272, which was substituted by SBN 2407 under her committee report.

She concluded by saying that SBN 2407 will help the Philippines keep track with its goal to ensure quality education, which is part of the government’s commitments to the Sustainable Development Goals (SDGs), particularly SDG 4.

“This is the power of dialogue at work, involving all stakeholders,” said Cayetano, who also chairs the Senate Committee on the SDGs, Innovation, and Futures Thinking.#

Senate session hall
Senator Pia Cayetano: SBN 2407 will clarify that all private schools are entitled to the 1 % preferential tax rate under CREATE

Sponsorship of the bill clarifying the tax rate for all private schools

By Senator Pia S. Cayetano
Chairperson, Committee on Ways and Means

Mr. President, distinguished colleagues, today, I rise to sponsor and seek your support for the passage of Senate Bill No. 2407, under Committee Report No. 311, which amends Section 27(B) of the National Internal Revenue Code.

Not long ago, this chamber passed the CREATE Act, a measure that serves as our fulfillment to the overdue reforms in the country’s corporate income tax and fiscal incentives system.

In particular, CREATE provided reprieve to proprietary educational institutions in the country by lowering their 10% preferential tax rate to 1% for a period of 3 years, specifically from July 1, 2020 until June 30, 2023.

This was made in keeping with our desire to provide support for our education sector, which has been severely burdened by the disruptions caused by the pandemic. This sector continues to need as much assistance and resources as it can get in order to continue delivering quality education to Filipino learners.

Meanwhile, on 8 April 2021,  the Bureau of Internal Revenue (BIR) issued Revenue Regulation No. 5-2021, which specifically stated that only non-profit proprietary educational institutions can avail of the preferential tax rate under CREATE, basing this on  Supreme Court decisions.

This then prompted the filing of Senate Bill No. 2272 by Senator Sonny Angara, which sought to clarify the issue. During our hearing held on June 30, 2021,  my fellow legislators and I asked the DOF to suspend the implementation of the BIR Revenue Regulation in order to avoid its impending ill effects on the “for profit” private schools.

In response, the DOF, through its letter to the Senate dated 21 July 2021, gave its commitment that in order to ease the burden of taxation among proprietary educational institutions, they shall issue the appropriate revenue regulations suspending the relevant provisions of BIR’s Revenue Regulation No. 5-2021.

As a result, the Bureau issued Revenue Regulation No. 14-2021, which suspended the inclusion of “for-profit” private schools in the regime of regular income tax.

So this Committee Report effectively clarifies that the preferential tax rate of 10% under the NIRC, which was lowered by the CREATE Act to 1% from July 1, 2020 until June 30, 2023, applies to all private schools – putting an end to the debates as to whether  “for-profit” private schools were covered or not.

Private schools are the government’s partners in education. This partnership is even more crucial today, as our nation deals with the COVID-19 pandemic, which has disrupted our educational systems and the formal learning of our current generation of students.

Thank you Mr. President. #

Q & A on CREATE at the Laging Handa public briefing

Q: Ano po ang CREATE Bill at paano po matutulungan ang mga negosyo na makabawi sa COVID?

Senator Pia S. Cayetano (SPSC): Napakahalaga nitong batas na ito kasi sa mga nakaraang buwan, halos isang taon na, talagang parang nalulunod tayo sa problema na dala ng COVID. Kung ano ang normal na problema natin, nadagdagan pa dahil sa COVID. Dahil hirap ang tao maghanap ng trabaho, yung mga negosyo, they are struggling.

Ang kagandahan nitong CREATE na ito… Na-conceptualize ito believe it or not, 25 years ago pa para pagandahin ang incentives para ang mga investors, magustuhan nila mag-invest dito sa Pilipinas. So 25 years in the making na yan. Ang nangyayari kasi kanya-kanyang incentives ang ino-offer, hindi ho coordinated, so the first part of CREATE is yung nagbibigay ng maganda and very competitive incentives compared sa ibang neighboring ASEAN countries natin.

Gusto sana natin, ang ating kagalingan sa English language, we are very competent in English, this is a global world. People will love to invest in our country. So when we pass CREATE na magaganda ang incentives, parang sinabi natin sa mga investors, pasok kayo dito, maganda incentives, bawas ang tax na babayaran sa mga unang taon because kayo naman ang magbibigay ng trabaho, ng technologies. So that’s the first part of CREATE. Yung incentives.

The second part really affects every business person. Kung kayo ay may korporasyon, it doesn’t matter kung small or big, dahil pati naman ho maliliit na negosyante, pwede naman ho magbuo ng korporasyon, ang tax natin ngayon na nasa 30 percent bababa agad ng 25 percent. So kung ang isang korporasyon ay kumita ng P1 million, dati 30 percent nun babayaran as tax, that is P300,000. Ngayon, less 5 percent. So that would be P250,000. Malaking kabawasan.

In addition to that, kung small and medium ka na hindi lumalampas ng P5 million ang kikitain mo, malaki na ang P5 million, 20 percent lang ang iyong tax na babayaran. So in other words, imbes na kukunin ng gobyerno ang tax, ang pera, binabalik niya sa tao. Gamitin niyo sa kung paanong paraan na gusto niyo. Gusto niyong magdagdag ng manggagawa, you want to hire more employees, go ahead. Gusto niyong dagdagan ang benepisyo ng employees niyo, go ahead. Gusto niyong bumili ng makinarya, go ahead. Kung anuman, nilalagay itong pera sa kamay ng mga negosyante.

So yun ang dalawang main features. Marami pang iba. We included VAT and duty-free importation of the COVID vaccines, pati ho ang tax sa educational and health institutes natin, nabawasan ho nang todo kasi maraming nagsasara ngayon so gusto natin makatulong. Isa yan sa konti, pero mauubos oras natin kung inisa-isa ko. So yun na ang pinaka-major. Yung mga binanggit ko.

Q: Ano po ang iba pang tax breaks

SPSC: Katulad nga ng inumpisahan ko nang banggitin, ulitin ko na ang pinakamahalaga ay ang pagbawas ng corporate income tax both for small, medium, and large corporations, yun pang additional na binibigay natin na tax incentives para doon sa pagpasok ng gamot, hindi lang ang COVID vaccines, pero pati yung para sa mga kinikilalang top [disease] na nakakamatay sa atin, kasama po diyan ang TB, cancer drugs, at iba pa.

And then, nabanggit ko nga, pati doon sa educational sector, meron din tayo. Binawasan din natin ang tax nila, and kung meron tayong mga negosyanteng nakikinig, kasi medyo technical na itong sasabihin ko pero meron hong tinatawag na MCIT – minimum corporate income tax – ginawa ho nating 1 percent yan, dati 2 percent. And yung 3 percent percentage tax, ginawang 1 percent. Babalik na lang ito sa 3 percent after 3 years. So ito po ay good for 2 years basically, ngayon hanggang June 2023.So really, support for the business sector kasi kung buhay ang negosyo natin, may trabaho ang tao, makakauwi sila ng pera, at buhay din ang pamilya nila.

Q: How will it benefit existing and future investors?

SPSC: Noong unang na dini-debate itong CREATE, ang pangalan pa niya noon is CITIRA, umaangal ang mga negosyante kasi akala ho nila, ito po yung mga nakakatanggap ng incentvies sa economic zones, katulad ho ng Subic, Bataan, Cebu. may mga economic zones po tayo diyan. Akala nila basta-basta tatanggalin sa kanila yun. Hindi ho totoo yun. In fact, ang nangyari dito, kung kayo ay isang registered business enterprise na tumatanggap ng incentives, tuloy-tuloy po yan for 10 years. Kung income tax holiday, which means wala kayong binabayaran na income tax, honored yun, tuloy-tuloy yun. Tapos kung may natatanggap kayong special income earning, yung rate tawag po dun is GIE, tuloy-tuloy pa rin yan for 10 years. So walang tatanggalin na basta-basta.

And then, yung mga bagong applicant o mga mag-reapply ulit, napakaganda at napakahaba ng incentives na binibigay natin sa kanila, equivalent to 14-17 years. Kumbaga kayo ang GM o presidente, baka retired na kayo, baka yan pa rin ho ang tinatanggap na incentives  ng korporasyon niyo. So siguro ho, wala nang makakapagsabi na hindi maganda ang naibigay natin.

And ang purpose natin dito is tanggap natin na mahirap ang panahon, gusto natin kapag tiningnan yan ng mga investors na may pera, “Uy, maganda diyan sa Pilipinas. Pasok tayo diyan.” At lalong magkakaroon ng trabaho. So maganda ho itong mga incentives, there is nothing to worry about. In fact, andaming business associations na tuwang-tuwa ho na finally, napasa na ito. Kasi ho nung November pa ito napasa ng Senado. Kaya nag-aantay na sila na ma-finalize na ito, maging batas na talaga ito.

Q: On VAT and duty-free vaccines?

SPSC: It’s VAT and duty-free exempt.

Q: PPEs and drugs for COVID-19?

PSC: Basta related sa COVID.

Q: How can CREATE help in countryside development?

SPSC: Maganda itong pagkagawa namin nitong CREATE dahil in-identify po natin ang mga lugar. Kumbaga we categorized every area in the country, such that Metro Manila, siya na ang pinakamababang incentive na matatanggap kasi buhay na ang negosyo sa Metro Manila. Syempre, kailangan pa rin ng tulong, and that’s why andoon ang corporate income tax reduction, binabaan para lahat ng negosyante, kahit saan ka sa buong Pilipinas, makikinabang ka.

But in terms of incentives, yung mas malayong mga lugar, yun ang pinakamagandang incentives. Kaya panawagan ko talaga sa mga local government officials natin, and even the local businessmen, now is a good time to look for partners na madadala niyo kung may mga economic zones sa lugar niyo o kahit walang economic zone, because we have incentive packages na mas maganda kung doon sila magde-develop outside Metro Manila, magada ang package nila. And then, even outside yung ibang mga metropolitan, yung metropolitan Cebu, Davao, kung mas malayo pa, mas maganda rin ang tatanggapin nilang incentive. Kasi mas gusto natin, mag-invest sila sa rural areas natin, mga areas natin na kulang pa talaga sa technology and support systems, doon natin sila gustong mag-focus ng investment.

CREATE passage to end investor uncertainty in PH

Senator Pia S. Cayetano sees an end to investor uncertainty in the country with the impending passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill by the Senate and the House of Representatives.

The Senate Ways and Means Committee Chair issued the remark after she met informally with the members of both Houses led by the House Ways and Means Chair to discuss the disagreeing provisions in the versions of the two chambers.

“I would like to report to the Filipino people and to our business community that the CREATE bill, the landmark legislation that the Senate passed in November last year, is finally moving forward,” she said.

“I can now say more confidently that the cloud of uncertainty that has hovered over our country’s investment climate due to unwarranted delays in CREATE’s passage is about to end. The wait-and-see period would soon be over and investors can look forward to doing business in our country under a tax and fiscal incentives regime that favors job generation, ensures flexibility and accountability, and promotes sustainable and inclusive growth,” she added.

Based on the discussions, Cayetano said the Senate version mandating the immediate and substantial lowering of the Corporate Income Tax (CIT) will be retained.

Under the Senate version, the current 30% CIT rate will be reduced to 25% for all enterprises, and to 20% for qualified micro, small, and medium enterprises (MSMEs) with a net taxable income below P5 million and total assets below P100 million.

“The CIT reduction will bring much-needed economic relief to businesses, especially to MSMEs. This will also allow the Philippines to be more competitive in the ASEAN region and position itself more firmly as a viable investment location,” she said.

The incentives scheme for registered enterprises under the Senate version would also be retained, save for some changes in the incentives to be granted for both exporters and “critical” domestic market enterprises, and for general domestic market enterprises.

The National Economic and Development Authority (NEDA) shall be tasked with determining which domestic industries should be classified as “critical.”

Also to be retained is the threshold set by the Senate version on the value of investment projects that would have to go through the approval of the Fiscal Incentives Review Board (FIRB), and the different investment promotion agencies (IPA), respectively.

Under the Senate version, investments with a value above P1 billion would go through the evaluation and approval of FIRB, while those that fall below the P1 billion threshold would be evaluated for approval by the IPAs.

Cayetano said other key features of the Senate version would likely be retained, including:

-reduction of the 2% Minimum Corporate Income Tax (MCIT) to 1% effective July 1, 2020 until Jine 30, 2023, after which the tax rate shall be raised back to 2%;

-repeal of the imposition of the Improperly Accumulated Earnings Tax;

-setting of the Deductible Interest Expense at 20%

-reduction of the 3% Percentage Tax to 1% effective July 1, 2020 until June 30, 2023, after which the tax rate shall be raised back to 3%; and

-reduction of the 10% special tax rate on Proprietary Educational Institutions and Hospitals which are Non-Profit to 1% effective July 1, 2020 until June 30, 2023, after which the tax rate shall be raised back to 10%.

Cayetano is hopeful that the bicameral conference committee report could be formally discussed soon and finalized.

“The passage of CREATE will guide our economic recovery, following the contraction of our Gross Domestic Product last year by -9.5%, the worst on record since the post-World War II era. We need to act decisively to turn our economy around, bring in more investments and jobs, and position ourselves more strategically for the challenges of the future and the rapidly changing times,” she concluded. #

Statement on the delayed passage of the CREATE bill

Senator Pia S. Cayetano today said that COVID-19 vaccines could have already been exempted from the value added tax (VAT), had the House adopted the Senate’s version of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill before the session ended this year.

This was Cayetano’s reaction to the recent call by House Ways and Means Chair Rep. Joey Salceda for the government to make the vaccines tax-free.

“I agree with the call of my House counterpart to exempt COVID-19 vaccines from tax. In fact, VAT exemption is already provided in the CREATE bill, which the Senate passed on third and final reading last November 26,” noted the Senate Ways and Means Committee chair.

“This could have already been a law now if only the House of Representatives saw the merit in adopting our version before the session ended this year” she lamented.

Cayetano further noted that the senators wanted a comprehensive list of exemptions to cover not just the vaccines, but also all drugs, devices, raw materials, and capital equipment needed to help the government’s response to contain the pandemic.

She said that Sec. 11 of the CREATE Bill (Senate Bill No. 1357) provides VAT exemption for the sale and importation of the following beginning January 1, 2021 to December 31, 2023:

-Capital equipment, its spare parts and raw materials, necessary for the production of personnel protective equipment for COVID-19 prevention;

-All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19; and

-Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for use in clinical trials, including raw materials directly necessary for the production of such drugs.

It should be recalled that Cayetano made a manifestation on the last day of session for this year (December 16) to caution about the consequences of the non-passage of the CREATE bill by Congress this year, which would have mandated the immediate lowering of the corporate income tax from 30% to 25% for all businesses, and 20% for qualified micro, small, and medium enterprises effective July 2020. #

On the Senate’s passage of the CREATE bill

I am elated that the ​Corporate Recovery and Tax Incentives for Enterprises (CREATE) ​Bill, which I have been working on since the start of the 18th Congress last year, has now passed the Senate on third reading. In fact, this bill’s earlier versions date back two decades ago.

In July of 2019, what we started with was t​he Corporate Income Tax and Incentives Reform Act (CITIRA) bill, which was passed by our counterparts in the House of Representatives. Shortly after the cou​ntry was hit by the COVID-19 pandemic, the measure then evolved into the CREATE Bill, which ​seeks to (1) drastically reduce the Corporate Income Tax from 30 to 25 percent – to give businesses respite from the global crisis; and (2) ensure that tax incentives granted to qualified investors contribute to job generation.

The CREATE Bill that we finally passed in the Senate is the best version thus far, with more favorable tax rates granted to taxpayers, especially to our micro, small, and medium enterprises (MSMEs), VAT exemptions on critical medicines and PPEs, and more competitive incentives packages to attract the right kinds of investments into the country. Moreover, it would enable the Philippines to be at par with many of our ASEAN neighbors in attracting foreign direct investments, and firm up our efforts to build a stronger economy as we prepare for the challenges of the New Normal and beyond.