Tax Relief For Private Schools, Nonprofit Hospitals Expires

Private schools and non-profit hospitals in the country are bracing for a financial blow, as they prepare for the expiration of tax relief that has provided them with financial support amid the COVID-19 pandemic.

Photo Insert: Starting July 1, BIR said private schools and non-profit hospitals will be subject to a significantly higher preferential regular corporate income tax rate of 10%, up from the previous rate of one percent.

With the relief under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act set to expire on June 30, 2023, the Bureau of Internal Revenue (BIR) reminded these institutions that they should anticipate a significant increase in taxes starting in July.

Based on Revenue Memorandum Circular (RMC) No. 69-2023, proprietary educational institutions and not-for-profit hospitals’ percentage tax, minimum corporate income tax, and regular corporate income tax will revert back to much higher rates effective July 1, 2023.

RMC No. 69-2023 was released on June 20, Tuesday, and signed by BIR Commissioner Romeo D. Lumagui Jr. To recall, under the CREATE law, which was implemented by the Duterte administration, private schools and non-profit hospitals were granted preferential tax rates from July 1, 2020, until June 30, 2023.

The temporary tax relief has been a lifeline for these institutions, which have faced significant financial challenges as a result of the community lockdowns caused by the COVID-19 pandemic.

But starting July 1, BIR said private schools and non-profit hospitals will be subject to a significantly higher preferential regular corporate income tax rate of 10%, up from the previous rate of one percent.

While this represents a substantial increase, it is still lower than the standard corporate income tax rate of 25%, providing some relief for private schools and non-profit hospitals. Additionally, the rate of minimum corporate income tax will revert back to two percent from the previous one percent, and the percentage tax rate will also return to three percent.

On the other hand, RMC No. 69-2023 has also provided clarification on the implementation of the new tax rates for private schools and non-profit hospitals.

According to the BIR, any income earned by these institutions from Jan. 1 to June 30, 2023, will not be subject to the higher tax rates that have been recently announced. But any income earned after this period will be subject to the new tax rates.

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