Non-profit hospitals and schools will be required to pay the required 25 percent corporate income tax if their gross income for unrelated business activities exceed 50 percent of total income.
Even as most schools have yet to recover their two-year income losses from COVID-19 and on-site classes are just to begin by June or August yet, the Bureau of Internal Revenue is already asking them to pay the required 25 percent regular corporate income tax if their gross income from unrelated business activities exceed 50 percent of total income.
This mandated tax would also be asked from non-profit hospitals, whose regular operations have been greatly hampered by the pandemic, particularly for the higher-yielding diagnostics, laboratory and operating rooms for non-COVID illnesses.
The BIR in Regulation No. 3-2022 set the implementing rules and regulations for Republic Act No. 11635, which amended the National Internal Revenue Code to clarify the income tax rate for private schools and non-profit hospitals. The regulation was signed on April 7 and published in a newspaper last Monday.
Under the BIR rules, nonprofit hospitals and private schools will be imposed a 10 percent preferential corporate income tax rate after June 30, 2023.
Also covered by the rules are nonstock, nonprofit educational institutions whose net income or assets benefit a member or specific person.
These institutions are currently imposed a 1 percent corporate income tax rate from July 1, 2020 to June 30, 2023 due to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
However, the BIR rules stated that the 25 percent corporate income tax will be imposed on the entire taxable income of private schools and nonprofit hospitals if their gross income from unrelated trade, business, or other activity exceeds 50 percent of the total gross income from all sources.
The BIR said unrelated trade and business means any activity that is
“not substantially related to the exercise or performance by such educational institutions or hospitals of its primary purpose or function.”
For other nonstock and nonprofit educational institutions, a 25 percent regular corporate income tax will be imposed on its revenues or assets that are not used exclusively for educational purposes.
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