December 15, 1987 DOF ORDER NO. 137-87 SUBJ SUBJEC ECT T:
Rule Rules s and and Regul Regulat atio ions ns Impl Implem emen enti ting ng Sect Sectio ion n 4(3 4(3), ), Art Artic icle le XIV XIV of the the New New Con Const stit itut utio ion n—
Pursuant to Section 79(b) of the Revised Administrative Code, the following rules and regulations are hereby promulgated for the effective implementation of the provisions of the New Constitution, to wit: "Section 4(3), Article XIV — All revenues and assets of non-stock, non-profit educational institution used actually, directly and exclusively for educational purposes, shall be exempt from taxes and duties . . ." SECTION 1.
Scope —
This set of guidelines shall govern the availment of exemption from the payment of internal revenue taxes and customs duties duties provided for under the National Internal Revenue Code, and the Tariff and Customs Code, both as amended. 1.1 Educational Educational instituti institution on — means a non-st non-stock, ock, non-profi non-profitt corporat corporation/a ion/associ ssociation ation duly registered registered under Philippin Philippine e law, law, and operated exclusively for educational purposes, maintained and administered by private individuals or groups, and off ering formal education, issued a permit, to operate by the Department of Education, Culture and Sports (DECS) in accordance with existing laws and regulations. 1.2 1.2.
Edu Educat cationa ionall Act Activ ivit ity y In Includ cludes es —
1.2.1. 1.2.1. Instructin Instructing g or training training of individuals individuals either either through through formal formal education. education. Formal Formal education education refers to the the institutio institutionaliz nalized, ed, chronologically graded and hierarchically structured educational system at all levels of education. 1.3. 1.3.
Util Utiliz izat atio ion n by Educ Educat atio iona nall Inst Instit itut utio ion n — means means
1.3.1. 1.3.1. Any amount amount in cash cash or in kind kind (including (including administrat administrative ive expenses) expenses) paid paid or utilized utilized to to accomplish accomplish one or or more purposes purposes for which it was created or organized, including grant of scholarship to deserving students and professorial chairs for the enhancement of professional course. 1.3.2. 1.3.2. Any amount amount paid to to acquire acquire an asset used used (or held held for use) use) directly directly in carrying carrying out out one or more more purposes purposes for which which the educational institution was created or organized, including the upgrading of existing facilities to support the conduct of the above activities. 1.3.3. 1.3.3. Any amount amount in cash cash or in kind kind invested invested in an activit activity y related to to the educationa educationall purposes purposes for which which it was was created created or organized. 1.3.4. 1.3.4. Any amount amount set aside aside for a specific specific project project subject/ subject/ prior prior to approval approval of the Commiss Commissioner ioner of Intern Internal al Revenue Revenue in writing. writing. Application thereof must contain the following: (i) (i)
the the natu nature re and and purp purpos ose e of the the speci specifi fic c proj project ect and and the the amo amoun untt pro progr gram amme med d ther therefo efor; r;
(ii) (ii) a detail detailed ed descr descript iption ion of of the projec project, t, inclu includin ding g estim estimate ated d costs, costs, sour sources ces of of any future future fund funds s expect expected ed to be be used used for completion of the project, and the location or locations (general or specific) of any physical facilities to be acquired or constructed as part of the project; and (iii) (iii) a statem statement ent by by an autho authoriz rized ed offici official al of the the corpora corporatio tion n or associ associati ation on that that the the amount amount to be set set aside aside will will actu actuall ally y be disbursed for the specific project within two (2) years from the date of a pproval by the Commissioner of Internal Revenue, unless the nature of the project is such that the two (2) year period is impracticable. 1.3.5. 1.3.5. Any amount amount set aside aside shall be be evidenced evidenced by book book entries entries and document documents s showing showing evidence evidence of deposit deposits s or investment investments, s, including investment of the funds so set aside, or other documents that the Commissioner may require. 1.4. 1.4.
Non-Pr Non-Profi ofitt — means means no part part of the the incom income e inures inures dire directl ctly y or indir indirect ectly ly to any any indiv individu idual al or membe member. r.
1.5. Operated Operated exclusi exclusively vely — means means primarily primarily engaged engaged in in activi activities ties which which accomplish accomplish the educational educational purposes. purposes. To meet meet the the operational test, an organization must be engaged in activities furthering "public purposes" rather than private interests. It must not be operated for the benefit of designated individuals or the persons who created it. 1.6. Actually, Actually, Direct Directly ly and and Exclusiv Exclusively ely Used. Used. — shall shall refer refer to to the purpose purpose for for which which the the property property is princi principally pally utilized utilized for educational purposes. 1.7. 1.7.
Revenu Revenues es — refer refer to to income income deri derived ved in in pursu pursuanc ance e of its its purpo purpose se as an an educati educationa onall instit instituti ution. on.
1.8. Assets Assets — A Any ny owned owned physical physical object object (tangible) (tangible) or right right (intan (intangible gible)) having having a money money value; value; an item item or source of wealth, wealth, expressed in terms of its cost, depreciated cost, or less frequently, some other value; hence, any cost benefiting a future period.
SECT SECTIO ION N 2.
Cove Coverag rage e of Exem Exempt ptio ion n Unde Underr Sect Sectio ion n 4(3) 4(3),, Arti Articl cle e XIV of of the the New Con Const stit itut utio ion n—
The exemption herein contemplated refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. 2.1. Non-stock, non-profit educational institutions are exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly, and exclusively for educational purposes. They shall, however, be subject to internal revenue taxes on income from trade, business or other activity the conduct of which is not related to the exercise of performance by such educational institution of its educational purpose or function. 2.2. Revenues derived from and assets used in the operations of cafeterias/canteens, dormitories, bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises. 2.3. Revenues derived from and assets used in the operations of hospitals are exempt from taxation provided they are owned and operated by the educational institution as an indispensable requirement in the operation and maintenance of its medical school/college/institute. SECTION 3. Non-Exemption from the Withholding Taxes. — Non stock educational institutions are constituted as withholding agents of the government to insure that the withholding tax liability of their employees, and other taxpayers to whom income payments are made, are complied with. SECTION 4. Filing of Return — Educational institutions shall file information return annually on or before the 15th day of the 4th month following the end of the taxable year. SECTION 5. Examination of Books of Accounts, etc. — The books of accounts and other pertinent records of educational institutions shall be subject to examination by the Bureau of Internal R evenue, for the purpose of ascertaining whether such organizations or institutions have been complying with the conditions under which they have been granted tax exemption and their tax liability, if any, pursuant to Section 275 o f the Tax Code, as ame nded. SECTION 6.
Availment of Duty and Tax-Free Entry of Imported Articles. —
In order to avail of the duty and tax-free entry of imported a rticles under Section 4(3), Article XIV of the New Constitution, the following guidelines are hereby prescribed in addition to the usual import requirements: 6.1. The importer shall, prior to the importation, apply with the Department of Education, Culture and Sports for duty and tax exemption executed under oath by a duly authorized representative of the institution and supported by the following documents: 6.1.1. A copy of the Charter or other evidence of the character of the institution for which the articles are imported and the original of any order given by the importer. 6.1.3. Should the importation be made through a dealer or indentor, an affidavit of both the dealer or indentor and the ultimate consignee whose identity is indicated in the shipping documents. Such affidavit shall state the party who placed the order, the number of items and their respective values and such other matters as are related to the transaction. cdt 6.2. The Department of Education, Culture and Sports shall verify and certify that the educational institution is non-stock and non-profit and that the imported articles are to be used actually, directly and exclusively for educational purposes and shall indorse the application for duty and tax exemption to the Department of Finance with appropriate recommendation. 6.3. The Department of Finance, based on the recommendation of the Department of Education, Culture and Sports, may allow the tax and/or duty-free entry of articles referred to under Section 4(3), Article XIV of the New Constitution upon compliance with the requirements herein indicated; 6.4. This does not, however, preclude the Department of Finance from requiring the submission of additional documents/undertakings should the need arise; 6.5. Articles entered tax and/or duty-free by educational institutions may not be sold, transferred or otherwise disposed of in any manner whatsoever to any person without the prior approval of the Department of Finance. Any transferee of said article shall be deemed the importer thereof, and the same shall be assessed at its e ntered value without depreciation. aisadC SECTION 7.
Applicability of Existing Rules of Exemption of Charitable Institutions, etc. —
The existing rules and regulations on the exemptions from internal revenue tax and customs duties of religious and charitable institutions shall remain applicable to said institutions/organizations. SECTION 8.
Penalty. —
The penalty provided for under existing laws shall be imposed for any violation of the provisions. cdtai SECTI ON 9.
Appeal to the Departme nt. —
All matters arising out of or in connection with the implementation of this Order may be brought on appeal to the Department for review.
SECTI ON 10.
Repea ling Cla use. —
All orders, circulars, rules and regulations inconsistent herewith are hereby revoked or modified accordingly. SECTION 11.
Effectivity. —
This Order shall take effect upon approval. SECTION 12.
Approved. —
December 16, 1987, Manila, Philippines. (SGD.) VICENTE R. JAYME Secretary MEMORANDUM for — Secretary Jayme Thru-Undersecretary Fernando Re
:
Proposed Rules and Regulations Implementing Section 4(3) of Article XIV of the New Constitution —
Proposed rules and regulations have been revised to reasonably ref lect the suggestions of the education sector, represented by Secretary Fabella, Atty. Padilla, and Sister Luz. Special Features — 1. The rules shall govern claims for exemption from internal revenue tax and customs duties. A separate set of guidelines is being prepared to cover real property tax and other local taxes imposed under the Local Tax Code. This is our arrangement with Director Carlos of our Bureau of Local Government Finance in order to simplify matters. 2.
Reflective of the views of the education sector are the provisions on the following, namely:
a.
Provisions on school cafeterias, canteens, bookstores, dormitories and hospitals.
b.
Limitation of the definition of educational institution to mean only schools offering formal education. cdtai
We feel that the proposed regulations contain reasonable requirements for the effective implementation of Section 4(3) of Article XIV of the New Constitution. We recommend approval: COMMITTEE: (SGD.) Collector TITUS VILLANUEVA (SGD.) Ms. ALICIA L. TOMACRUZ Bure au o f Custo ms
Bureau of Internal R evenue
Member Member Atty. SISON JARAPA
(SGD.) Atty. ANTONIO P. BELICENA
National Tax Research Center Member Revenue Service Member (SGD.) MARCELO N. FERNANDO Undersecretary Chairman
Department Service Chief