Law Summary
Alignment with New Constitutional Provisions
- The New Constitution removed real estate tax exemptions for educational institutions.
- Correspondingly, income tax exemption for educational institutions was also removed.
- This aligned taxation with constitutional provisions for uniform tax application.
Imposition of Fixed Income Tax Rate for Educational Institutions
- A fixed tax rate of 10% was imposed on all income of private educational institutions.
- This includes net income from school operations, related activities, and passive investment income (interest, dividends, royalties).
- Dividends from domestic or resident foreign corporations are partially excluded under specific intercorporate dividend rules in Section 29(c).
Scope and Definition of Taxable Entities
- Private educational institutions include both stock and non-stock entities.
- Tax applies regardless of the institution’s organizational structure.
Tax Exemptions for Certain Corporations
- Corporations or associations operating exclusively for religious, charitable, scientific, athletic, cultural, or veterans’ rehabilitation purposes remain exempt from income tax.
- No part of the net income of exempt organizations should benefit any private stockholder or individual.
- Income from property or profit-making activities of exempt organizations is taxable regardless of income disposition.
Deductible Expenses for Private Educational Institutions
- Private educational institutions may deduct operating expenses normally allowed under law.
- Additional deductions are permitted for expenses related to the expansion of school facilities.
- Deductible expansion expenses are regulated jointly by the Departments of Education and Culture and Finance.
Effective Date and Implementation
- The law took effect for the calendar year 1974 and fiscal years starting July 1, 1974.
- Enacted through presidential decree under emergency powers and proclamations related to national mobilization.
Important Legal Concepts
- The law balances taxation fairness and institutional reinvestment needs.
- Encourages reinvestment of profits for educational improvement and expansion.
- Distinguishes income subject to tax from exempt activities.
- Provides clear procedural guidelines on allowable deductions and tax rates applicable to private educational institutions.