The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 13-2022, which reiterates the amendment on the tax treatment of nonprofit hospitals and proprietary educational institutions through Republic Act No. 11635, entitled “An Act Amending Section 27(B) of the National Internal Revenue Code of 1997, As Amended, and for Other Purposes”.

Qualified proprietary educational institutions and hospitals, which are nonprofit, are subject to a tax of ten percent (10%) of their taxable income, provided that from July 1, 2020 until June 30, 2023, the tax rate imposed shall be one percent (1%).  

A proprietary educational institution refers to any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education (DepEd), the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, based on existing laws and regulations. The term proprietary therefore means private.

Proprietary educational institutions and nonprofit hospitals, whose gross income from unrelated trade, business, or other activity exceeds fifty percent (50%) of the total gross income from all sources, shall be subject to regular income tax rate on their total income.

The BIR previously issued Revenue Regulation (RR) No. 5-2021, which highlights that the term proprietary educational institution shall pertain to any private school which is nonprofit; meaning, that no net income or asset accrues to or benefits any member or specific person, with all the net income or assets devoted to the institution’s purposes and all its activities conducted not for profit. As such, only private nonprofit educational institutions can avail of the ten percent (10%) income tax. This interpretation, however, was suspended with the BIR’s subsequent issuance of RR No. 14-2021, which aimed to ease the burden of taxation among proprietary educational institutions, especially during the COVID-19 pandemic.

Congress will be tackling a measure amending the Tax Code in order to clarify the definition of proprietary educational institutions and the tax treatment of proprietary educational institutions that are nonprofit.



P&A Grant Thornton 

Certified Public Accountants


As published in SunStar Cebu, dated 03 February 2022