Holy Spirit Academy of Laoag

August 18, 2009 BIR RULING [NSNP-(S30H-091) 510-09] NSNP; S-30 Holy Spirit Academy of Laoag Laoag City, Ilocos Norte Attention: Ms. Lydia T. Talaga Treasurer Gentlemen : This refers to your letter requesting, in effect, for exemption from the payment of income tax pursuant to Section 30 (H) of the Tax Code of 1997, as amended. Documents submitted show that the Holy Spirit Academy of Laoag ("HSAL" for brevity), formerly Holy Ghost Academy, with Taxpayers Identification No. 001-705-371, is a non-stock, non-profit religious educational institution duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 1068-B. The purpose for which it was organized is to provide general instruction and Catholic Education to children in the preparatory, elementary and secondary levels. The trustees of HSAL are members of the Diocese of Laoag serving for a term of three (3) years without compensation until their successors are elected, appointed and qualified. The academy is the property of the Roman Catholic Bishop of the Diocese of Laoag and is maintained by means of tuition, entrance fees, matriculation fees, donation and charitable contributions. In reply, please be informed that Section 30 (H) of the 1997 Tax Code, as amended, provides viz. : "SEC. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: ISAcHD xxx xxx xxx (H) A nonstock and nonprofit educational institution; . . . ." On the other hand, Paragraph 3, Section 4, Article XIV of the 1987 Constitution, provides, viz. : "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." A non-stock, non-profit educational institution is 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. The exemption herein contemplated refers to internal revenue taxes 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. From the foregoing, and since HSAL is a nonstock, nonprofit educational institution as contemplated under Section 30 (H) of the Tax Code of 1997, as amended, and of the above provision of the Constitution, it is exempt, therefore, from the payment of income tax on income received by it as such organization. However, HSAL is subject to internal revenue taxes on income from trade or business or other activity the conduct of which is not related to the exercise or performance of its educational purposes or functions (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Moreover, under Finance Department Order No. 149-95 dated November 24, 1995 amending Finance Department Order No. 137-87, and Revenue Memorandum Circular No. 76-03 dated November 14, 2003, interest income derived by HSAL from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, is exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997, as amended, subject to its compliance with the condition that as a tax-exempt educational institution, it shall, on an annual basis, submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: LLjur (a) Certification from its depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997; (b) Certification of actual utilization of its income; and (c) Board Resolution by its school administration on proposed projects ( i.e., construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Sec. 4, Finance Department Order No. 137-87; BIR Ruling Nos. [DA-017-99] dated January 11, 1999; [DA-144-97] dated April 4, 1997; [DA-103-03] dated April 2, 2003). On the other hand, HSAL's gross receipts from operations as a non-stock, non-profit educational institution are exempt from VAT pursuant to Section 109 (H) of the Tax Code of 1997, as amended. However, this exemption does not extend to other activities involving sale of goods and services which are subject to VAT imposed under Section 106 of the same Code. Hence, as long as HSAL will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, HSAL will remain exempted from VAT (BIR Ruling No. 248-88 dated June 6, 1988; BIR Ruling No. DA-040-02 dated March 7, 2002; and BIR Ruling No. S30-027-2003 dated November 21, 2003). Finally, HSAL's purchases, i.e., materials for repairs of its facilities, are subject to VAT imposed under Section 106 of the Tax Code of 1997, as amended. Such tax payment may legitimately be passed on to customers like non-stock, non-profit educational institutions (BIR Ruling No. 248-88 dated June 6, 1988). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service