Sec 4 (3) and (4)

(3) 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. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestment. (4) Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax.

Tax breaks for private schools

It is the duty of the state to make quality education available while at the same time affordable to as large a segment of the population as possible. Furthermore under Article XIV Section 1: The state shall protect and promote the rights of the citizens to quality education at all levels of education and shall take steps to make such education accessible to all. It is however known that quality education is a rare commodity in the Philippines and the state itself is not able to give subsidy to mass education much less to private schools. According to Commission on Higher Education geographically, there are 2,180 HEIs (higher education institutions) in the country distributed as follows: --Distribution of Higher Education Institutions by Region and Sector (As of August 2010)

Region I II

Public 30 22

Private 78 47

Total 108 69

III IVA IVB V VI VII VIII IX X XI XII NCR CAR ARMM Caraga Total

59 74 45 45 72 35 42 49 19 17 16 34 19 15 14 607

168 202 41 100 80 126 58 52 64 78 75 278 33 50 43 1573

227 276 86 145 152 161 100 101 83 95 91 312 52 65 57 2180

The Public HEIs include: 110 SUCs main campuses, 388 satellite campuses, 93 LUCs, 10 Other Government Schools, one (1) CHED Supervised Institution (CHEDARMM) and five (5) special HEIs. The aforesaid facts justifying the exemption provided by the constitutional provision summarized in the provisions threefold rationale: (1) to preserve the

democratic choices of students; (2) to enable educational institutions to improve their quality; and (3) to make quality education affordable to students.

Institutions Covered
To come under the exemption the educational institution must be non-stock non-Profit. The non-stock word is placed mainly as a safeguard because the moment we form a stock corporation the implication is that it is for profit. The word non-profit means that no income accrues to the benefit of any member of the corporation. Furthermore in the case Commission of Internal Revenue v. Court of Appeals (Gr. No. 124043, October14, 1998) when words educational institution used in laws granting tax exemptions refers to a school, seminary, college or educational establishment.

Specific Coverage of the Tax exemption The coverage includes all revenues and assets and taxes and duties. The exemption does not take into account how these assets and revenues are sourced. What determines the exemption is the use to which the asset and the revenue are put. The asset or revenue must be actually, directly, and exclusively use for educational purpose. The following cases illustrate the construction of the words actually, directly, and exclusively:

G.R. No. 100091 October 22, 1992 CENTRAL MINDANAO UNIVERSITY REPRESENTED ITS PRESIDENT DR. LEONARDO A. CHUA, petitioner, vs. THE DEPARTMENT OF AGRARIAN REFORM ADJUDICATION BOARD, THE COURT OF APPEALS and ALVIN OBRIQUE, REPRESENTING BUKIDNON FREE FARMERS AGRICULTURAL LABORERS ORGANIZATION (BUFFALO),respondents. This is a Petition for Review onCertiorari under Rule 65 of the Rules of Court to nullify the proceedings and decision of the Department of Agrarian Reform Adjudication Board (DARAB for brevity) dated September 4, 1989 and to set aside the decision the decision * of the Court of Appeals dated August 20, 1990, affirming the decision of the DARAB which ordered the segregation of 400 hectares of suitable, compact and contiguous portions of the Central Mindanao University (CMU

for brevity) land and their inclusion in the Comprehensive Agrarian Reform Program (CARP for brevity) for distribution to qualified beneficiaries, on the ground of lack of jurisdiction. The petitioner, the CMU, is an agricultural educational institution owned and run by the state located in the town of Musuan, Bukidnon province. It started as a farm school at Marilang, Bukidnon in early 1910, expanded into the Bukidnon National Agricultural High School and was transferred to its new site in Managok near Malaybalay, the provincial capital of Bukidnon. In the early 1960's, it was converted into a college with campus at Musuan, until it became what is now known as the CMU, but still primarily an agricultural university. In the early 1960's, the student population of the school was less than 3,000. By 1988, the student population had expanded to some 13,000 students, so that the school community has an academic population (student, faculty and non-academic staff) of almost 15,000. To cope with the increase in its enrollment, it has expanded and improved its educational facilities partly from government appropriation and partly by self-help measures. True to the concept of a land grant college, the school embarked on self-help measures to carry out its educational objectives, train its students, and maintain various activities which the government appropriation could not adequately support or sustain. In 1984, the CMU approved Resolution No. 160, adopting a livelihood program called "Kilusang Sariling Sikap Program" under which the land resources of the University were leased to its faculty and employees. On the basis of the above facts, the DARAB ordered the segregation of 400 hectares of suitable, compact and contiguous portions of the CMU land and their inclusion in the CARP for distribution to qualified beneficiaries. The Board held that the "respondent University failed to show that it is using actually, really, truly and in fact, the questioned area to the exclusion of others, nor did it show that the same is directly used without any intervening agency or person",5 and "there is no definite and concrete showing that the use of said lands are essentially indispensable for educational purposes".6 The relianceby the respondents Board and Appellate Tribunal on the technical or literal definition from Moreno's Philippine Law Dictionary and Black's Law Dictionary, may give the ordinary reader a classroom meaning of the phrase "is actually directly and exclusively", but in so doing they missed the true meaning of Section 10, R.A. 6657, as to what lands are exempted or excluded from the coverage of the CARP. The Supreme Courts held that the determination of when and what lands are found to be necessary for use by the CMU, the school is in the best position to resolve and answer the question and pass upon the problem of its needs in relation to its avowed objectives for which the land was given to it by the State. Neither the DARAB nor the Court of Appeals has the right to substitute its judgment or

discretion on this matter, unless the evidentiary facts are so manifest as to show that the CMU has no real for the land.

G.R. No. L-39086 June 15, 1988 ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents. Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him. Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos. From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void. On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]). The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430). The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]). It must be stressed however, that while this Court allows a more liberal and nonrestrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by

jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

G.R. No. 95022 March 23, 1992 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE HON. COURT OF APPEALS, THE COURT OF TAX APPEALS, GCL RETIREMENT PLAN, represented by its Trustee-Director, respondents. This case is said to be precedent setting. While the amount involved is insignificant, the Solicitor General avers that there are about 85 claims of the same nature pending in the Court of Tax Appeals and Bureau of Internal Revenue totalling approximately P120M. Petitioner, the Commissioner of Internal Revenue, seeks a reversal of the Decision of respondent Court of Appeals, dated August 27, 1990, in CA-G.R. SP No. 20426, entitled "Commissioner of Internal Revenue vs. GCL Retirement Plan, represented by its Trustee-Director and the Court of Tax Appeals," which affirmed the Decision of the latter Court, dated 15 December 1986, in Case No. 3888, ordering a refund, in the sum of P11,302.19, to the GCL Retirement Plan representing the withholding tax on income from money market placements and purchase of treasury bills, imposed pursuant to Presidential Decree No. 1959. There is no dispute with respect to the facts. Private Respondent, GCL Retirement Plan (GCL, for brevity) is an employees' trust maintained by the employer, GCL Inc., to provide retirement, pension, disability and death benefits to its employees. The Plan as submitted was approved and qualified as exempt from income tax by Petitioner Commissioner of Internal Revenue in accordance with Rep. Act No. 4917.
1

In 1984, Respondent GCL made investsments and earned therefrom interest income from which was witheld the fifteen per centum (15%) final witholding tax imposed by Pres. Decree No. 1959, 2 which took effect on 15 October 1984. On 15 January 1985, Respondent GCL filed with Petitioner a claim for refund in the amounts of P1,312.66 withheld by Anscor Capital and Investment Corp., and P2,064.15 by Commercial Bank of Manila. On 12 February 1985, it filed a second claim for refund of the amount of P7,925.00 withheld by Anscor, stating in both

letters that it disagreed with the collection of the 15% final withholding tax from the interest income as it is an entity fully exempt from income tax as provided under Rep. Act No. 4917 in relation to Section 56 (b) 3 of the Tax Code. The refund requested having been denied, Respondent GCL elevated the matter to respondent Court of Tax Appeals (CTA). The latter ruled in favor of GCL, holding that employees' trusts are exempt from the 15% final withholding tax on interest income and ordering a refund of the tax withheld. Upon appeal, originally to this Court, but referred to respondent Court of Appeals, the latter upheld the CTA Decision. Before us now, Petitioner assails that disposition. It is to be noted that the exemption from withholding tax on interest on bank deposits previously extended by Pres. Decree No. 1739 if the recipient (individual or corporation) of the interest income is exempt from income taxation, and the imposition of the preferential tax rates if the recipient of the income is enjoying preferential income tax treatment, were both abolished by Pres. Decree No. 1959. Petitioner thus submits that the deletion of the exempting and preferential tax treatment provisions under the old law is a clear manifestation that the single 15% (now 20%) rate is impossible on all interest incomes from deposits, deposit substitutes, trust funds and similar arrangements, regardless of the tax status or character of the recipients thereof. In short, petitioner's position is that from 15 October 1984 when Pres. Decree No. 1959 was promulgated, employees' trusts ceased to be exempt and thereafter became subject to the final withholding tax. Upon the other hand, GCL contends that the tax exempt status of the employees' trusts applies to all kinds of taxes, including the final withholding tax on interest income. That exemption, according to GCL, is derived from Section 56(b) and not from Section 21 (d) or 24 (cc) of the Tax Code, as argued by Petitioner. The sole issue for determination is whether or not the GCL Plan is exempt from the final withholding tax on interest income from money placements and purchase of treasury bills required by Pres. Decree No. 1959. We uphold the exemption. To begin with, it is significant to note that the GCL Plan was qualified as exempt from income tax by the Commissioner of Internal Revenue in accordance with Rep. Act No. 4917 approved on 17 June 1967. In so far as employees' trusts are concerned, the foregoing provision should be taken in relation to then Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No. 1983, supra, which took effect on 22 June 1957. This provision specifically exempted employee's trusts from income tax and is repeated hereunder for emphasis:

Sec. 56. Imposition of Tax. (a) Application of tax. The taxes imposed by this Title upon individuals shall apply to the income of estates or of any kind of property held in trust. xxx xxx xxx (b) Exception. The tax imposed by this Title shall not apply to employee's trust which forms part of a pension, stock bonus or profitsharing plan of an employer for the benefit of some or all of his employees . . . The tax-exemption privilege of employees' trusts, as distinguished from any other kind of property held in trust, springs from the foregoing provision. It is unambiguous. Manifest therefrom is that the tax law has singled out employees' trusts for tax exemption. The tax advantage in Rep. Act No. 1983, Section 56(b), was conceived in order to encourage the formation and establishment of such private Plans for the benefit of laborers and employees outside of the Social Security Act. It is evident that taxexemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law. The deletion in Pres. Decree No. 1959 of the provisos regarding tax exemption and preferential tax rates under the old law, therefore, cannot be deemed to extent to employees' trusts. Said Decree, being a general law, cannot repeal by implication a specific provision, Section 56(b) now 53 [b]) in relation to Rep. Act No. 4917 granting exemption from income tax to employees' trusts. Rep. Act 1983, which excepted employees' trusts in its Section 56 (b) was effective on 22 June 1957 while Rep. Act No. 4917 was enacted on 17 June 1967, long before the issuance of Pres. Decree No. 1959 on 15 October 1984. A subsequent statute, general in character as to its terms and application, is not to be construed as repealing a special or specific enactment, unless the legislative purpose to do so is manifested. This is so even if the provisions of the latter are sufficiently comprehensive to include what was set forth in the special act (Villegas v. Subido, G.R. No. L-31711, 30 September 1971, 41 SCRA 190).

Briefly then to benefit from the exemption the school should fall under the classification non-stock non-profit educational institution and the income or asset should be used actually, directly and exclusively for educational purpose.

Other Incentives
Section 4 of the provision discussed also provides that all grants, endowments, donations, or contributions used actually, directly, exclusively for educational purposes shall be exempt from donors and estate taxes. The provision covers every donation whether mortis causa or Inter vivos.

Additional Information
Top Asian Universities 2010

Region Rank

Institution

Country / Region

Overall score

Teaching

International mix

Industry income

Research

Citations

change
79.2

change
68.4

change
91.4

change
56.5

change
71.4

change
96.1

University of Hong Kong

Hong Kong

University of Tokyo

Japan

75.6

87.7

18.4

Data not supplied

91.9

58.1

Pohang University of Science and Republic of Technology Korea

75.1

69.5

32.6

100.0

62.5

96.5

National University of Singapore

Singapore

72.9

65.5

97.8

40.5

72.6

78.7

Peking University

China

70.7

76.4

68.6

98.6

61.3

72.2

Hong Kong University of Science and Technology

Hong Kong

69.0

50.4

97.4

64.1

51.8

98.2

University of Science and Technology of China

China

66.0

57.5

Data not supplied

30.3

48.6

92.7

Kyoto University

Japan

64.6

78.9

18.4

67.1

77.7

46.3

Tsinghua University

China

64.2

74.9

43.0

97.8

66.6

52.7

10

Korea Advanced Institute of Science and Technology

Republic of Korea

59.5

71.3

36.7

100.0

63.4

45.5

11

National Tsing Hua University

Taiwan

56.1

52.2

34.1

50.2

52.6

66.9

12

Seoul National University

Republic of Korea

56.0

62.3

44.9

43.0

54.1

54.6

13

Hong Kong Baptist University

Hong Kong

55.6

32.9

71.8

26.7

32.5

97.6

14

Tokyo Institute of Technology

Japan

55.4

62.9

24.8

60.5

63.4

45.5

Top Asian Universities 2010

Region Rank

Institution

Country / Region

Overall score

Teaching

International mix

Industry income

Research

Citations

change
55.4

change
34.3

change
47.7

change
32.4

change
36.1

change
95.7

15

Bilkent University

Turkey

16

National Taiwan University

Taiwan

55.2

50.3

29.2

35.7

59.0

61.6

17

Nanjing University

China

54.6

52.2

50.2

43.4

46.2

66.0

18

Osaka University

Japan

53.4

61.7

20.1

73.4

63.4

40.0

19

Tohoku University

Japan

53.3

60.3

20.1

82.3

62.5

41.2

20

Hong Kong Polytechnic University Hong Kong

51.4

39.4

82.9

57.2

45.7

62.4