Prohibition against taxation of non-stock, non-profit educational institutions

According to Article XIV, Section 4(3) of the 1987 Constitution, all revenues and assets of non-stock, nonprofit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. 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. 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.

The provision above covers only non-stock, non-profit educational institutions The exemption covers income, property, and donor’s taxes, custom duties, and other taxes imposed by either or both the national government or political subdivisions on all revenues, assets, property or donations, used actually, directly and exclusively for educational purposes. (In the case of religious and charitable entities and non-profit cemeteries, the exemption is limited to property tax.)

The exemption does not cover revenues derived from, or assets used in, unrelated activities or enterprise. Similar tax exemptions may be extended to proprietary (for profit) educational institutions by law subject to such limitations as it may provide, including restrictions on dividends and provisions for reinvestment. However, currently, there is no complete tax exemption given to for-profit educational institutions; what is provided by the Tax Code is a preferential tax rate.

The restrictions are designed to insure that the tax-exemption benefits are used for educational purposes only. Lands, buildings, and improvements actually, directly and exclusively used for educational purposes are exempt from property tax, whether the educational institution is proprietary or nonprofit. Please read Section 28(3) of Article VI of the 1987 Constitution.

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