December 15, 1987 DOF ORDER NO.

137-87 SUBJECT : Rules and Regulations Implementing Section 4(3), Article XIV of the New Constitution —

Pursuant to Section 79(b) of the Revised Administrative Code, the following rules and regulations are hereby promulgated for the effective implementation of the provisions of the New Constitution, to wit: "Section 4(3), Article XIV — All revenues and assets of non-stock, non-profit educational institution used actually, directly and exclusively for educational purposes, shall be exempt from taxes and duties . . ." SECTION 1. Scope —

This set of guidelines shall govern the availment of exemption from the payment of internal revenue taxes and customs duties provided for under the National Internal Revenue Code, and the Tariff and Customs Code, both as amended. 1.1 Educational institution — means a non-stock, non-profit corporation/association duly registered under Philippine law, and operated exclusively for educational purposes, maintained and administered by private individuals or groups, and offering formal education, issued a permit, to operate by the Department of Education, Culture and Sports (DECS) in accordance with existing laws and regulations. 1.2. Educational Activity Includes —

1.2.1. Instructing or training of individuals either through formal education. Formal education refers to the institutionalized, chronologically graded and hierarchically structured educational system at all levels of education. 1.3. Utilization by Educational Institution — means

1.3.1. Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which it was created or organized, including grant of scholarship to deserving students and professorial chairs for the enhancement of professional course. 1.3.2. Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which the educational institution was created or organized, including the upgrading of existing facilities to support the conduct of the above activities. 1.3.3. Any amount in cash or in kind invested in an activity related to the educational purposes for which it was created or organized. 1.3.4. Any amount set aside for a specific project subject/ prior to approval of the Commissioner of Internal Revenue in writing. Application thereof must contain the following: (i) the nature and purpose of the specific project and the amount programmed therefor;

(ii) a detailed description of the project, including estimated costs, sources of any future funds expected to be used for completion of the project, and the location or locations (general or specific) of any physical facilities to be acquired or constructed as part of the project; and (iii) a statement by an authorized official of the corporation or association that the amount to be set aside will actually be disbursed for the specific project within two (2) years from the date of approval by the Commissioner of Internal Revenue, unless the nature of the project is such that the two (2) year period is impracticable. 1.3.5. Any amount set aside shall be evidenced by book entries and documents showing evidence of deposits or investments, including investment of the funds so set aside, or other documents that the Commissioner may require. 1.4. Non-Profit — means no part of the income inures directly or indirectly to any individual or member.

1.5. Operated exclusively — means primarily engaged in activities which accomplish the educational purposes. To meet the operational test, an organization must be engaged in activities furthering "public purposes" rather than private interests. It must not be operated for the benefit of designated individuals or the persons who created it. 1.6. Actually, Directly and Exclusively Used. — shall refer to the purpose for which the property is principally utilized for educational purposes. 1.7. Revenues — refer to income derived in pursuance of its purpose as an educational institution.

1.8. Assets — Any owned physical object (tangible) or right (intangible) having a money value; an item or source of wealth, expressed in terms of its cost, depreciated cost, or less frequently, some other value; hence, any cost benefiting a future period.


Coverage of Exemption Under Section 4(3), Article XIV of the New Constitution —

may allow the tax and/or duty-free entry of articles referred to under Section 4(3). cdtai SECTION 9. aisadC SECTION 7. Non-stock. Article XIV of the New Constitution. SECTION 8. Should the importation be made through a dealer or indentor. This does not. — All matters arising out of or in connection with the implementation of this Order may be brought on appeal to the Department for review. pursuant to Section 275 of the Tax Code. Articles entered tax and/or duty-free by educational institutions may not be sold. as amended. 6. cdt 6. 2. imposed by the national government on all revenues and assets of non-stock. non-profit educational institutions used actually. SECTION 6. transferred or otherwise disposed of in any manner whatsoever to any person without the prior approval of the Department of Finance. are complied with. Availment of Duty and Tax-Free Entry of Imported Articles. be subject to internal revenue taxes on income from trade. preclude the Department of Finance from requiring the submission of additional documents/undertakings should the need arise. — The existing rules and regulations on the exemptions from internal revenue tax and customs duties of religious and charitable institutions shall remain applicable to said institutions/organizations. SECTION 4. business or other activity the conduct of which is not related to the exercise of performance by such educational institution of its educational purpose or function. Revenues derived from and assets used in the operations of hospitals are exempt from taxation provided they are owned and operated by the educational institution as an indispensable requirement in the operation and maintenance of its medical school/college/institute. non-profit educational institutions are exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually. prior to the importation. Article XIV of the New Constitution upon compliance with the requirements herein indicated.2. The Department of Education. an affidavit of both the dealer or indentor and the ultimate consignee whose identity is indicated in the shipping documents. 2. directly and exclusively for educational purposes and shall indorse the application for duty and tax exemption to the Department of Finance with appropriate recommendation.1.3. directly and exclusively for educational purposes. Penalty. directly. — Non stock educational institutions are constituted as withholding agents of the government to insure that the withholding tax liability of their employees. Non-Exemption from the Withholding Taxes. — The penalty provided for under existing laws shall be imposed for any violation of the provisions. based on the recommendation of the Department of Education. Culture and Sports for duty and tax exemption executed under oath by a duly authorized representative of the institution and supported by the following documents: 6. Appeal to the Department. Such affidavit shall state the party who placed the order. Revenues derived from and assets used in the operations of cafeterias/canteens. Filing of Return — Educational institutions shall file information return annually on or before the 15th day of the 4th month following the end of the taxable year. bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises.1. 6. Examination of Books of Accounts. in appropriate cases.1.2. 2. the number of items and their respective values and such other matters as are related to the transaction.4.3. Any transferee of said article shall be deemed the importer thereof. and other taxpayers to whom income payments are made. — In order to avail of the duty and tax-free entry of imported articles under Section 4(3). for the purpose of ascertaining whether such organizations or institutions have been complying with the conditions under which they have been granted tax exemption and their tax liability. and the same shall be assessed at its entered value without depreciation.The exemption herein contemplated refers to internal revenue taxes and customs duties.1. however. . — The books of accounts and other pertinent records of educational institutions shall be subject to examination by the Bureau of Internal Revenue. SECTION 3. the following guidelines are hereby prescribed in addition to the usual import requirements: 6. A copy of the Charter or other evidence of the character of the institution for which the articles are imported and the original of any order given by the importer. They shall. however. 6.5. and exclusively for educational purposes.1. The Department of Finance. apply with the Department of Education. 6. Culture and Sports shall verify and certify that the educational institution is non-stock and non-profit and that the imported articles are to be used actually. Applicability of Existing Rules of Exemption of Charitable Institutions. dormitories. Culture and Sports. if any. The importer shall. etc. SECTION 5.3. etc.

JAYME Secretary MEMORANDUM for — Secretary Jayme Thru-Undersecretary Fernando Re : Proposed Rules and Regulations Implementing Section 4(3) of Article XIV of the New Constitution — Proposed rules and regulations have been revised to reasonably reflect the suggestions of the education sector. Reflective of the views of the education sector are the provisions on the following.) MARCELO N. ANTONIO P. a. The rules shall govern claims for exemption from internal revenue tax and customs duties. Philippines.SECTION 10. — This Order shall take effect upon approval. We recommend approval: COMMITTEE: (SGD. and Sister Luz. Padilla. SISON JARAPA (SGD. ALICIA L. Approved.) Collector TITUS VILLANUEVA (SGD. This is our arrangement with Director Carlos of our Bureau of Local Government Finance in order to simplify matters. represented by Secretary Fabella. namely: Provisions on school cafeterias. Atty. SECTION 12. Manila.) Ms. Effectivity. Limitation of the definition of educational institution to mean only schools offering formal education. dormitories and hospitals. A separate set of guidelines is being prepared to cover real property tax and other local taxes imposed under the Local Tax Code. TOMACRUZ Bureau of Customs Member Member Atty.) Atty. Repealing Clause. canteens. 2. (SGD. 1987. rules and regulations inconsistent herewith are hereby revoked or modified accordingly. FERNANDO Undersecretary Chairman . SECTION 11. cdtai We feel that the proposed regulations contain reasonable requirements for the effective implementation of Section 4(3) of Article XIV of the New Constitution. Special Features — 1. — December 16. b. circulars. bookstores.) VICENTE R. BELICENA Department Service Chief Bureau of Internal Revenue National Tax Research Center Member Revenue Service Member (SGD. — All orders.