Napoles was basis for BIR clampdown on schools

MANILA, Philippines – The pork barrel scam that Janet Lim Napoles pulled off has not spared institutions. Even private schools are bearing the consequences of the scandal.

In a hearing held on Tuesday, January 14, the Office of the Solicitor General cited the scam perpetrated by Napoles as basis for going after non-profit, non-stock organizations which have abused their tax-exempt privileges.

The preliminary injunction was filed by St Mary’s Academy versus Bureau of Internal Revenue Commissioner Kim Henares.

“We are protecting the interest of the State from these NGOs and organizations that are misusing their tax-exempt status,” argued state solicitor Maisara Dandamun-Latiph. She told the court the Napoles scam showed that the NGO industry is “unregulated” and that a rule should be imposed to police them.

The Caloocan school, run by the Religious of the Virgin Mary, filed a petition for preliminary injunction and prohibition against BIR Revenue Memorandum Order 20-2013. The memo required NGOs and tax-exempt organizations to apply for tax-exemption ruling from the BIR.

The case, pending before the sala of Quezon City judge Lita Tolentino-Genilo, is different from the petition filed by St Paul College-Makati City before the sala of Makati judge Maximo De Leon challenging the BIR memo. (Read: Catholic school wins Round 1 vs BIR’s Henares) 

Latiph informed the court that the questioned BIR memo was issued in July 2013, or a month after juicy revelations of how Napoles-linked NGOs plundered the pork barrel of lawmakers were reported to the public.

The OSG lawyer said the BIR only wanted to re-validate the tax-exempt status of NGOs and corporations claiming to be tax-immune. “We wanted to find out if these non-stock organizations are really non-profit,” she said.

In a separate interview, Latiph said the timing of the release of the BIR memo indicated it was prompted by the pork barrel scam involving Napoles’ bogus NGOs.

Proof of tax exemption

A deeply religious, if not a devout, Catholic, Napoles redefined how corruption is perpetrated in government by colluding with a clique group of lawmakers and government officials in plundering taxpayers’ money. Her operation involved the Priority Development Assistance Fund or the pork barrel of legislators or government funds and savings that were intended for the poor and the marginalized.

Based on the testimonies of her former staff, she put up fictitious and fake NGOs to carry out the scheme.

Counsel for St Mary School Sabino Padilla III said that while the school “supports” the campaign of the BIR in ferreting out fake NGOs abusing the tax privilege, the questioned RMO “automatically revokes the tax-exempt status of schools.”

The RMO states that tax-exempt rulings issued to concerned parties on June 20, 2012 will expire on Dec 31, 2013. This means that non-stock and non-profit organizations and schools that fail to renew their tax-exempt rulings will no longer enjoy such status.

In requiring schools to apply for the tax rulings to be issued by Henares, Padilla said the BIR is passing on its job to constitutionally tax-exempt organizations. “If the BIR finds that educational institutions have violated their tax-exempt status, then the recourse for them is to go to court and file a case,” Padilla said.

He cited the previous ruling of the Supreme Court in the VG Sinco case in 1956 where the High Court ruled that the internal revenue bureau could not impose additional requirements and qualifications on schools for them to enjoy their tax exempt status.

In that SC ruling, the justices said that failure of a tax-exempt school to file proof of exemption does not constitute waiver on their part to enjoy the exemption. “To hold otherwise would be tantamount to incorporating into our tax laws some legislative matter by administrative regulation.”

Burden of proof

Latiph argued that in matters of taxation, the burden of proof that they are tax-exempt lies with the ones seeking exemption. “Tax exemption is not automatic. How can we prove that they are really tax-exempt if they do not show proof?” she said.

The RMO requires schools to submit financial statements of their annual revenues and where these were spent or utilized. To be tax-exempt, the Constitution states that the income of schools showed be plowed back for educational purposes and that no profit should benefit stockholders.

Padilla however countered that schools have been submitting annual information returns with the Department of Finance and the SEC. If the BIR suspects that an educational institution is evading taxable income, then the recourse for the BIR is to look over these documents, Padilla said.

With the RMO, “the BIR is trying to make the taxpayer do its (BIR’s) job,” Padilla said.

Religious tone

As in the Makati court, more than 30 nuns from different congregations trooped to the Regional Trial Court Branch 91 to show support for St Mary directress Sister Maria Paula Adaoag, who was presented as first witness by the school.

In the crowd of wimple-covered and habit-wearing nuns, Latiph, a Muslim, stood out wearing a Muslim headgear.

Was it a deliberate ploy to tap her as state solicitor to balance out the religious implication of the case?

Latiph, in a separate interview, said the case was “raffled” to her by her superiors in the OSG. “There is no religious conflict here. It is just a case I was tasked to handle.” – Rappler.com