Copyright 1994-2005 CD Technologies Asia, Inc.

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 followingrules 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 NationalInternal Revenue Code, and the Tariff and
Customs Code, both as amended.1.1

Educational institution

means a non-stock, non-profitcorporation/association duly registered under Philippine law,

andoperated exclusively for educational purposes, maintained andadministered by private individuals or
groups, and offering formaleducation, issued a permit, to operate by the Department of Education,
Culture and Sports (DECS) in accordance with existinglaws and regulations.1.2.

Educational Activity Includes

1.2.1. Instructing or training of individuals either through formaleducation. Formal education refers
to the institutionalized,chronologically graded and hierarchically structurededucational system at all
levels of education.1.3.

Utilization by Educational Institution

means1.3.1. Any amount in cash or in kind (including administrative

Copyright 1994-2005 CD Technologies Asia, Inc. 2

expenses) paid or utilized to accomplish one or more purposes for which it was created or organized,
includinggrant of scholarship to deserving students and professorialchairs 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 theeducational institution was created or organized, includingthe
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 relatedto the educational purposes for which it was created or
organized.1.3.4. Any amount set aside for a specific project subject/ prior toapproval of the
Commissioner of Internal Revenue inwriting. Application thereof must contain the following:(i) the
nature and purpose of the specific project and theamount programmed therefor;(ii) a detailed
description of the project, includingestimated costs, sources of any future funds expectedto be used for
completion of the project, and thelocation 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
thecorporation or association that the amount to be setaside 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 entriesand documents showing evidence of deposits or investments,
including investment of the funds so set aside,or other documents that the Commissioner may require.

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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 activitieswhich accomplish the educational purposes. To meet

theoperational test, an organization must be engaged in activitiesfurthering "public purposes" rather
than private interests. It mustnot 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 asan 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.SECTION 2.

Coverage of Exemption Under Section 4(3), Article XIV of the New Constitution
 The exemption herein contemplated refers to internal revenue taxes andcustoms duties, in
appropriate cases, imposed by the national government on allrevenues and assets of non-stock, non-
profit educational institutions used actually,directly and exclusively for educational purposes.2.1. Non-
stock, non-profit educational institutions are exempt from taxon all revenues derived in pursuance of its
purpose as aneducational institution and used actually, directly, and exclusivelyfor educational
purposes. They shall, however, be subject tointernal revenue taxes on income from trade, 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.2.2. Revenues derived from and assets used in the
operations of cafeterias/canteens, dormitories, bookstores are exempt from