Clarifying the validity period of tax exemption certificates

TAX exemptions play a crucial role in supporting organizations that drive social progress, cultural enrichment, and economic growth. By exempting non-stock and non-profit organizations, educational institutions, and similar entities from income tax, the government recognizes their invaluable contributions to society.

In 2019, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) 38-2019, which set a standard three-year validity period for Certificates of Tax Exemption (CTEs) under Section 30 of the National Internal Revenue Code (NIRC) of 1997.

While this was meant to simplify the process, the BIR recognized confusion still exists regarding the validity of a CTE in the implementation of other laws and revenue issuances.

To address the problem, the tax agency recently issued Revenue Memorandum Circular (RMC) 123-2024 to clarify the application of the three-year validity rule specified under RMO No. 38-2019. The three-year validity rule shall not apply to the CTE of the following:

1) Non-stock and non-profit educational institutions as provided under Section 30(H) of the Tax Code and RMO 44-2016;

2) Homeowners’ Associations as provided under Republic Act 9904 and RMC 09-2013, as amended;

3) Non-stock savings and loan associations as provided under Republic Act 8367 and RMC 09-2016;

4) Employees’ Retirement Benefit Plan created under Republic Act 4917 and Revenue Regulations 1-68, as amended by RR 1-83.

While these exemptions provide stability, they are not automatic or permanent under all circumstances. The BIR may revoke or recall a CTE if the organization’s character, purpose or method of operations undergo material changes inconsistent with the basis for its tax exemption, and if the provisions of an employees’ retirement benefit plan are altered in ways that disqualify it from exemption.

In such cases, revalidation is required under the procedures established by RMO 38-2019 and other relevant issuances.

Accountability

The new circular is a step toward clarifying and simplifying tax compliance for non-profit organizations and institutions. By eliminating unnecessary renewals, the BIR allows these entities to focus on their core missions — whether in education, community service, or social welfare.

At the same time, the circular reinforces the importance of accountability, reminding organizations that they must align their activities with their tax-exempt purposes and meet all reporting requirements to maintain their status.

For organizations that qualify, it’s a welcome relief, providing certainty and allowing them to continue contributing to the betterment of society.

Aileen P. Melchor, MBA, CTT is the operations manager of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines), an institutional member of the Association of CPAs in Public Practice (ACPAPP). Her opinions do not in any way reflect the policies of these institutions.