Education foundations exempt from taxes
Education foundations exempt from taxes
JAKARTA (JP): The Directorate General of Taxes has eased the
tax obligation of educational foundations, exempting their
profits from the income tax for the next four years.
"However, the income tax relief is effective only when all the
profits are invested in buildings and other educational
facilities," Tax Director General Fuad Bawazier announced over
the weekend.
Fuad stipulated in Decree No.87/1995 dated Oct.10 that if the
profits are not used or invested by the end of the four-year
grace period, those earnings will be subject to the income tax at
the prevailing rates.
The profits which are not invested in educational facilities
after the four-year grace period will also be subject to fines
because the income taxes on those profits are considered tax
arrears.
The income tax exemption is granted only to foundations who
run formal education programs.
Complaints
The income tax relief was granted apparently in response to
strong complaints from the operators of formal educational
facilities upon learning that the new income tax law revoked the
tax exemption for foundations.
The ruling stipulated that foundations intending to make use
of the tax relief facility need only to report their investment
programs to local tax officials.
The educational facilities recognized under the ruling include
land plots, buildings, dormitories, houses for teachers and other
educational staff, laboratories and their facilities, libraries
and their contents, sports facilities and office inventories.
If a foundation builds its educational facilities with loan
funds, for instance, the foundation can count the interests of
the loans as operating costs, the ruling says.
The ruling also stipulates that buildings and other
educational facilities funded by the profits which are exempted
from the income tax can not be depreciated.
"By this ruling, we want to ensure that all incomes generated
by educational foundations will be used for educational matters
and not for other purposes," Fuad said.
Commercial
"The enforcement of the ruling will make it clear which
foundations really strive for social interests and which
foundations run for commercial purposes only."
The ruling, however, defines that the income tax exemption is
valid for formal educational foundations only. It does not apply
to informal educational foundations like those which offer
various vocational courses to the public.
The ruling was issued after the directorate general had inter-
department meetings with the directorate general of high
education, the directorate general of elementary and secondary
education -- all at the education and culture ministry -- and
with representatives of private universities.
Before the introduction of the new tax law early this year,
educational institutions were exempt from income taxes because
they were classified as non-profit institutions. (rid)