I. Introduction

Tax exemptions for charities, churches, and schools are among the oldest constitutional guarantees in Philippine public law. They sit at the intersection of three powerful state interests: (1) raising revenue for public needs, (2) supporting institutions that produce public goods (education, social welfare), and (3) respecting religious liberty and the non-establishment principle. The 1987 Constitution preserves and refines these exemptions, but it also narrows them by anchoring them on use rather than ownership and by subjecting them to the government’s regulatory power.

This article explains the constitutional text, the legal standards developed by the Supreme Court, and practical implications for institutions and local governments.

II. Constitutional Framework

A. Real Property Tax Exemptions (Article VI, Section 28[3])

The most litigated clause is:

“Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.”

Key features:

Scope is primarily real property taxation. The clause is placed in Article VI (Legislative Department), Section 28 (Taxation), and has historically been read mainly as a real property tax (RPT) exemption. It is self-executing as to RPT.
Use-based exemption. Exemption attaches to property actually, directly, and exclusively used for the enumerated purposes—not to the institution as owner.
Enumerated entities and purposes.
- Entities: charitable institutions, churches with related parsonages/convents, mosques, non-profit cemeteries, and property devoted to religious/charitable/educational uses.
- Purposes: religious, charitable, educational.
Strict qualifiers (“actually, directly, exclusively”). These words are constitutional guardrails to prevent abuse.

B. Income Tax Exemptions for Non-Stock, Non-Profit Educational Institutions

(Article XIV, Section 4[3])

“All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.”

Key features:

Broader than RPT. Unlike Art. VI Sec. 28(3), this provision covers taxes and duties, including income tax, donor’s tax, and customs duties, so long as revenues/assets are used for education.
Institution-based but still use-restricted. It applies to non-stock, non-profit educational institutions, but the exemption still hinges on the use of revenues and assets.
Self-executing but implemented by statute. The constitutional command is enforceable, but details (procedures, documentation, penalties) are in the Tax Code and special laws.

C. Legislative Power to Grant Additional Exemptions (Article VI, Section 28[4])

“No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.”

This allows Congress to expand exemptions (e.g., via special charters), but also ensures exemptions are exceptional and politically accountable.

D. Regulation and Police Power

Even tax-exempt entities remain subject to reasonable regulation under police power (e.g., zoning, building code, health and safety, environmental laws), and to non-tax fees that are regulatory rather than revenue-raising.

III. Core Doctrines from Jurisprudence

A. Tax Exemption Is Construed Strictly — Except When the Constitution Itself Grants It

General rule: tax exemptions are strictly construed against the taxpayer. But when exemption is constitutional and self-executing, the Court gives full effect to it. Still, the institution bears the burden of proving actual, direct, exclusive use.

B. “Actually, Directly, and Exclusively” = Primary Use Test

Actually – real, factual, not mere intent or future plan.
Directly – immediate relation to the exempt purpose, not incidental, remote, or preparatory.
Exclusively – used solely for the exempt purpose; however, jurisprudence interprets “exclusively” as “primarily”. Incidental uses that are necessary and subordinate to the exempt purpose may be allowed.

This “primary use” doctrine is crucial: a property does not lose exemption because of minor, incidental income-producing activities, if the primary use remains religious/charitable/educational.

C. Ownership Is Irrelevant; Use Controls

Even if a property is owned by a church, charity, or school, it is taxable if used for commercial or non-exempt purposes. Conversely, property owned by a private individual may be exempt if actually, directly, exclusively used for exempt purposes (subject to proof and statutory alignment).

D. Leasing and Commercial Use Generally Remove Exemption

If an exempt institution leases property to a private party for profit (e.g., commercial stalls, offices, restaurants), that portion is typically taxable because the lessee’s use is commercial.

Exception: leasing integral to the exempt purpose (e.g., a school bookstore or cafeteria run as part of school operations) may be deemed incidental/necessary and remain exempt if proven part of educational use.

E. Partial Exemption / Apportionment

When only part of a property is used for exempt purposes, only that part is exempt. Local assessors must allocate taxable and non-taxable portions with reasonable basis (area, floor space, use).

F. Incidental Income Does Not Automatically Destroy Charitable Status

Charities may earn income (e.g., hospital fees, tuition at charitable schools, rent from facilities used to support services) without losing constitutional protection, provided:

income is devoted to charitable purposes, and
operations remain non-profit in character.

G. Charitable Institution Defined by Purpose and Operation

A “charitable institution” is not merely one with charitable foundations on paper. The Court looks at:

articles/bylaws and actual operations,
whether services benefit the public or a substantial class,
whether profit distribution to private individuals occurs (must not),
whether any surplus is plowed back to charity.

H. Religious Purpose and Free Exercise Considerations

The Constitution’s religious RPT exemption supports free exercise, but it is not unlimited. The Court has been careful not to transform exemption into a blanket immunity for church-owned commercial ventures.

I. Non-Stock, Non-Profit Educational Institutions: Dual Standard

To qualify under Art. XIV Sec. 4(3), the institution must be:

Non-stock – no capital stock and no shareholders.
Non-profit – no distribution of profits to members/trustees; surplus reinvested in education.
Revenues and assets actually, directly, exclusively used for education – use test still applies to funds.

Thus a school can lose exemption on income or assets not used for education (e.g., investments diverted to private benefit).

IV. Application by Type of Institution

A. Charitable Institutions

1. Real Property

Exempt if property is used primarily for charity:

hospitals serving indigent patients,
orphanages,
rehabilitation centers,
shelters,
charitable schools/homes.

Taxable if:

property is idle,
used for commercial ventures unrelated to charity,
leased to profit-seeking entities.

2. Other Taxes

Constitutional RPT exemption does not automatically exempt charities from income tax, VAT, etc. Their exemptions are generally statutory, except where another constitutional clause applies (e.g., educational institutions under Art. XIV).

B. Religious Institutions (Churches, Mosques, Parsonages/Convents)

1. Real Property

Exempt properties include:

houses of worship,
chapels,
seminaries and religious schools (if educational use),
convents, parsonages appurtenant to worship sites,
areas for religious instruction, sacraments, and pastoral work.

Not exempt:

commercial buildings owned by the church,
properties leased to businesses,
parking lots or function halls operated for profit and not primarily for worship activity.

2. Notes on “Appurtenant”

“Appurtenant thereto” means the parsonage/convent must be reasonably necessary for religious functions and connected to the place of worship.

C. Non-Stock, Non-Profit Educational Institutions

1. Real Property

Exempt under Art. VI Sec. 28(3) if property is used primarily for education:

classrooms, labs, libraries,
dorms tied to student life,
sports facilities for student use,
administrative buildings supporting education.

Taxable portions:

commercial malls/shops within campus leased to outsiders,
facilities mainly for private events unconnected to education.

2. Income, Duties, and Other Taxes

Exempt under Art. XIV Sec. 4(3) to the extent revenues/assets are used for education. Common examples of exempt income:

tuition and school fees,
auxiliary services integral to education (canteens, bookstores, dormitories),
donations and grants used for educational programs,
investment income earmarked for education.

Taxable income/assets:

income distributed to members/trustees,
investments diverted to non-educational enterprises,
unrelated commercial income not devoted to education.

V. Interaction with Statutes

A. Local Government Code (LGC)

The LGC implements RPT exemptions and requires proof of actual use. It also authorizes local assessors to:

inspect property,
require sworn statements,
reclassify for tax purposes when use changes.

B. National Internal Revenue Code (Tax Code)

Statutory exemptions for charities and religious organizations exist but are not automatic and often require:

BIR registration,
certification of non-profit status,
compliance with documentation and reporting rules.

For non-stock, non-profit schools, the Tax Code recognizes Art. XIV Sec. 4(3) but details the mechanics (e.g., withholding, substantiation).

C. Special Charters and Laws

Some institutions enjoy additional legislative exemptions (e.g., certain universities, hospitals). These cannot defeat the constitutional use test for RPT, but they may broaden coverage for national taxes if consistent with the Constitution.

VI. Burden of Proof and Procedure

Claimant bears burden. The institution must prove entitlement with competent evidence.
Evidence commonly required:
- titles and tax declarations,
- occupancy/use maps,
- photos and inspection reports,
- financial statements showing revenue allocation,
- governing documents proving non-stock/non-profit nature,
- certifications from SEC/DepEd/CHED/DOH or relevant agencies.
Periodic review. Exemption can be lost when actual use changes. Local assessors may reassess; BIR may audit revenue usage.

VII. Limits and Common Problem Areas

A. Idle Property

Properties held for future expansion are often taxable until actual exempt use begins.

B. Mixed-Use Campuses and Complexes

Modern campuses frequently have:

retail spaces,
telecom towers,
bank branches,
private clinics.

These areas may be taxed separately unless the institution proves they are integral to the exempt purpose.

C. Profit-Oriented Subsidiaries

If a non-profit institution runs a separate for-profit corporation, the subsidiary’s properties and income are generally taxable; exemption doesn’t pass through corporate separateness.

D. Government Subsidies Not a Condition

Constitutional exemption does not depend on receiving state funds. It depends on public benefit and actual use.

VIII. Policy Rationale

Support for public goods. Charities reduce state welfare burdens; schools produce human capital; churches and mosques serve moral and community functions.
Religious liberty and neutrality. Exemption avoids state entanglement with worship while not constituting establishment, because it is based on use and available to all religions on equal terms.
Anti-abuse safeguards. The strict qualifiers and proof requirement prevent “tax shelters” disguised as non-profits.

IX. Practical Compliance Guide (Quick Checklist)

For Real Property Tax Exemption

✅ Property use is primarily religious/charitable/educational.
✅ No significant commercial leasing to outsiders.
✅ Evidence of actual use is ready for assessor inspection.
✅ Mixed-use portions are mapped and can be segregated.
✅ Use is continuous, not merely planned.

For Educational Revenue/Asset Exemption

✅ Institution is non-stock and non-profit (no distributions).
✅ Revenues/assets are allocated to educational operations.
✅ Financial records show reinvestment in facilities, faculty, scholarships, research, student services.
✅ Commercial side activities are either integral to education or separately accounted and taxed.

X. Conclusion

Under the Philippine Constitution, tax exemption for charitable, religious, and educational institutions is real and robust—but carefully limited. The controlling principle is actual, direct, and exclusive (primarily) use. Ownership, labels, and noble intent are not enough; institutions must show that their properties, revenues, and assets are truly devoted to their protected purposes. When they do, the Constitution shields them from taxation as a matter of public policy and constitutional design. When they don’t, the shield properly falls away, preserving fairness in the tax system.