Accounting and Withholding Taxes on Philhealth Fees

By: Tax and Accounting Center Philippines

This is a sequel to our first article on Withholding Tax Obligations of Philhealth. In this article, we would wish to provide sample illustration on Philhealth withholding taxes, and sample accounting entries on the books of the hospital or clinic.

Illustration of Philhealth withholding of taxes

To illustrate the application of the above, let us assume that the Philhealth member-patient, Juan de la Cruz was confined with Hospital A. He was billed and paid his other dues and the following benefits were billed to Philhealth based on duly accomplished Philhealth forms and submissions:

• Professional fees plus 12% VAT of P600.00           –              P 5,600.00
• Facility fees plus 12% VAT of P1,200.00                   –              11,200.00

How much will be the withholding taxes of Philhealth?

1. Withholding tax on professional fees – P500 (P5,000 multiplied by 10% assuming the medical doctor has an affidavit of declaration for not more than P720,000. VAT of P600 is not part of withholding tax base)
2. Withholding tax on facility fee – P200 (P10,000 multiplied by 2% withholding tax rate for Hospital A. VAT of P1,200.00 is not part of withholding tax base)
3. 5% Final withholding of VAT – P250 (P5,000 multiplied by 5% for the professional fees of doctor)
4. 5% Final withholding of VAT – P500 (P10,000 multiplied by 5% for the facility fees to Hospital A)

Based on the above withholding taxes, Philhealth will issue withholding tax certificates under the name of the medical doctor and Hospital A, respectively. Hospital A will then issue a VAT Official Receipts to Philhealth for P10,500 (P11,200.00 less P200 withholding tax and P500 withholding VAT) and a non-VAT acknowledgment receipt for the professional fees of the medical doctor. The doctor will then issue its VAT official receipts to Philhealth for the amount of P4,850.oo (net of P500 withholding tax and P250 final VAT withholding).

Accounting of Philhealth fees to hospitals and clinics

Here are sample accounting entries of Hospital A on the above illustration:

Accounting for hospital billing to PHIC

To record the billing of Hospital A to PHIC, the following sample entry could be made on its books of accounts:

• Debit:    Receivable from PHIC – P16,800.00
• Credit:  Facility revenues – P10,000.00
• Credit: Doctor’s professional fees liability – P5,600.00
• Credit:  Value added tax – P1,200.00

Please note that the entire amount was booked as a receivable from PHIC. The revenue of the hospital is only to the extend of its facility fees and the related value added tax on such fees. Professional fees of doctor is recorded as a liability since the same is merely held in trust by Hospital A.

Accounting for hospital receipts of PHIC payment

To record the collection of Hospital A to PHIC, the following sample entry could be made on its books of accounts:

• Debit:    Cash – P15,350.00
• Debit:    Expanded Withholding Tax – P200.00
• Debit:    Final withholding VAT – P500.00
• Debit:    Doctor’s professional fees liability – P750.00
• Credit:  Receivable from PHIC – P16,800.00

Cash is recorded at an amount net of withholding taxes. Expanded withholding tax represents the withholding tax on facility fees, final withholding VAT represents withholding of VAT on facility fees. Withholding taxes on professional fees of medical doctor was recorded only as a reduction of Hospital A’s liability to the doctor.

Accounting for hospital payment to doctors

To record the remittance of Hospital A to the medical doctor for the professional fees, the following sample entry could be made on its books of accounts:

• Debit:    Doctor’s professional fees liability – P4,850
• Credit:  Cash – P4,850.00

The above amount is the P5,600 professional fees of the medical doctor reduced by the withholding tax of Philhealth on professional fees of P500.00 and the final withholding VAT of Philhelath on professional fees of P250. Hospital A shall transmit to the medical doctor the withholding tax certificates of Philhelath on professional fees to support the reductions on the medical doctors billing. The medical doctor will then issue a non-VAT acknowledgment receipt for the amount of P4,850.00 as proof of receipt of the amount from Hospital A.

References:

• BIR Revenue Memorandum Circular (RMC) No. 38-2011 dated September 1, 2011
• BIR Revenue Memorandum Circular (RMC) No. 49-2011 dated October 3, 2011

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. 

We had been browsing some search terms leading to our pages, blog posts and articles when we noticed the search phrase “accounting for withholding tax entries“, and this invites our attention to make a simple article on the accounting entries related to withholding taxes.  To start with, please note that under the tax rules,

“obligation to withhold arise upon your payment, accrual, or recording in the books of an expense subject to withholding taxes, whichever comes earlier”

As such, we show you the sample related accounting entries in the books of the payor-withholding agent and that of the payee. To illustrate:

Let us assume that Company A secured the professional services of Mr. Juan de la Cruz amounting to P100,000, exclusive of 12% VAT, or a total of P112,000.00. What are the related accounting entries, assuming Mr. Juan de la Cruz’ income does not exceed P720,000.00 and the withholding tax rate is 10%?

I. Payment of expense subject to withholding

Upon payment, you may take the sample journal entry on the books of Company A as payor:

• Debit: Professional fees (expense) – P100,000.00
• Debit: Input VAT – P12,000.00
• Credit: Cash – P102,000.00
• Credit: Withholding tax payable – P10,000

As payee, it is at this point that you will recognize the expense and decrease cash by the amount paid, net of withholding tax. Withholding tax is bound to be remitted within the next month, so you record it as a liability in the meantime. You please note also that withholding tax is based on amount excluding VAT so computation is 10% of P100,000.00 or P10,000.00.

Upon remittance of Company A to BIR using BIR Form No. 1601E with Monthly Alphalist of Payee, the sample entry would be:

• Debit: Withholding tax payable – P10,000
• Credit: Cash – P10,000.00

On the books of payee Mr. A, you may take the sample journal entry below:

• Debit: Cash – P102,000.00
• Debit: Creditable Withholding Tax – P10,000
• Credit: Professional fees (revenue)- P100,000.00
• Credit: Output VAT – P12,000.00

If Company A did not pay at the end of the period, and simply recognize the expense, you may take the sample entry as follows :

• Debit: Professional fees (expense) – P100,000.00
• Debit: Deferred Input VAT – P12,000.00
• Credit: Accrued expenses payable – P102,000.00
• Credit: Withholding tax payable – P10,000

• Debit: Accounts receivable – P102,000.00
• Debit: Deferred Creditable Withholding Tax – P10,000
• Credit: Professional fees (revenue)- P100,000.00
• Credit: Deferred Output VAT – P12,000.00

You could not use deferred creditable withholding tax against quarterly or annual income tax liability of Mr. A without the BIR Form No. 2307 from Company A, and you cannot make Mr. A liable for VAT on the deferred output VAT because as service provider, his tax liability is based on gross receipts or collections.

III. Payment of accrued expense subject to withholding

Upon payment of accrued expenses subject to withholding taxes, you may adopt the sample entries on the books of Company A:

• Debit: Accounts Payable – P102,000.00
• Credit: Cash

• Debit: Input VAT – P12,000.00
• Credit: Deferred Input VAT – P12,000.00

You may likewise adopt the following sample entry upon collection of Mr. A of the recorded accrued revenue:

• Debit: Cash – P102,000.00
• Credit: Accounts receivable – P102,000.00

• Debit: Creditable Withholding Tax – P10,000
• Credit: Deferred Creditable Withholding Tax – P10,000