Withholding Tax Obligations of Philhealth or PHIC

By: Tax and Accounting Center Philippines

This article is tribute to one of our certified public accountant participants in the past seminar who come all the way from Cabanatuan City to participate and enhance her knowledge on withholding tax and value added tax in the Philippines. By this article, we summed up the salient points of how withholding taxes apply to Philippine Health Insurance Corporation (PHIC or Philhealth) as most of us commonly refer to it.

Under the Philhealth rules, members are allowed certain pre-approved benefits on health and hospitalization such as on the rates of professional fees of medical practitioners, amount for medical facility fees to include medical procedures, room and board, pharmacy, and other related medical services. Procedurally, patients billing from the hospitals and clinics include all other charges from medical facility and professional fees. Philhealth benefits are deducted from such billings and the hospital will forward the same to Philhealth for payment of the Philhealth based on supporting papers and documentation.

Philhealth is a government owned and controlled corporation

For withholding tax purposes, it should be noted that Philhealth is a government owned and controlled corporation (GOCC). As a GOCC in the Philippines, it is an income tax exempt entity. However, it is constituted as a withholding tax agent on income tax payments for withholding taxes and business taxes – value added tax and other percentage tax.

Expanded Withholding tax of Philhealth

Pursuant to Revenue Regulations No. 2-98, Philhealth shall be subject to withhold taxes as an entity having the control of payment as follows:

• Professional fees – 10% of gross professional fees if the medical practitioners gross income for the current year does not exceed P720,000 and with an affidavit of declaration, otherwise, 15% if the same exceeds P720,000.00
• Facility fees – 2% on gross payments

Withholding tax on professional fees of medical practitioners is a normal withholding tax on professional fees. This represents the billings of medical doctors and is payable directly to them. Withholding tax certificate or BIR Form No. 2307 shall be issued by Philhealth directly to the medical practitioner for use as a tax credit for its income tax due and not under the name of the hospital or clinic.

On the other hand, the withholding tax on facility fees to include medical procedures, room and board, pharmacy, and other related medical services is based on Philhelath’s withholding tax obligation as a government payor. This amount represents the charges of the hospital or clinic so that the withholding tax certificate or BIR Form No. 2307 shall be issued by Philhealth under the name of the hospital or clinic for use as a tax credit for its income tax due on quarterly and annual income tax returns.

5% Final withholding VAT of Philhealth

Billings to patients could be subject to 12% value added tax (VAT) in the Philippines if the medical practitioner or hospital or clinic is a VAT-registered taxpayer, unless, covered by value added tax exemption under Section 109 (G) of the tax Code, as amended, on medical, dental, hospital, and veterinary services other than those rendered by professionals. On the other hand, if the medical practitioner is not a VAT registered, 3% percentage tax applies to them. Such billings covered by Philhealth benefits shall be paid by Philhealth and as a government payor, Philhealth is required to withhold business taxes as follows:

• Final withholding VAT of 5%, or
• Final withholding of Percentage tax of 3%

Again, the above withholding tax obligation of Philhealth is based on its being a government payor. Withholding tax certificate for 5% withholding of value added tax or  3% withholding of percentage tax shall be issued by Philhealth to the medical practitioner or hospital or clinic, respectively. To learn more about value added tax on sales to government, please refer to the following articles:

• Value added tax on sales to government in Philippines
• Accounting for VAT on sales to government in Philippines

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. For comments, you may please send mail at in**@ta************.org, or you may post a question at Tax and Accounting Center Forum and participate therein.

By: Tax and Accounting Center Philippines

Revenue Regulations (RR) No. 14-2013 (RR No. 14-2013) dated September 20, 2013 was issued to further amend the provisions of RR 2-1998, as last amended by Revenue Regulations No. 30-2003 and Revenue Regulations No. 17-2003, relative to the application of the following expanded withholding tax on professional fees of medical practitioners or doctors in the Philippines:

• 10% if annual gross income does not exceed P720,000; or
• 15% if annual gross income exceeds P720,000

Medical practitioners or doctors refers to those accredited by the hospitals, clinics, and health maintenance organizations (HMOs) as independent parties practicing their medical profession and not under employer-employee of the hospital, clinic, HMO or similar establishment. As such, they are subject to expanded withholding tax in the Philippines and not to withholding tax on compensation. Notably, RR No. 14-2013 provides for the following rules:

Responsibility of hospitals,  clinics, HMOs and others  to withhold

It shall be the duty and responsibility of the hospitals, clinics, HMOs and similar establishments to withhold and remit taxes due on the professional fees of their respective accredited medical practitioners, paid by patients who were admitted and confined to such hospitals, and clinics. They must ensure that correct taxes due on professional fees of doctors have been withheld and timely remitted to the Bureau of Internal Revenue (BIR) using BIR Form No. 1601-E on a monthly basis.

Direct payment of patients not allowed

Hospitals and clinics shall not allow their medical practitioners to receive payment of professional fees from patients who were admitted and confined to such hospital and clinics. Rather, the fees must be included in the total billings to the patient of the practitioner which shall be payable directly to the hospital or clinic. This is imposed as a control to ensure that payments of patients for professional fees of doctors will be subjected to withholding tax.

Joint Affidavit if no professional fees collected

If the doctor did not charge professional fees, there should be no withholding tax. To establish such fact for tax purposes, the doctor who did not charge professional fee and the patient or his authorized representative, must jointly execute a sworn declaration (Annex “A” in RR 14-2013. If the medical practitioner fails or refuses to execute a sworn statement, the hospital or clinic shall inform the Revenue District Office of the fact within ten (10) days from such incident.

 Quarterly Report of hospitals and clinics

Hospitals and clinics shall submit the list of names and addresses of medical practitioners in prescribed format of the BIR every 15th day after the end of calendar quarter with the following details:

• Medical practitioners or doctors whose professional fees was paid by the patients directly to the hospital or clinic.
• Medical practitioners or doctors who did not charge any professional fee from their patients

The list in prescribed BIR format shall be submitted to the BIR – Collection Division of the Revenue Region for non-large taxpayer, or for large taxpayers, to Large Taxpayer Document Processing and Quality Assurance Division (LTDP & QAD) or to the Large Taxpayers District Office of registration. Failure to submit is subject to penalties.

Updated List of Accredited Doctors

All hospitals and clinics shall submit a sworn statement executed by the the president of the corporation or managing partner of the company with the complete and updated list of medical practitioners accredited with them in three (3) copies (2 copies for BIR and 1 copy for the hospital or clinic).

BIR Forms and Submissions

Based on the above obligations under RR No. 14-2013, the following list of BIR forms and submissions of hospitals, clinics, HMOs and similar establishments could be summed-up and enumerated:

1. Monthly BIR Form No. 1601E for withholding tax of doctors ;
2. Monthly Alphalist of Payees with list amount withheld from professional fees of doctors;
3. Quarterly BIR Form No. 2307 to doctors and medical practitioners;
4. Annual BIR Form No. 1604-E for the summary of monthly BIR Form No. 1601-E;
5. Annual Alphalist of Payees with consolidation of monthly withholding taxes on professional fees;
6. BIR prescribed Quarterly List of doctors directly paid by patients, and those who did not charge fees;
7. Sworn declaration on the complete and updated list of accredited medical practitioners;

It should be noted that a penalty is imposed for each failure to file the above form and submissions.

Effectivity

This regulation shall be effective on October 1, 2013 and hospital, clinics, HMOs and similar establishments are advised to coordinate with the BIR office of registration for the corresponding compliance.

Summary

RR No. 14-2013 is a new measure of the BIR to ensure tax compliance on the medical field by imposing more obligations on the part of hospitals, clinics, HMOs and similar establishments dealing with the medical practitioners. Such reports are intended for a more transparency on the amounts of professional fees paid to doctors and medical practitioners to encourage them to report such income and pay the corresponding taxes due thereon. As such, we would highly recommend that hospitals, clinics, HMOs and similar establishments to comply with the above, and for the doctors and medical practitioners to also abide by the tax rules. It should be bear in mind the each failure is subject to penalty that may cost a fortune through times, or worst the professional career.

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. 

By: Tax and Accounting Center Philippines

According to the BIR, it has been a common practice for general professional partnerships (GPP or Firms (e.g. accounting firms in the Philippines and law firms in the Philippines) to require client – taxpayers the following:

1. Deposit a sum of money to them to be used to cover necessary expenses and liquidate the same later, or
2. Firms to pay in advance the necessary expenses in behalf of client and secure re-imbursement from clients as “out-of-pocket” expenses.

In most cases however, official receipts and invoices for the necessary expenses incurred by the Firm in behalf of the client are issued under the name of the Firm. Upon seeking re-imbursement of the advances to clients or upon liquidation of the deposits of clients, clients would claim said expenses as deductible expense while at the same time being claimed by the Firms as their very own deductible expense. In effect, the same expense is claimed both by the Firm and the client.

Under Revenue Memorandum Circular No. 89-2012 dated 27 December 27, 2012 (RMC No. 89-2012) entitled “Clarifying the Tax Implications and Recording of Deposits / Advances Made by Clients of General Professional Partnerships for Expenses”, the Bureau of Internal Revenue (BIR) made new guidelines below along with our views.

Deposits or advances are service income of Firms

Upon receipt of deposits from clients or upon receipt of client’s reimbursements for out-of-pocket expenses, the Firms shall issue a BIR-registered Official Receipt (O.R.) in the Philippines. This would meant that the deposit or advances are income of the Firm that is subject to 12%  value added tax in the Philippines. As such, Firms would be required to bill advances and deposits with 12% VAT in the Philippines.

Necessary expenses for clients are Firm’s deductible expenses

The Firm shall record the expenses it incurred and paid in behalf of the Client as its own expense for tax purposes based on official receipts and sales invoices issued by third-party establishments under the name of the Firm. As such, Firms will likewise be required to deduct applicable withholding taxes in the Philippines, and claim input VAT from such expenses, if any. 

Deposits or advances are professional fees expense of clients

Upon payment of the client of advances and deposits with the Firm, the client shall record the same as professional fees expense based on the official receipt that the Firm will issue. As such, the client is not required to apply withholding tax on professional fees to general professional partnerships in the Philippines. If the Firm is a VAT-registered, then, the VAT-registered client will be passed on VAT on such advances.

Comments

The present regulation is an attempt to change the old ways causing alleged loss of revenue from taxes. The scenario the BIR is trying to avoid may have had happened in the past but may not be conclusive as to all other professional firms in the Philippines. Nevertheless, we could not blame BIR at all.

The new regulation – RMC No. 89-2012 in the Philippines appears to be simple but would raise more questions in its implications and applications. Nevertheless, compliance seems to be the best option.

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. For comments, you may please send mail at in**@ta************.org.