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.