PhilHealth’s withholding tax clarified

THE Bureau of Internal Revenue (“BIR”) has issued Revenue Memorandum Circular 38-2011 clarifying the application of the expanded withholding tax on the payments of the Philippine Health Insurance Corp. (PHIC) to medical practitioners and/or hospitals pertaining to PHIC members’ benefits.

The BIR circular was brought about by the issue that some field or regional offices of the PHIC refuses to withhold the prescribed tax on payments made to hospitals and medical practitioners since it is their opinion that such payments are just reimbursements of the members’ benefits and not as payment for services rendered to PHIC. This matter has been the subject of debates between the BIR’s examiners/auditors and the concerned PHIC regional or field offices.

The PHIC is one of the government-owned and controlled corporations exempt from income tax. However, it is not exempt from its responsibilities of being a withholding agent of the BIR. Among those responsibilities include the withholding of correct tax on its income payments, ranging from the payment of compensation to its employees to the payment of its operating expenses such as acquisition of goods and equipment, payments for services rendered to the corporation, etc.

Among the income payments being subjected to expanded withholding tax (EWT) are its payments to hospitals and medical practitioners who rendered medical services to PHIC members. Under existing issuances, PHIC’s payments to medical practitioners are subjected to EWT rates of 10 percent or 15 percent whichever is appropriate, based on the medical practitioner’s declared gross income in a year. More specifically, the rate shall be 10 percent if the gross income of the professional does not exceed P720,000 in a year while the rate shall be 15 percent if the professional’s gross income exceeds P720,000 in a year.

All income payments that are subjected to withholding tax shall be subject to the corresponding withholding tax rate to be withheld by the person having control over the payment and who, at the same time, claims the expenses. Hence, PHIC, as the person having control of the payment, is required to withhold the tax that should be withheld on income payments made to professionals which include medical practitioners.

Since the PHIC determines the members’ medical benefits based on pre-approved amount on a per case basis, such that, it can determine the amount to be paid as professional fees and the amount for medical services, which include medical procedures, room and board, and pharmacy, the applicable rates for each of the payment identified shall be used.

On the other hand, payment to hospitals for medical services provided to PHIC members are subjected to the EWT rate of 2 percent.

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