QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 38-2011)
Because PHIC is one of the Government-Owned and Controlled Corporations exempt from income tax, but it is not exempt from its statutory responsibility as a withholding agent. It must withhold correct tax on income payments it makes to covered payees (e.g., professionals and hospitals).
Section 2.57.2(A) of RR No. 2-98 (as amended), which provides EWT rates for professional fees (including medical practitioners), and Section 2.57.3, which provides that income payments required to be subjected to withholding tax shall be subjected to the corresponding withholding tax rate by the person having control over the payment who claims the expense.
Ten percent (10%) if the medical practitioner’s gross income does not exceed ₱720,000 in a year, or fifteen percent (15%) if the gross income exceeds ₱720,000 in a year.
Two percent (2%) on facility fees paid to hospitals or clinics for medical services provided to PHIC members.
No. RMC No. 38-2011 clarifies that PHIC must withhold the appropriate EWT because PHIC controls the payment and claims the expense; thus, such payments to hospitals and medical practitioners are subject to EWT.
PHIC determines the members’ benefits based on pre-approved per-case amounts and can determine the amount for professional fees and the amount for facility fees (covering medical procedures, room and board, pharmacy, etc.). The applicable EWT rate must be applied separately to each identified payment.
Professional Fees: ₱4,000 × 15% = ₱600. Facility Fees: ₱10,000 × 2% = ₱200. Total EWT withheld = ₱800.
PHIC must pay Hospital X an amount equal to the total medical benefits minus EWT: ₱14,000 − ₱800 = ₱13,200.
Even if PHIC pays the total amount to the hospital, the EWT must still be computed using the applicable rates for the underlying components: professional fees are subject to the medical practitioner EWT rate (10% or 15% depending on gross income), while facility fees remain subject to 2% EWT under Section 2.57.2(N).
It establishes that all income payments required to be subjected to withholding tax must use the corresponding withholding tax rate applied by the person having control over the payment who claims the expense—supporting that PHIC must withhold EWT on PHIC-related medical payments.
It requires that the hospital’s OR cover only the facility fee portion, while the medical practitioner must issue an OR for the professional fee portion.