RMC 7-2014

COMPLIANCE REQUIREMENTS OF MARGINAL INCOME EARNERS PURSUANT TO REVENUE

REGULATIONS NO. 7-2012

Purpose: to clarify the issues and reiterate the registration as well as compliance requirements of
Marginal Income Earners(MIE) pursuant to Revenue Regulations (RR) No. 7-2012.

MIE as defined in Section 3 of the same RR provides:

"Marginal Income Earner - shall refer to those individual whose business do not realize
grosss sales or receipts exceeding P100,000 in any 12-month period."

The individual referred to in that section is:

1. an individual not deriving compensation as an employee under an employer-employee relationship but

who is self-employed and deriving gross sales or receipts not exceeding P100,000 in any 12-month period.

2. Moreover, the activities of such MIE should be principally for subsistence or livelihood.

The MIE, as herein defined, shall include but not limited to:

 agricultural growers/producers (farmers/fishermen) selling directly or indirectly to ultimate

consumers
 small sari-sari stores,
 small carinderias or "turo-turos",
 drivers/operators of a single unit tricycle, and such

but shall not include:

 licensed professionals
 consultants
 Artists
 sales agents
 brokers
 and others similarly situated,
 including all others whose income have been subjected to withholding tax.

Effects of being an MIE:

1. Duty to Register with the Bureau using BIR Form 1901 with the following minimal documentary
requirements:

i. Sworn Statement of Income for the year; and

ii. NSO Certified or Local Civil Registry Birth Certificate;
2. Exempted from the payment of Annual Registration Fee (ARF);

3. Obliged to Register Books of Accounts (e.g. two-column journal or other simplified books for daily
expenses and revenues);

4. Obliged to issue registered principal receipts/sales invoices as prescribed under RMO 12-2013;

5. obliged to File and Pay of Annual Income Tax Return similar to any other self-employed individuals; and

6. Exemption from payment of business taxes (i.e. VAT or any Percentage Tax)

The BIR District Office, upon evaluation of application for registration, shall issue the Certificate of
Registration and shall likewise ensure compliance with the registration of books of accounts, and issuance
of Authority To Print for their Principal Receipts/Sales Invoices.

RMC 6-2009
VAT FOR HEALTH MAINTENANCE ORGANIZATIONS (HMOs)

What is a health maintenance organization (HMO)

Section 4.1 08.3(k) of RR 16-2005 states that:

'k) Health Maintenance Organization (HMOs) are entities, organized in accordance with the
provisions of the Corporation Code of the Philippines and licensed by the appropriate government agency,
which arranges for coverage or designated managed care services needed by the plan holders/members
for fixed prepaid membership fees and for a specified period of time. HMO's gross receipt shall be the
total amount of money or its equivalent representing the service fee actually or constructively received
during the taxable period for the services performed or to be performed for another person, excluding
the value-added tax. The compensation for their services representing their services fees, is presumed to
be the total amount received as enrollment fee from their members plus other charges received

BIR Ruling 018-98 is still controlling which states that HMOs are subject to VAT

 Basis for computing the VAT:

the membership fees received from the members undiminished by any amount paid or payable
to owners/operators of hospitals, clinics and medical and dental practitioners.

 This has already been elucidated in Revenue Regulations No. 16-2005 which categorically
mentioned that HMO’s gross receipts shall be the total amount of money or its equivalent
representing the service fee actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the value added tax.
 The compensation for their services representing their service fee, is presumed to be the total
amount received as enrollment from their members plus other charges received.
VAT Ruling 14-2007

Issues:
No. 1. Whether the issuance of Revenue Regulations No. (RR) 16-2005 1 in relation to
Section 4.109-1 (B) (1) (g) on the sale of drugs and medicines by pharmacies operated by
hospitals or clinics completely overrules the Supreme Court decision in the case of St. Luke's
Medical Center, Inc. vs. Court of Tax Appeals and the Commissioner of Internal Revenue
(St. Luke's Case) on the exemption from value-added tax (VAT) of pharmacy sales to in-
patients.

Section 4.109-1 (B) (1) (g) of RR 16-2005 provides:

"SEC. 4.109-1. VAT-Exempt Transactions. —

xxx xxx xxx
(B) Exempt transactions. —
(1) Subject to the provisions of Subsection (2) hereof, the following transactions
shall be exempt from VAT:
xxx xxx xxx
(g) Medical, dental, hospital and veterinary services, except those rendered by
professionals.
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug
store, the sale of drugs and medicine is subject to VAT ."

The issuance of RR 16-2005 in relation to Section 4.109-1 (B) (1) (g) did not overrule the St. Luke's
case. Sale of drugs or medicine by hospitals; distinction should be made
Sale by hospitals of drugs or medicine to in-patients, sale of drugs or medicine shall form part of
hospital services; hence, exempt from the imposition of VAT.
Sale by hospitals of drugs or medicine to out-patients or other customers are not part of hospital
services, and are thus subject to VAT.

No. 2 Considering that a pharmacy is incidental to the hospital operations of which it is a

source of revenue, is there a need to register separately the pharmacy owned and managed
by hospitals without exceptions? If there are exceptions, what are those relevant issues in this
case?

If located outside the hospital premises or has a juridical personality separate and distinct from
the hospital, then required to register with the appropriate Revenue District Office

if pharmacy forms part of the hospital which is already a registered taxpayer, it will still register as
a VAT taxpayer for purposes of sale to out-patients or other customers which are subject to VAT.

Important:

• Sales invoice - for the sale, barter or exchange of goods or properties

• Official receipt - for the lease of goods or properties and for every sale, barter or exchange
of services.
However, other options are made available to the taxpayer such that it may issue a single
invoice/receipt involving VAT and non-VAT transactions
Important:

Q14 : May a VAT registered person issue a single invoice/receipt involving VAT and Non-VAT
transactions?

A14 : Yes. Provided that the invoice or receipt shall clearly indicate the breakdown of the sales
price between its taxable, exempt and zero-rated components and the calculation of the Value
Added Tax on each portion of the sale shall be shown on the invoice or receipt.

Q15 : May a VAT registered person issue separate invoices/receipts involving VAT and Non-
VAT transactions?

A15 : Yes. Provided that if sale is exempt from VAT, the term "VAT-EXEMPT SALE" shall be written
or printed prominently on the invoice or receipt and if the sale is subject to zero percent (0%)
VAT, the term "ZERO-RATED SALE" shall be written or printed prominently on the invoice or receipt.

Sale of drugs or medicines to in-patients shall form part of the hospital services; issued an
official receipt by the hospital itself (and not by the hospital operated pharmacy)

Sale of drugs or medicines directly to out-patients or other customers shall be issued a sales
invoice by hospital operated pharmacy being a sale of goods subject to VAT.