BDB Law’s “Tax Law for Business” appears in the opinion section of Business Mirror every Thursday.

Tax on the professional fees of medical practitioners

IN order to promote prosperity and competitiveness in a growing economy such us ours, we

need to maintain a skilled work force. More important, we need to maintain a pool of
professionals, who have gained social importance in this age. However, the government has a
different take on how professionals should make their contributions to society.

Early this year, the internal-revenue commissioner announced that the Bureau of Internal
Revenue (BIR) will be vigilant in collecting taxes from professionals. This announcement is
particularly meant for doctors, lawyers, dentists, accountants, engineers, architects, real-estate
brokers and other professionals.

Perhaps, as a way of realizing this objective, the Department of Finance and the BIR had been
issuing or are planning to issue regulations and circulars dealing with the taxation of
professionals. These issuances or proposed issuances cover subjects ranging from the
definition of “professional” for purposes of the application of the withholding-tax system to the
posting or disclosure of professional fees and the process of collecting withholding tax on these
fees.

One recent issuance is Revenue Regulations (RR) 14-2013, dated September 20, 2013.
According to this RR, in order to ensure the proper collection and remittance of creditable
withholding taxes due on the professional fees of medical practitioners, it shall be the duty and
responsibility of the hospital, clinics, health-maintenance organizations (HMOs) and similar
establishments to withhold and remit taxes due on the professional fees of the said medical
practitioners paid by their patients who are admitted and confined to such hospitals and clinics.
Those regarded as medical practitioners include doctors of medicine, doctors of veterinary
science, dentists, medical technologists, allied health workers (e.g., occupational therapists,
physical therapists, speech therapists, nurses) and others who are not under an employer-
employee relationship with a hospital, clinic, HMO or other similar establishment.

The requirement for the withholding of tax by the hospital, clinic or HMO is the same as the rule
before. The difference is that under the previous rule, the medical practitioner can receive his or
her professional fee directly from his or her patient. In that case, the medical practitioner shall
provide the withholding tax portion to the hospital or clinic so that the latter can remit the same
to the BIR. Under RR 14-2003, the hospital or clinic shall not allow the medical practitioner to
receive professional fees directly from the patient admitted and confined in the said hospital or
clinic. Instead, the professional fee shall be included in the final medical bill of the patient that
shall be payable to the hospital or clinic. The hospital or clinic shall then impose the
corresponding withholding tax.

As in the old rule, though, the prescribed withholding of tax on professional fees of medical
practitioners will not apply if no professional fee is charged to the patient. This is
understandable, because withholding tax comes into play only if there is income payment. In the
absence of a professional fee by the medical practitioner, there is no income against which a
withholding tax can be imposed. But this fact should be evidenced by a sworn declaration jointly
executed between the medical practitioner and the patient or his or her duly authorized
representative, in case the patient is a minor or incapacitated. The sworn declaration should
form part of the records of the hospital or clinic, which shall be made available in case an audit
is conducted by the tax authority. The administrator of the hospital or clinic shall inform the BIR
if a medical practitioner fails or refuses to execute the sworn statement.

Since the professional fees of medical practitioners accredited by hospitals and clinics are
required to be paid through the said hospitals and clinics, medical practitioners should be aware
that the same information is supposed to be provided by the hospital or clinic to the tax
authority. Hospitals and clinics are also required to submit the names and addresses of medical
practitioners to the BIR. This information is used by the tax authority in determining whether or
not the practitioner is properly reporting his or her income in his or her tax return. Medical
practitioners should, therefore, ensure that their income, especially those subjected to
withholding taxes, is properly reported in their respective tax returns to avoid the imposition of
civil and criminal liabilities.

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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of the World Tax Services (WTS) Alliance.

The article is for general information only and is neither intended nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported by professional study or advice.
For comments or questions concerning the article, e-mail the author at
julie.aranda@bdblaw.com.ph or call 403-2001, local 312.