BIR/TAX

SUBSYSTEM
 Tax compliance is a vital part of the Hospital’s over-all operations since it is

necessary for any organization that offer a wide variety of services and products to

comply with the requirements mandated by law. Over the years, BIR regulations has

made it clear that the government is doing everything it can to collect taxes and prevent

tax evasion or even tax avoidance due to massive loss of government revenue under these

circumstances. These regulations have made tax compliance more complex and strict

especially for Non-stock, Non-profit organization. The BIR recently targeted these

institutions due to non-implementation of taxes whose organization and operation was

actually not within the ambit of Section 30 of the 1997 Tax Code. This provision remains

during the passage of the Tax Reform and Inclusion Law (TRAIN Law).

In addition, Section 27, Paragraph B of the NIRC of 1997 state that “Proprietary

educational institutions and hospitals which are non-profit shall pay a tax of ten percent

(10%) on their taxable income.” This means that LDFHI is still required to pay ten

percent tax of its taxable income provided that less than fifty percent (50%) of its gross

income is derived from unrelated trade, business or other activity. This means the

conduct of which is not substantially related to the exercise or performance by such

institution of its primary purpose or function.

Lopez District Farmers’ Hospital, Incorporated is a Non-stock, Non-profit

organization. Under the BIR Revenue Memorandum Circular No. 4-2013 which requires

tax-exempt Hospitals to secure re-validated Tax exemption Rulings or certificates. This is

because of the case: BIR V.S. St. Luke’s Medical Center, Inc. on September 26, 2012. A

point was emphasized in the said BIR Memo which states: “The Supreme Court laid

down guidelines in determining whether the proprietary non-profit Hospital may be

exempted from income tax. In order to uniformly apply these guidelines, it is necessary to

re-evaluate tax exemptions previously issued to proprietary non-profit hospitals, or to

non-stock, non-profit institutions or entities operating hospitals.” This memorandum that

directly subject hospitals such as Lopez District Farmers’ Hospital, Incorporated is the

most recent ruling of BIR until now. This means that it is incumbent for the researchers

to conclude that this process should be followed.

As per legal compliance, Lopez District Farmers’ Hospital, Incorporated as a non-

stock, non-profit organization, it is required to submit a request for re-validation of their

of their tax-exempt status by submitting the following documents to the Revenue District

Office where the Hospital is registered. These are the requirements:

a) Letter application which must state the specific paragraph of Section 30 of the NIRC

under which it seeks exemptions.

b) Coppies of the corporation’s latest Articles of Incorporation and By-Laws duly

certified by the Securities and Exchange Commission.

c) Certificate of Registration with the BIR.

d) Tax Clearance issued by the Revenue District Office where the corporation is

registered.

e) Copies of the Income Tax Returns or Annual Information Returns and Financial

Statements for the last three years.

f) A statement of its modus operandi stating therein its sources of revenues.

Since the BIR voided all rulings prior to November 1, 2012 that grant tax exemptions

to proprietary non-profit hospitals or to non-stock, non-profit entities operating under

Section 30 of the NIRC, Lopez District Farmers’ Hospital, Incorporated should submit

annual requirements for re-validation.

The BIR further state the procedure in the said memo:

a) Upon receipt of the application together with the supporting documents, the

Revenue District Office shall evaluate the same and shall determine whether it

qualifies as an exempt corporation under Section 30 of the NIRC.

b) If the application is found to be insufficient, the corporation shall be notified of

such findings and the application with the supporting document should be returned to

him.
c) If the application is found to be valid, a report shall be prepared by the Revenue

District Office stating therein why in its opinion the organization is qualified to be tax-

exempt under Section 30.

d) The docket of the case shall be forwarded to the Office of the Regional Director

for review. If the Regional Director agrees with the recommendation of the Revenue

District Office, the same shall be forwarded to the Office of the Assistant Commissioner,

Legal Service. The Law Division shall review and evaluate the documents submitted,

and if in order, prepare the appropriate Certificate of Tax Exemption for signature of

the Commissioner or her duly authorized representative.

It is important to note that provisions from Section 27 and 30 under the NIRC

which was recently replace by TRAIN Law is enforceable since such provisions

were not amended by the new Tax Code,

The BIR also issued another Revenue Memorandum Circular 64-2016 which

state that tax exemptions for non-profit and non-stock organization. The hospital is

still subject to pay VAT from medical and pharmaceutical products they offer as they

cannot invoke tax exemption for such. Since the sale of said products are profit-

oriented activities. It should be noted that VAT is an indirect payable by the seller

and not by the purchaser while the actual person who pays the VAT on goods are the

purchaser.
 Lopez District Farmers’ Hospital, Incorporated adheres to rules mandated by

BIR and comply with its requirements of paying the value-added tax generated from

the sale of goods. The hospital is also subject to withholding tax as these incomes are

derived from personal property by means of employee salaries and other benefits

from the hospital. The Hospital is tasked to pay the withholding tax from its

employee as it automatically deducted from the gross pay of each employees. Like

VAT, the withholding tax are treated as indirect payable of the entity.

Due to certain changes by the recent Tax Code namely the TRAIN Law which

took its effectivity during at the beginning of 2018 replacing the 1997 Tax Code, tax

compliance became more complex as the BIR are make changes in its rulings and

certain provisions. But it is also important to note that the provisions from 1997 Tax

Code that has not been amended by the new Tax Code is still enforceable until new

rulings are made. It is incumbent and reasonable for the researchers to follow the

most recent rulings as basis for tax compliance for the time being.

The researchers resorted to follow such BIR rulings and Supreme Court decision

(BIR V.S. St. Luke’s Medical Center, Inc.) since these rulings will always prevail. It

is important to be cautious in tax compliance since any break-away from those rules

would result to major problems that may put the whole operation of the hospital in

jeopardy and may exhibit greater costs.