BIR keeps watch on hospitals’ tax compliance

The Bureau of Internal Revenue is tightening its watch on hospitals that invoke tax perks, following a Supreme Court ruling that St. Luke’s Medical Center Inc. is not tax-exempt.

The BIR has issued Revenue Memorandum Circular No. 4-2013, dated Jan. 11, which requires tax-exempt hospitals to re-apply for the status.

“Some proprietary non-profit hospitals, which are owned and/or operated by non-stock, non-profit institutions, were able to secure tax exemption rulings from the BIR on the ground that these are charitable or social welfare organizations,” according to  RMC 4-2013.

Section 27(B) of the amended Tax Code provides that such hospitals should pay a tax of 10 percent on their taxable income, subject to certain qualifications.

The BIR noted that the Supreme Court, in a ruling last September, laid down the guidelines in determining whether a hospital was 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 (entities that operate) hospitals,” the BIR said in the circular.

Hospitals are advised to submit to their respective revenue district offices several documents that will enable the BIR to review their tax exemption.

Further, the BIR has voided rulings issued before November 2012 that granted tax exemption to these hospitals.

In the high court’s 23-page decision dated Sept. 26, 2012, it ordered St. Luke’s to pay some P5.5 million in income tax for 1998.

St. Luke’s failed the requirements for a full tax exemption. The hospital does not operate exclusively for charity, the court said.

The decision, penned by Associate Justice Antonio Carpio, stemmed from the BIR’s assessment of St. Luke’s “tax deficiency.”

Even then, the SC only partially granted BIR’s petition since it did not require the hospital to pay surcharges and interest on the arrears.

Citing the Tax Code, the SC said for an institution to be classified “charitable,” it must be a non-stock association and must be organized exclusively as well as operate exclusively for charitable purposes.