Corporate Securities Info

Tax-free status of health premiums

/ 05:09 AM December 04, 2018

In the wake of strong protests, the Bureau of Internal Revenue (BIR) amended Revenue Memorandum Circular (RMC) No. 50-2018, which included health card premiums in the computation of the P90,000 tax-free privilege on employment benefits and bonuses under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

The new circular (RMC 96-2018) excludes those premiums from the list of work-related benefits employees receive from their employers in determining the P90,000 threshold.


Under existing regulations, the monetary value of benefits given by employers to their employees that aim to enhance the latter’s well-being and morale in the workplace, such as 13th month pay, office uniforms and shuttle service to and from the workplace and a specified area, otherwise known as “de minimis” (or small amounts) benefits, are not included in the computation of compensation income for purposes of taxation.

To prevent the abuse of this scheme, the law imposes P90,000 as the maximum allowable value of these benefits. Anything beyond that amount will be considered income and therefore subject to tax.


Because many employers find the government’s PhilHealth program inadequate to meet their employees’ medical or hospitalization needs, they enter into health insurance agreements with health maintenance organizations as part of the compensation package.

The premiums paid by employers for on-demand health services to their employees have, for years, been considered by the BIR as part of “de minimis” benefits.

Although the amendment of RMC 50-2018 is laudable, it is disconcerting that the error, in the first place, was committed by a government office supposedly staffed with competent tax lawyers and accountants.

The BIR said the circular was issued to clarify certain concerns allegedly raised about the coverage of the TRAIN law on the P90,000 tax-free ceiling.

But according to Sen. Edgardo Angara, chair of the Senate ways and means committee and sponsor of the tax bill in the Senate, the imposition of a tax on health insurance premiums is not mentioned at all in the TRAIN law.

If this is the case, and there is no reason to doubt Angara’s statement, where did the BIR get the idea (or inspiration) to expand the scope of the P90,000 threshold?

Nothing in the TRAIN law gives the BIR, in its capacity as chief implementing agency of the law, the power to make adjustments in the provisions as it may deem fit.


Under normal circumstances, this fact should not have escaped the attention of the BIR’s army of tax experts and consultants. But it did. How come?

While the BIR’s enthusiasm to meet its revenue targets is noteworthy, it must do so strictly and scrupulously within the parameters of existing tax laws. Anything outside of that would be illegal.

If not for the eagle eyes of the labor sector that initially raised a howl over the adverse implications of RMC 50-2018, the unauthorized amendment of the TRAIN law would have gone unnoticed.

When other sectors added their voice to the demand to revisit that circular, the BIR had no choice but to take a second look, acknowledge its error and issue an amendatory circular.

In the absence of the protests, it is doubtful if the BIR would have taken the initiative to review the circular and amend it. That action, although proper, would undoubtedly raise questions about the competency of its staff.

Or it may quietly correct its error and amend RMC 50-2018 when the public’s attention is focused, say, on the holiday season. But knowing the inquisitiveness of the country’s advocacy groups, that mistake, sooner or later, would be known to the public and the fallout from that disclosure will be no less adverse to the BIR.

The lesson learned from this incident should serve as guide to the BIR in its future actions on similar issues.

For comments, please send your e-mail to [email protected]

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