A tax campaign that cures, not ails

YOU MUST HAVE heard or read about the controversial tax campaign of the Bureau of Internal Revenue (BIR) aimed at professionals, particularly medical doctors who are not properly reporting their taxes.

A doctor is liable for two major taxes, income tax and business tax, which is either the 12% value-added tax (VAT) or the 3% percentage tax for those considered small taxpayers. These taxes are dependent on the amount of gross receipts that doctors report.

Professionals with annual gross receipts exceeding P1,919,500 are mandated to register under the VAT system. As VAT taxpayers, they are liable for 12% output tax on their gross receipts after deducting the 12% input VAT passed-on to them by their VAT suppliers -- e.g., rent, electricity, medical and office supplies and equipment, landline and mobile phone charges, motor vehicles, car repair and maintenance, representation expenses, domestic travel and other business expenses.

What kind of practice would make a doctor a VAT taxpayer? Assuming 50 working weeks in a year and six clinic days in a week, or 300 clinic days in a year, it would require professional fees totalling P6,399 per day to reach the P1,919,500 VAT threshold. As consultation fee of doctors in Metro Manila and most urban areas nowadays averages P500, the doctor needs about 13 patients a day to become a VAT taxpayer. Of course, this sample computation excludes higher fees charged for medical procedures.

Given the threshold, we may really encounter doctors who are not VAT-registered. For instance, rural doctors’ annual gross receipts do not exceed the VAT threshold because of their lower consultation fees and are therefore not subject to VAT. As such, they are just paying the 3% percentage tax on their gross receipt. At the P1,919,500 threshold, such percentage tax could amount to a maximum of P57,585. Unlike VAT, the percentage tax is considered a business expense and can be deducted in computing the doctor’s taxable income.

Even the amount of income tax that a doctor should pay is dependent upon the amount of gross receipts.

Hence, to be subject to the correct tax, doctors must voluntarily declare their correct gross receipts, which can only be monitored if they issue official receipts.

Doctors are required to issue official receipts without the patient requesting for the same. Section 237 of the Tax Code, as amended, mandates that an official receipt be issued for each sale or services rendered valued at P25 or more. Further, Section 264 of the same Code penalizes non-issuance of an official receipt, upon conviction, with a fine set at a maximum of P50,000 and imprisonment of up to four years.

Moreover, official receipts are not just pieces of paper or prescription pads where the doctor acknowledges that he "received the amount of Pxxx from patient xxx". Valid official receipts are serially printed receipts that are registered with the BIR.

The misdeed of some doctors of not issuing official receipts is perpetuated by their patients’ lack of interest in obtaining official receipts whenever the latter make payments.

Most patients are individuals. For individual taxpayers, personal medical expenses are not among those expenses that may be deducted from their gross income subject to tax since these are "personal" in nature and not in any way connected to the conduct of business.

If you’re an employee of a company that provides reimbursable medical benefits, maybe these receipts would be useful to you.

While some patients are conscious to demand official receipts when paying for the professional fees, they are sometimes discouraged. In certain cases, professional fees are higher when patients ask for official receipts because the tax that the doctor is supposed to pay is shifted to the patient. There are also instances when patients will be asked to come back some other day to get the official receipts since the receipts are not available in clinics other than the doctor’s main clinic. Note that under the Tax Code, as amended, official receipts are required to be kept in the place of business, including branches where business is conducted.

Whether these official receipts maybe of use to us, or not, and despite some difficulties encountered when demanding for official receipts, let us just think that, as citizens of this country, we need to do our part in helping the BIR collect the correct amount of taxes from our fellow taxpayers.

For the part of the BIR, let’s hope that future tax campaigns will be focused more on educating specific industries on their tax obligations, rather than making a mockery of those professionals who are allegedly not paying correct amount of taxes. It is also internationally recognized that there are hard-to-tax sectors, and special tax regimes are actually being implemented in other countries for such taxpayers.

Sometimes, the reality is, taxpayers, including doctors, are willing to pay taxes; it is just that they are not knowledgeable on what taxes to pay, how much tax they should pay and how to comply with the requirements.

The author is a manager with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.

source:  Businessworld