The doctor is in

The Bureau of Internal Revenue (BIR) is geared towards more stringent collection of taxes from licensed professionals. Department of Finance (DOF) Secretary Cesar Purisima specifically mentioned going after high-earning individuals such as medical doctors and lawyers. 

One of the more complex tax filings is the one for doctors as most are liable to more than one type of tax and are not only subject to withholding tax, but may also be withholding tax agents themselves. There are doctors who are employed in private hospitals, doctors who are affiliated with private hospitals and doctors who operate their own private clinics. Each of them have a different combination of tax types to pay.

Income Tax

A doctor who is under an employer-employee relationship with a private hospital is subject to the graduated tax rates of five to 32 percent as with all other kinds of employees. The hospital, as withholding tax agent, has the obligation to remit and withhold his taxes. If the doctor is earning pure compensation income, and the hospital is withholding and remitting the correct taxes, then there is no need for him to file an annual income tax return following the concept of “substituted filing.” This is provided, however, that the doctor exclusively works for one employer during the year.

On the other hand, a doctor who is affiliated with a private hospital but is not under an employer-employee relationship is subject to the creditable withholding tax method. This tax system intends to collect in advance a partial amount of the tax to be paid on an income in order to lessen the burden of paying huge taxes come year-end. An amount equivalent to 15 percent of the payment is required to be withheld if the doctor’s total year-to-date income exceeds P720,000 or 10 percent if the doctor’s total year-to-date income is P720,000 or less. All fees, per diems and allowances paid to the doctor by the hospital, or collected by the hospital for the doctor, are taxable for this purpose. The hospital, as payor of the income, has the responsibility to withhold and remit these taxes. However, the doctor is still required to file income tax returns quarterly and annually to report any difference between the taxes withheld and the taxes due to the BIR through Forms 1701-Q and 1701, respectively.

Doctors are also made withholding tax agents themselves when they set up private clinics. Payments made by the clinic to other medical practitioners and professionals like accountants and technical consultants among others, must be subjected to the creditable withholding tax rates of 10 percent and 15 percent accordingly and reported through BIR Form 1601-E. A summary of these payments is then made at year-end in BIR Form 1604-E. Moreover, compensation paid to the employees of the clinic must be subjected to withholding tax on compensation with graduated rates of five to 32 percent and reported through BIR Form 1601-C. These are then summarized at year-end in BIR Form 1604-CF.

Other business taxes

Aside from income tax, doctors are also liable to either the value-added tax or percentage tax, depending on their income range. It used to be that doctors, as well as lawyers, were not covered by the value-added tax law. However, in 2005, Republic Act 9337 required them to register as VAT taxpayers if their gross sales or receipts for the past 12 months have exceeded P1.5 million. Alternatively, if the P1.5 million threshold is not met, then they are required to pay the three percent percentage tax. VAT registrants are mandated to issue official VAT receipts for all VAT-able transactions.

Accordingly, doctors can claim input VAT on purchases related to the practice of their profession as long as these expenses are supported by receipts issued in their name. The resulting VAT liability must be reported monthly and quarterly through BIR Forms 2550-M and 2550-Q, respectively. Furthermore, an annual registration fee amounting to P500 is required to be paid not later than the 31st of January, every year.

Recent cases of tax evasion have already been filed against doctors due to non-filing of income tax returns and filing of fraudulent income tax returns. This may be due to the fact that most doctors do not know that they are liable to all of these taxes. Unfortunately, ignorance of the law excuses no one. To avoid the consequence of interests and penalties or worse, criminal cases, it is imperative for one to know what tax types he is responsible to pay.

(Jozette Issel G. Dizon, CPA, is a supervisor for tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative “(KPMG International),” a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please e-mail mailto:[email protected]or mailto:[email protected])