Republic Act No. 8761 and Revenue Regulations No. 3-99 Clarified

April 30, 2001 BIR RULING NO. 016-01 R.A. 8761 & RR 3-99 RR 2-98 Philippine Dental Association Ayala Ave., Cor. Kamagong Street Makati City Attention: Dr . Flor S . Enriquez PDA Trustee Gentlemen : This refers to your undated letter enclosing the October 12, 2000 letter of Dr. Rosemarie Imatani-Encabo, addressed to you as Editor-In-Chief of the Philippine Dental Association (PDA) Bulletin, requesting clarification on some matters pertaining to Republic Act No. 8761 and Revenue Regulations No. 3-99. In reply, please be informed that Republic Act No. 8761 is an Act Imposing the Value-Added Tax on Certain Services Beginning January 1, 2001, Amending for the Purpose Section 5 of the Republic Act No. 8424 and for Other Purposes. Under the said Act, the imposition of the value-added tax on certain services rendered by professionals, banks, non-bank financial intermediaries not performing quasi-banking functions, and stock, real estate, commercial, customs and immigration brokers would have been effective on January 1, 2001. However, on February 27, 2001 Republic Act No. 9010 was approved by Her Excellency, President Gloria Macapagal-Arroyo, which further deferred the imposition of VAT on the aforementioned services to January 1, 2003, the effectivity of which was made retroactive to January 1, 2001. Accordingly, since dentists are subject to the professional tax imposed under Republic Act No. 7160, otherwise known as the Local Government Code of 1991, services rendered by them shall be subject to VAT effective January 1, 2003. On the other hand, Revenue Regulations No. 3-99 is an amendment to Revenue Regulations No. 12-98 which is, in turn, an amendment to Sec. 2.57.2(I) of Revenue Regulations No. 2-98. It pertains to the withholding and remittance to the BIR of creditable income tax at the rate of 10% on professional fees collected and paid to medical practitioners by hospitals and clinics or paid directly to medical practitioners by patients who were admitted and confined to such hospitals or clinics. It does not include professional fees paid by out-patients unless the income payments is made by the persons enumerated in Section 2.57.3 of RR 2-98 in which case, the payment would be subject to a 10% withholding tax under Section 2.57.2(A)(1) of the same regulation (RR 2-98). The remittance to the BIR of the 10% tax withheld on professional fees paid by a patient confined to a hospital or clinic or (in the case of an out patient) by one of the persons enumerated in Section 2.57.2(A)(1) of RR 2-98 is the responsibility of the latter. However, if the patient paid directly to the medical practitioner, the medical practitioner is mandated to give the 10% withholding tax to the Accounting Division of the hospital or clinic. For more particulars regarding the duties and responsibilities of the hospital or clinic on the withholding and timely remittance of professional fees paid to medical practitioners, we are hereby furnishing you a copy of Revenue Regulations No. 3-99. Members of the Philippine Dental Association are considered as medical practitioners. In fact, under Sec. 2.57.2(1) of Revenue Regulations No. 2-98, dentists are among the professionals whose fees for services rendered are subject to the 10% creditable withholding tax. As such, the provisions of Sec. 2.57.2(1) of RR 2-98, as amended by RR 12-98 and as further amended by RR 3-99 previously discussed are applicable to them. Moreover, dentists who are receiving self-employment income, whether it constitutes the sole source of their income or in combination with salaries, wages and other fixed or determinable income, shall make and file a declaration of their estimated income for the current taxable year or on before April 15 of the same taxable year. Self-employment income consists of the earnings derived by the individual from the practice of his profession or conduct of trade or business carried on by him as a sole proprietor or by a partnership of which he is a member. The amount of the estimated income shall be paid in four (4) installments, first , to be paid at the time of the declaration, the second and third shall be paid on August 15 and November 15 of the current year, respectively and the fourth installment shall be paid on or before April 15 of the following calendar year when the final adjusted income tax return is due to be filed. (Section 74(A)&(B), Tax Code of 1997) Finally, the withholding tax on compensation income is a method of collecting the income tax at source upon receipt of the income. A medical practitioner who is an employer must withhold from the compensation paid an amount computed in accordance with Revenue Regulations No. 2-98. He/she is required to make a return and pay such tax on or before the 10 th day of the month following the month in which the withholding was made to any authorized agent bank within the RDO or in places where there are no agent banks, to the RDO of the city or municipality where the withholding agent/employer legal residence or place of business or office is located; provided, however, that taxes withheld from the last compensation (December) for the calendar year shall be paid not later than January 25 of the succeeding year; Provided, further, that large taxpayers as determined by the Commissioner shall remit taxes withheld on or before the 25 th day of the following months. (Sec. 2.81, RR No. 2-98) Conversely, medical practitioners who do not have employees and who do not make income payments subject to withholding tax are not required to file a monthly Remittance Return. DcHaET Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group