Taxability of a Hospital or Clinic Operating a Pharmacy or Drugstore

February 2, 1988 BIR RULING NO. 023-88 99 000-00 023-88 Gentlemen : This refers to your letter dated November 2, 1987 requesting in behalf of your client which engaged in hospital services, clarification of Section 9(b)(12) of Revenue Regulations No. 5-87 particularly that portion thereof which states that if a hospital or clinic operates a pharmacy or drugstore the sale of drugs or medicine, if it exceeds P200,000.00 during a 12-month period is subject to VAT. According to you, a hospital or clinic operating a pharmacy or drugstore has two types of sales of medicine or drugs: those made to inpatients and those made to outpatients or over-the-counter sales. You are of the opinion that the sales of drugs or medicines to inpatients are part of hospital services hence, exempt from the VAT even if they exceed P200,000.00 during a 12-month period but the sale of drugs or medicine to outpatients, not being incidental to the function of a hospital, is subject to the VAT if it exceeds P200,000.00. In reply, I regret to inform you that this Office cannot confirm your opinion. As long as the amount of sale exceeds P200,000.00 during a 12-month period, a hospital operating a pharmacy or drugstore becomes subject to VAT irrespective of whomsoever the medicine or drugs is sold whether to inpatient or outpatient pursuant to Section 9(b)(12) of Revenue Regulations No. 5-87 implementing Executive Order No. 273. This Office however, confirms your opinion that food served to sick and injured persons who are confined in the hospital forms part of medical or hospital services; hence, the hospital is not subject to the caterer's tax imposed under Section 113 of the Tax Code on its sale of food to inpatients. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner