BIR wins vs St. Luke’s; hospital ordered to pay P63.9M tax deficiency

The Supreme Court has ordered St. Luke’s Medical Center Inc. to pay the Bureau of Internal Revenue P63.9 million in deficiency income tax, value added tax and withholding tax on compensation for 1998, based on the 10-percent preferential income tax as stipulated in the 1997 Tax Code. According to BIR head revenue executive assistant Claro Ortiz, this means that all hospitals that claim to be non-profit but are proprietary will now have to pay income tax. In 2002, St. Luke's disputed the BIR’s assessment that it should be paying income taxes, saying that it is a non-profit hospital. The case eventually reached the Supreme Court. In a decision penned by Associate Justice Antonio Carpio on Sept. 26 and received by the BIR on Oct. 17, the SC reversed an earlier decision by the Court of Tax Appeals, which dismissed the BIR’s assessment. The appellate court had argued that St. Luke’s was not subject to income tax because non-stock corporations are exempt from paying income tax. However, the SC ruled that St. Luke’s services that patients pay for are subject to income tax. “St. Luke’s Medical Center is ordered to pay the deficiency income tax in 1998 based on the 10 percent preferential income tax rate under Section 27(B) of the National Internal Revenue Code [NIRC]. However, it is not liable for surcharges and interest on such deficiency income tax under Sections 248 and 249 of the NIRC,” the decision stated. The BIR claimed that St. Luke’s had total revenues of P1.73 billion in 1998 alone. St. Luke’s refuted the assessment, saying that its free services to patients amounted to P218 million in 1998. The Supreme Court ruled that while there is no dispute that St. Luke’s is organized as a non-stock and non-profit charitable institution, this does not automatically exempt it from paying taxes. For a charitable institution to be exempt from income taxes, “Section 30(E) of the NIRC requires that [it] must be organized and operated exclusively for charitable purposes,” the SC said in its decision. — BM, GMA News