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Revenue Regulations 14-2002:
Taxing the dead, the half-dead, and the half-alive

(Article published in the Sep 23, 2002 issue of TODAY, Business Section)

Finance Secretary Jose Isidro N. Camacho and newly appointed BIR Commissioner Guillermo L. Payano, Jr. remembered the dead way ahead of most of us who think of our dearly departed only during the month of November. Perhaps very aware that they themselves could be dead if tax collections do not improve by the end of the year, they have decided that the living servicing the needs of the dead should be subjected to the withholding tax.

Starting October 1, a month shy of All Saints Day, gross payments made to embalmers for embalming services rendered to funeral companies will be subject to 1-percent withholding tax. The same percentage should be withheld by pre-need companies on their gross payments to funeral parlors for funeral services rendered. Fittingly, those taxes, which give new meaning to "letting the dead bury its dead", when withheld by the funeral companies and pre-need companies during the month of October are to be remitted to the Bureau of Internal Revenue within the month of November, the month of the dead.

The embalmer’s tax and the funeral parlor tax are just two of several new methods of extracting blood from taxpayers (the Supreme Court has repeatedly said that taxes are the lifeblood of the government) that will be in place when Revenue Regulations 14-2002, issued on September 09, 2002, takes effect. Other payments will be caught in the coverage of the withholding tax net even as other inconveniences will be inflicted on the half-dead as well as those, in these hard times, are hardly alive and kicking.

The attempt to collect the correct taxes from the doctors has probably not succeeded as well as they had expected, and so, further refinements have been introduced in the collection of "professional fees paid to medical practitioners". Under the old rule, hospitals and clinics were not required to remit any withholding tax pertaining to the fees paid to the doctors when no professional fees were in fact charged by the doctor and none was paid by the patient. No special type of proof was required of this negative.

But now, our finance authorities want proof of this negative in the form a sworn declaration jointly executed by the medical practitioner and the patient, or in case he is half-dead, by his duly authorized representative, that no professional fee was charged. A form was provided, Annex A of the regulations, for this purpose, presumably for the convenience of the taxpayer. But there is more in that requirement than meets the eye.

In the first place, the specific declaration in the required sworn statement exceeds what is needed by the text of the regulations. The form, Annex A, wants both doctor and patient to attest "That, no professional fee was charged by the aforesaid physician, the patient being his/her [to be supplied by attesting party]". What business is it of our finance authorities, may it be asked, what the relation is between the doctor and the patient? Will they tax a doctor who decides to be a good Samaritan to an ailing Jew? Apparently, the Bureau is laying the basis for later on making the sufficiency of the sworn declaration hinge on the nature of the relation between doctor and patient that is stated in the blank. And because the regulations do not give the slightest hint of what relation is acceptable to the Bureau, that yawning blank is carte blanche for the tax collector to accept or not accept what relation pleases or displeases him for the moment.

But more serious is the fact that the requirement for a sworn declaration jointly executed by the doctor and the patient is practically an entrapment for the doctor, patient and notary public to each one state a falsity. Picture a patient, treated by a doctor gratis, who is to be released from a hospital. For that patient and his doctor to execute a sworn declaration jointly, they must appear together before a notary public and sign the document in his presence. But, how many times in your entire lifetime have you left the hospital with your doctor on hand? And of those times, how often was there a notary public to see you off? The common practice is that your doctor (who may or may not have been paid already) gives you a clearance to go home, he goes home, you settle your bill with the hospital and you go home.

The regulations, undoubtedly born of a bureaucratic mind, now require, in effect, either that you, your doctor and your notary be altogether when you check out of the hospital, or, you and your doctor, within 10 days from your discharge go to a notary public to jointly execute the declaration. Everyone knows, including Secretary Camacho and Commissioner Parayno themselves, that neither scenario will happen as a matter of course. What hospitals will most likely do is to ask the doctor, whenever he is available, to sign the form with a blank date and, later, demand that the patient also sign the same before he is released. The form, thus separately signed, will then be sent by the hospital, which is obliged to keep it in its records, to a notary public who will supply a date and attest that, on that day, doctor and patient signed (i.e. subscribed) and swore before him.

That attestation, of course, is totally false and exposes the poor notary to the real possibility of disbarment. But more important for the revenue authorities, perhaps, is that requirement for "a sworn declaration jointly executed by the medical practitioner and the patient or, his duly authorized representative," is practically a condition almost impossible to fully satisfy, thereby making hospitals and clinics, who are the withholding agents, easy prey. Whoever in the finance bureaucracy thought of that requirement was really smart, no?

In fairness, however, to Secretary Camacho and Commissioner Parayno, it must be pointed out that, besides taxing the grieving and the infirm, they also, included in the sweep of Revenue Regulations 14-2002, the barely alive and kicking. They have also imposed a withholding tax of 5 percent on gross rentals in excess of P10,000 per payment for the use or continued use or possession of all kinds of personal property used in business. If the rentals can be reasonably expected to exceed P10,000 for the entire year, then the lessee should withhold the 5 percent not just on the excess of P10,000 but on the entire amount.

Singled out, for special mention only and not by the regulations to exclude those not mentioned, are leases over, to name a few, transport equipment, industrial, commercial, scientific, agricultural machinery and equipment, main frame computer, and other computer machines/equipment, materials handling equipment and auxiliary equipment.

Moreover, rentals for poles, satellites and/or transponder and transmission facilities are now to be subject to 5-percent withholding tax as well as rentals for leases of spaces used in posting advertisements in the form of billboards and similar structures.

Payments to persons engaged in the sale of computer services, computer programmers, software/program developer/designer, internet service providers, those who do web page designing, computer data processing, conversion or base services and other computer related services, are now subject to 2-percent withholding tax.

Your stockbroker who is now, because of the state of stock market, brown bagging instead of lunching at five star hotels, will need to further tighten his belt because his commissions will be subjected to 10-percent withholding tax. He is not alone, his cousin, the immigration broker, shares the same fate.

Your neighborhood cosmetic sales lady who sells her wares from door to door will not be smiling as sweetly nowadays. Gross commissions paid by multi-level marketing companies to independent and exclusive distributors, medical/technical and sales representatives, and marketing agents and sub-agents on their sale of goods or services by way of direct selling or similar arrangements are now to be subject to withholding, also at 10-percent.

But even sugar may not be as sweet as before. Gross processing/tolling fees paid to refineries for the conversion of molasses to its by-products and raw sugar to refined sugar will be subject to 5-percent withholding tax.

There is more to Revenue Regulations 14-2002 than those pointed out above. But it serves no useful purpose to cite them all and make this Monday bluer than it is. Better to end on a positive note, at least for some, like those wonderful and wonder-making people known as occupational therapists.

The new regulations extends the 10-percent withholding tax, formerly just on doctors of medicine, doctors of veterinary science and dentists, to other "medical practitioners". The term "medical practitioners" is now defined as including medical technologists, allied health workers such as occupational therapists, physical therapists, speech therapists, nurses, etc, and similar persons not in employ of the hospital or clinic.

What can these medical practitioners legally do to avoid the tax that is to be withheld by the hospitals and clinics from their fees? They may band themselves together and form general professional partnerships for the practice of their common profession. On the authority of Section 2.57.5 of Revenue Regulations 2-98, as amended by Section 4 of this new Revenue Regulation 14-2002, their general professional partnership will not be subject to the 10-percent withholding tax.