Hospital told to pay gov't P6.2M in taxes

CEBU, Philippines - The Court of Tax Appeals has ordered the management of the Perpetual Succour Hospital to pay P6,289,688 to the government representing its deficiency income tax and deficiency expanded withholding tax for taxable year 2001.

However, the Sisters of St. Paul De Chartres, a religious congregation that owns the hospital located in Barangay Kamputhaw in Cebu City still has the right to appeal the tax court’s decision before the Supreme Court if they want.

The lengthy court battle started after the commissioner of the Bureau of Internal Revenue on November 11, 2003 issued a Preliminary Assessment Notice to the hospital claiming that it has several unpaid tax obligations to the government amounting to P22.5 million, but it was later increased to P25,530,731.

The issuance of the BIR’s tax assessment notice to PSH was issued 22 years after then BIR commissioner Misael Vera on May 16, 1961 granted the hospital exemption from income tax owing to its character as a religious, non-profit, non-stock and charitable institution.

Associate Justice Olga Palanca-Enriquez who penned the 37-page decision clarified that the P4,071,200 of the P6,289,688 tax obligation of PSH represents the deficiency expanded withholding tax, inclusive of surcharge and deficiency interest, while the rest is for income tax.

Although the tax court has ruled that PSH is exempted from the payment of income tax, it is not exempted for the “income from any other source.”

The tax court ruled that since the PSH failed to prove that its net income of P6,932,776 out of the proceeds of the interests of their bank deposits is tax-exempt, therefore it will be subject to ordinary corporate income tax amounting to P2,218,488.

The BIR had learned that the management of PSH failed to deduct the expanded withholding taxes from their payments to the doctors’ professional fees, contractors’ fees and other payments.

The government’s revenue officers earlier assessed tax payments to PSH for the operation of a pharmacy within the vicinity of its hospital, but the tax court has ruled that “medical, dental, hospital and veterinary services, except those rendered by professionals, are exempt from value added tax.”

Justice Enriquez said the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility rendered by any hospital for its patients.

It was also noted that the government lawyers from the Office of the Solicitor General had decided not to cross-examine the hospital’s presented witnesses who claimed that PSH is really not for profit, but instead it was established to help the poor sickly people.

“Settled is the rule that where a party has had the opportunity to cross-examine an opposing witness, but failed to avail himself of it, he necessarily forfeits the right to cross-examine and the testimony given on direct examination of the witness will be received or allowed to remain in the record,” the tax court ruling reads.

The records showed that PSH had a net income of P44,778,307 in 2001, but it cannot be taxed because the records still show that the hospital remains a non-profit and non-stock institution.

The tax court justices ruled that considering that PSH counsels have sufficiently established by preponderance of evidence that said hospital is exempted from the payment of income tax, the Court of Tax Appeals will respect the BIR’s earlier declaration that PSH is a religious, non-profit, non-stock charitable institution.

It was also learned that the Cebu City government had also assessed the local tax obligation of PSH, but the hospital filed a case before the Regional Trial Court to stop the city from compelling it to pay business taxes. — (FREEMAN)