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By: Euney Marie J. Mata-Perez on November 29, 2018

Medical and hospitalization costs in the Philippines are not cheap and could be daunting for ordinary employees. Thus, to cover these costs, many employers obtain group health insurance plans or “health cards” for their employees or contribute to health and hospitalization benefit plans. The issue arises on whether premium costs paid for such group health insurance would be subject to the fringe benefits tax (FBT) or withholding/income tax on compensation income.

In May this year, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 50-2018 (RMC 50-2018) which declares, among others, that premiums on health cards paid by employers for all employees, whether rank and file or managerial/supervisory, for group insurance shall be included as part of other employees’ benefits which are subject to the P90,000 income tax exemption threshold. The BIR now effectively considers such premiums as compensation income that are exempt from income tax (and, consequently, from withholding tax requirements) only if they fall within the P90,000 exemption threshold.

The above pronouncement of RMC 50-2018 reversed the BIR’s previous position on the matter and has caused confusion (and problems) to many.

RMC 50-2018 was supposed to further clarify the withholding tax provisions under previous revenue regulations (Revenue Regulations Nos. 8-2018 and 11-2018) implementing TRAIN 1 (Republic Act No. 10963). However, TRAIN 1 did not amend the coverage of FBT or the income tax provisions of the Tax Code on health insurance premiums. It merely increased the FBT rates from 32 percent to 35 percent and amended the personal income tax PIT rates, among others.

Section 33(B)(10) of the Tax Code expressly provides that life or health insurance premiums and other non-life insurance premiums or similar amounts in excess of what the laws allow are subject to FBT. However, if such premiums are paid for group insurance of employees, they are expressly exempt from and not subject to FBT. This exclusion was introduced by Revenue Regulations No. 3-98 (RR 3-98), the regulations implementing Section 33 of the Tax Code relative to the FBT provisions introduced by Republic Act No. 8424 (the Tax Code of 1997).

The exemption of premiums for group insurance from FBT, however, did not mean exemption from any other income tax imposed under the Tax Code. A “fringe benefit” may still form part of the employee’s gross compensation income which is subject to income or withholding tax, as clarified by RR 3-98.

Thus, the exemption from FBT of group insurance premiums does not necessarily mean they are exempt from income tax on compensation income. However, in several BIR rulings, the earliest of which was issued in 2003, the BIR affirmed that group insurance premiums costs are not also subject to income tax/withholding tax on compensation (BIR Ruling DA-081-03; BIR Ruling DA-374-08). The BIR then held that such premiums are exempt from both FBT and income tax.

It is thus clear that RMC 50-2018 reversed all these previous rulings, in the guise of implementing TRAIN 1 amendments, and revised the income tax treatment on premiums paid on group health insurance. This reversal is controversial and has caused problems to employers for several reasons:

As mentioned, TRAIN 1 did not amend the scope or coverage of income or benefits subject to FBT under Section 33 of the Tax Code. It merely increased the FBT rate from 32 percent to 35 percent and amended the PIT rates, among others.

TRAIN 1 did not also amend what constitutes “compensation income” for income tax purposes; neither did it amend any income tax provision on insurance premiums.
The P90,000 exemption seeks to cover “other benefits” which generally include the 13th month pay, Christmas bonuses and productivity incentives, as provided under Section 32(B)(7)(e) of the Tax Code, as amended. Insurance premiums on group health insurance are not akin to bonuses or incentive pays.

Insurance health premiums are paid to health card or health insurance companies, not to the employees, and are at amounts agreed between the employers and such companies. To subject them to withholding tax on compensation would mean the employers will have to “gross up” the payments and pay additional cash, as withholding tax, to the government. At the end of the year, employers will charge the tax to the employees, thereby, reducing the employee’s final net or take-home pay. In effect, employers who look out for the health concerns of their employees, as well as their employees, are being penalized.

The amounts paid for group insurance premiums may not be known to the employee or even directly attributable to him or her. Thus, there may difficulty in allocating the amount of premiums to employees concerned.

There is also no doubt the premiums for group insurance are paid for the convenience of the employer. Health insurance coverage may help ensure employees’ good health, a major factor for productivity, and would insulate employers from the financial burden of providing financial aid to employees for their medical and hospital bills. Thus, enrolling employees in group health insurance plans and providing them with health cards certainly benefit the employer’s business.

We understand that the BIR is revisiting its position on this matter and may possibly issue a reversal. Employers and the employees would most welcome such a reversal. However, since many employers are now doing their year-end annualization and adjustments of withholding taxes, we hope that a reversal will be issued at the soonest possible time.

Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer. She is the newly-elected President of the Asia-Oceana Tax Consultants’ Association. She acknowledges the contribution of Atty. Aziza Hannah A. Bacay to this article. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at or visit MTF Counsel’s website at

From The Manila Times website on November 29, 2018

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Euney Marie J. Mata-Perez

Mark Anthony P. Tamayo

Gerardo Maximo V. Francisco