Health premiums: taxable wealth
TOP OF MIND - Vichellene L. Gandecila (The Philippine Star) - November 27, 2018 - 12:00am

Having friends know you are a tax professional in public practice makes you their go to person for any clarification and, at the same time, be the recipient of their apprehensions. This happened to me when Revenue Memorandum Circular (RMC) No. 50-2018 was issued.  The RMC further clarified the new income and withholding tax provisions of Republic Act (RA) No. 10963 (TRAIN Law) via the usual question and answer format.

In answer to question no. 7 in the RMC, dated May 11,  the BIR explained that health card premiums paid by an employer for all employees, whether rank and file or managerial/supervisory, under a group insurance shall be included as part of other benefits of these employees which are subject to the Php90,000 threshold for 13th month pay and other benefits.  Thus, any amount in excess of the threshold is subject to income tax.  However, individual premiums (not part of a group insurance) paid for selected employees holding managerial or supervisory functions are considered fringe benefits subject to Fringe Benefits Tax (FBT). 

Although the above interpretation aligns with the thrust of the TRAIN Law which is to collect more taxes while having lowered the personal income tax rates, it observably stirred concerns among employers and employees alike.  If we can recall, pursuant to Section 2.33 (B) (10) and (C) (2) of RR No. 3-98 (FBT regulations), the cost of premiums borne by the employer for the group insurance of its employees is non-taxable.  While RR No. 3-98 explicitly mentions also that the exemption from FBT shall not be interpreted to mean exemption from any other income tax, the BIR, through BIR Rulings DA-081-03, DA-469-07, DA-509-07, previously ruled that such premiums are exempt from income tax and, accordingly, from withholding tax on compensation.

Notwithstanding the legal basis to support non-taxability, we cannot expect the BIR to issue any clarificatory memo anytime soon.  As such, RMC No. 50-2018 should be adhered from a tax compliance perspective beginning Jan. 1, effectivity of TRAIN Law.

What now?  Luckily, if a protest is made and the BIR reverts to the old interpretation, a tax credit relating to the insurance premiums can similarly be taken at year-end adjustment.  Or, if the bureau sticks to the new treatment, at the very least, it should issue guidelines on how to determine the valuation of an unrealized insurance benefit given to employees.  Furthermore, for companies that already paid health premiums and have been remissed to pay tax pursuant to the RMC, they can amend the relevant withholding tax returns or make a catch-up remittance at year-end, whichever may be applicable.  Other than the financial impact of this outright change in tax treatment, employers should also be wary of the administrative difficulty of having to attribute the group premiums to individual beneficiaries/employees while applying the P90,000 cap, which can be easily breached especially since the 13th month pay and bonus payments are just around the corner.  

All these lead us to ask, is there any realized income which can be determined with reasonable accuracy that makes premiums part of taxable compensation income? Does the BIR intend to extend taxation to non-health group insurance as well?

Despite the negative outlook in paying additional tax, a perceptive friend told me (and I agree) that, whether or not the BIR changes its mind, a free health insurance is still a benefit you can’t say no to.  Besides, as Mahatma Gandhi once said, “It is health that is real wealth and not pieces of gold and silver.”

Vichellene L. Gandecila is a senior manager from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

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