The Supreme Court recently ordered the Philippine Health Care Providers, Inc. (Philhealth) to pay the Bureau of Internal Revenue more than PhP350 million representing unpaid documentary stamp taxes (DST) and their corresponding surcharges and interests for the years 1996 and 1997.

In a 14-page decision penned by Justice Renato C. Corona, the Court’s First Division affirmed the decision of the Court of Appeals (CA) and held that petitioner Philhealth’s health care agreement is in the nature of an insurance contract and therefore subject to DST under sec. 15 of RA 8424 (Tax Code of 1997).

The Court said that the DST is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland, and fire insurance), bond, or obligation in the nature of indemnity for loss, damage, or liability. The Court also said that a contract of insurance is an agreement where one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

The Court ruled that Philhealth’s health care agreement is primarily a contract of indemnity and that contrary to the latter’s claim, is not a contract for the provision of medical services. “Petitioner does not actually provide medical and hospital services but merely arranges for the same, and pays for them up to the stipulated maximum amount of coverage,” the Court explained.

On Philhealth’s claims that its health care agreement is not based on loss or damage, the Court pointed out that under the agreement, the petitioner assumes liability and indemnifies its members for hospital, medical, and related expenses. (GR No. 167330, Philheath v. CIR, June 12, 2008)