Lex Rex Ph

CIR vs. St. Lukes Digest

“The Charitable Shall Still Pay Tax”


St. Lukes is a charitable, non-stock, non-profit hospital but it receives paying patients. BIR assessed St. Lukes arguing it is liable under Sec.27(b) as “proprietary non-profit hospital which shall pay 10% income tax.” St. Lukes protests arguing it is exempted from income tax under Sec.30(E)(G)


Is St. Lukes no longer a non-profitable/charitable hospital? Is it liable for income tax?


St. Lukes does no lose its status as a non-profit/charitable hospital simply because it accepts paying patients. Those property used actually, directly and exclusively for charitable purposes are classified as “special” (Sec. 216-215 LGC) and prescribes a lower assessment than commercial classification. Only income from real property or any activity that is conducted for profit shall be subject to income tax (Sec. 30 last par.). To determine whether 10% or 30%, Predominance Test is used. If more than 50% of its income is from its primary purpose, 10% income tax (Sec.27B). If more than 50% from unrelated business, 30% (Sec.27A).

“Special Property”

Sec. 216 of the LGC: “All lands, buildings, and other improvements thereon that are ADE (actually, directly, and exclusively) used for hospitals, cultural or scientific purposes, owned and used by local water districts, and GOCCs rendering essential public services in the supply of water and electricity”

These properties are classified as “special” (Sec. 216-215 LGC) and prescribes a lower assessment than commercial classification.

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