And so it begins. The last day for the substitution of candidates for elections was set yesterday, Nov. 15, and we now have a better idea of what the ballot will look like for the May 9, 2022 national elections.
A rise in election campaign spending is anticipated, albeit in more creative ways as we are still coping with the COVID-19 pandemic. According to the Philippine Center for Investigative Journalism (PCIJ), some P5.8 billion was spent during the 2016 polls, with major spending on ad placement in various media platforms — and that is assuming that there were no misstatements in the Statement of Contributions and Expenses submitted by the political candidates to the Commission on Elections (Comelec).
Nevertheless, beyond the tumult of election campaigning and controversies, one thing that is consistent regardless of the season is taxes. Over the years, many discussions have taken place on election contributions; as such, it is equally important to discuss the taxability of election contributions as much as the election itself. Let’s take a glimpse at the history of the tax treatment of campaign funds over the years.
In the case of Abello et al. vs. Commissioner of Internal Revenue (G.R. No. 120721, February 23, 2005), the Supreme Court held that the contributions made by Abello et al. in 1987 for the political campaign of then Senator Edgardo Angara were subject to gift or donor’s tax. While the petitioners asserted that the Bureau of Internal Revenue (BIR) had never attempted to impose donor’s taxes on political contributions since the 1939 Tax Code, the Supreme Court further held that the BIR is not precluded from making a new interpretation of the law, especially when the old interpretation is flawed. Besides, the contribution falls within the purview of donations as per the New Civil Code. It is to be noted, however, that at that time, there was no regulation exempting political contributions from donor’s tax.
The high court ruling may be discouraging to political supporters. Why even bother donating to a cause if the donor is taxed? Fortunately, legislative action has addressed some concerns. For one, the 1997 Tax Code deferred to the Omnibus Election Code and Republic Act (RA) No. 7166 on the tax treatment of campaign contributions and funding. Under Section 13 of RA No. 7166, any contribution in cash or in kind to any candidate, political party, or coalition of parties for campaign purposes, duly reported to the Comelec, shall not be subject to any gift tax.
The BIR further strengthened that provision by issuing Revenue Memorandum Circular Nos. 38-2018 and 31-2019. As clarified, campaign contributions are exempt from donor’s tax only during the exclusive period for campaigning as scheduled by the Comelec. According to the Comelec calendar of activities for the 2022 polls, the campaign period runs from Feb. 8, 2022 to May 7, 2022, with prohibitions on campaigning in force on April 14 and 15 or during the Holy Week break. Therefore, pending further clarification by the BIR, only donations made between Feb. 8, 2022 and May 7, 2022 are exempt from donor’s tax. Donations extended before this period are subject to a donor’s tax of 6% in excess of the P250,000 exempt gift threshold and which are not deductible as donation on the part of the donor.
Furthermore, until 2018, domestic and foreign corporations were prohibited by the 1980 Corporation Code to give donations in aid of any political party or candidate. The Securities and Exchange Commission (SEC) penalizes erring corporations a fine of P1,000 to P30,000 and imprisonment of between 30 days and five years, or both. One may recall that during the 2016 polls, at least two corporate donors were alleged to have funded political campaigns, according to the PCIJ.
With the enactment of the Revised Corporation Code in 2019, only foreign corporations are prohibited from giving such donations. It appears therefore, that a domestic corporation is now allowed to fund political campaigns so long as it is not a prohibited entity under the Omnibus Election Code. These prohibited contributors include those engaged as public or private financial institutions, those engaged in public utilities, those who hold contract or sub-contracts to supply the government, those who were granted franchises, incentives, allocations, or concessions by the government, and entities provided with government loans in excess of P100,000.
For income tax purposes, on the other hand, the eligible campaign contributions may be deducted from the donor’s gross income, subject to a cap of 10% for individual donors and 5% for corporations, based on their computed taxable income before the donations. These may not be deducted in full as these are not donations given to the government or accredited non-government organizations, or to selected foreign organizations.
So, should one be taxed for showing political support? Our election laws say no tax should be imposed on donations, as long as these are within the bounds of and within the timelines provided by law. After all, they say the most tangible way to support your candidate — aside, of course, from actually casting your vote — is to donate tax-free.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Joen Jacob G. Ramas is a senior-in-charge of the Tax Advisory & Compliance division at the Cebu office of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.