When tax meets politics



The 90-day campaign period officially began on Feb. 9, 2016, but as early as the last quarter of 2015, campaign ads were already popping up on TV, over the radio, and especially on social media. Considering the cost of running for public office in this country—some estimates peg it at P2 billion if one wants to have a chance at the presidency—it’s not surprising that candidates want to get an early start on raising their popularity; they’re going to need all the contributions they can get.

Political contributions may come from different sources and may take the form of cash or non-monetary contributions, such as campaign materials, paid television ads, billboard and bus ads, newsletters, radio spots, etc. But let’s take a look at a more specific kind of contribution: corporate spending.

Section 36 (9) of the Corporation Code of the Philippines (CCP) provides that corporations, domestic or foreign, shall not be allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity. It should be noted that the CCP provides an absolute prohibition for corporations.

On the other hand, Section 95 of the Omnibus Election Code (OEC) states that there are only certain corporations and juridical entities that should not be allowed to contribute for purposes of partisan political activity. These include, among others, public or private institutions, and persons who operate a public utility or are in possession of or can exploit any natural resources.

It may be inferred that the two provisions under the CCP and OEC are contradicting stipulations: CCP provides no exception as to its prohibitions but the OEC provides only an enumeration of certain corporations and juridical entities.

To clear the issue, the Securities and Exchange Commission (SEC) issued its legal opinion on July 27, 2015 stating that Section 95 of the OEC has not amended or repealed, expressly or impliedly, Section 36 (9) of the CCP, which means that the prohibition on corporations donating campaign funds or making any other political contributions is still absolute. The SEC further clarified that it shall be interpreted that Section 95 of the OEC is an amplification of the absolute restriction provided in the CCP.

The Bureau of Internal Revenue (BIR), also eyeing the issue of campaign contributions, issued Revenue Regulations (RR) No. 8-2009, further amended by RR No. 10-2009, which requires political parties and candidates of local and national elections to withhold and remit to the BIR 5 percent from its income payments for their purchases of goods and services considered as campaign expenditures. This includes income payments made by individuals and juridical contributors for their purchases of goods and services intended to be given as campaign contributions.

For instance, if an individual pays for printing services and contributes campaign paraphernalia purchased from a certain corporation, such individual shall be required to withhold 5 percent from such income payment to the said corporation and further remit the withheld amount to the BIR not later than the 10th day of the month following the month of accrual or payment, whichever is earlier. In the case of an Electronic Filing and Payment System (eFPS) filer, the deadline shall be the date as prescribed in the eFPS regulations.

In case an individual donates cash to a political party or a candidate, will the said donation or contribution be subject to 5 percent creditable withholding tax (CWT)?

The answer should be, no. Such cash donation is not considered an income payment to supplier of goods or services where the 5 percent CWT is applicable.

Another question would be, will the cash donation be subject to donor’s tax?

Under Republic Act (RA) No. 7166, any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes shall not be subject to the payment of any gift tax provided that such contribution is duly reported to the Commission on Elections (COMELEC).

What if the donation is made before the official campaign period—will it still be exempt from donor’s tax?

It should be noted that contributions made and used before the official campaign perio d are not reportable to the COMELEC as part of the campaign expenses of the candidate. Thus, applying the strict interpretation of RA No. 7166, it would appear that such donation made before the official campaign period is subject to donor’s tax.

To add to the regulations on campaign contributions, the BIR also issued RR No. 7-2011, which stipulates that unutilized or excess campaign funds—that is, campaign contributions net of the candidate’s campaign expenditures, shall be considered subject to income tax and is reportable in the candidate’s Income Tax Return.

It provides further that in the event of failure of the candidate to file with the COMELEC the appropriate Statement of Expenditures required under the OEC, the candidate shall be automatically precluded from claiming such expenditures as deduction from his or her campaign contributions. Hence, the entire amount of the campaign contribution shall be considered subject to income tax.

The author is an Assistant Manager with the Tax & Corporate Services Division of Navarro Amper & Co., the local member practice of Deloitte Touche Tohmatsu Ltd., a UK private company limited by guarantee (DTTL”). Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. It has more than 220,000 professionals worldwide, including those in Deloitte Southeast Asia Ltd., which covers Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.


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