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Campaign contributions and the tax implications

THE Philippines was described as a politics-crazy country in one article I encountered last week. I must admit to being fond of politics, too, as I was actually in one campaign sortie last week when the campaign period for the national elections kicked off on February 8.

It is said that death and taxes are inevitable and needless to say, taxes have a relation with elections as well. Below are some key points that will be useful to fellow accountants and corporate management personnel.

The Revised Corporation Code of the Philippines states that every corporation incorporated under the code has the power and capacity to make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic or similar purposes. No foreign corporation, however, can give donations in aid of any political party or candidate or for purposes of partisan political activity. Prior to its amendment, the code prohibited both domestic and foreign campaign donations.

Revenue Memorandum Circular (RMC) 31-2019, meanwhile, reiterates the issuance of non-VAT official receipts for every contribution received, whether in cash or in kind, valued at fair market value.

Contributions in cash or in kind to candidates, political parties or party-list groups that are duly reported to the Commission on Elections (Comelec) are exempt from the imposition of donor's tax (Section 94(a) of Batas Pambansa Bilang 881 or Omnibus Election Code of the Philippines) and the final paragraph of Section 13 of Republic Act 7166.

Note that RMC 38-2018 makes mention the donor's tax exemption only for donations utilized/spent during the campaign period. Otherwise, the donations are not exempt from donor's tax and not deductible as a political contribution on the part of the donor. This stems from the presumption that campaign contributions are meant to be utilized by the candidate for his or her campaign and not for personal use and are thus not a proper inclusion to the candidate's taxable income. Donations utilized before or after the campaign period also do not qualify for donor's tax exemption and allowable deduction.

The challenge on the part of the contributor is showing proof that the donations were actually spent by the recipient during the campaign period. The proof is usually the certificate of spending issued by the registered party or the statement of contributions and expenditures (SOCE), which should be filed within 30 days after the election by the losing or winning candidate.

Unutilized/excess campaign funds, that is, campaign contributions net of the candidate's or political party's/party list's campaign expenditures, will be considered subject to income tax and must be included in their/his or her taxable income in the income tax return filed for the taxable year.

Further, any candidate or political party/party-list group, whether successful or unsuccessful, who fails to file the required SOCE with the Comelec will automatically be precluded from claiming such expenditures as deductions from campaign contributions, making the entire amount directly subject to income tax. For additional procedural guidelines, please refer to RMCs 38-2018 and 31-2019.

More often than not, some political contributions remain unspent by the candidate after the election. The candidate is thus obliged to report the unspent amount as taxable income and if applicable, as part of his or her Statement of Assets and Liabilities.

Voters view the election as something close to their hearts, either vocally or by being part of the so-called silent majority, but the common denominator is always how they support their candidate. Financial support is, of course, always welcome and hopefully will not be used for personal gain and ill motives but to assist the candidate who is supposed to put public interest first when elected. Nonetheless, contributors are expected to follow all related laws to avoid the unnecessary imposition of taxes or imprisonment.

We always hear the slogan "Vote wisely!" If I may add, we should also say, "Be a wise campaign donor!"

Floyd C. Paguio, CPA, MBA is the chairman and CEO of Paguio, Dumayas and Associates, CPAs (PDAC) - PrimeGlobal Philippines and a member of the board of the Acpapp. The views and opinions in this article are his and do not represent those of PDAC and the Acpapp.

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