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Taxation of Campaign Contributions

By Euney Marie Mata-Perez on January 27, 2022

The official campaign period for the May 2022 national and local elections will start soon and candidates will be, or perhaps have already started, soliciting campaign contributions.

The giving of campaign contributions is recognized under Batas Pambansa 881 or the Omnibus Election Code of the Philippines. Under Section 94 (a) of the code, the term “contribution” includes a gift, donation, subscription, loan, advance or deposit of money or anything of value or a contract, promise or agreement to contribute, whether legally enforceable, made for the purpose of influencing the results of the elections. It does not include services rendered without compensation by individuals volunteering a portion or all of their time on behalf of a candidate or political party. It also includes the use of facilities voluntarily donated by other persons, the money value of which can be assessed based on rates prevailing in the area.

Not everyone is allowed to make campaign contributions. Under Section 35 of the Revised Corporation Code (RCC), a foreign corporation is not allowed to give donations in aid of any political party or candidate, to wit:

“Section 35. Corporate Powers and Capacity. Every corporation incorporated under this Code has the power and capacity:

(i) To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity.”

Prior to the passage of the RCC, all corporations were prohibited from giving campaign contributions. The RCC modified the rule by just limiting the prohibition to foreign corporations, thereby allowing domestic corporations to make campaign contributions legally.

It should be noted, though, that candidates and their political parties have to comply with obligations imposed by the Bureau of Internal Revenue.

Revenue Memorandum Circular (RMC) 38-2018, as amended by RMC 31-2019, provides that all political parties and party-list groups should register and keep adequate books and other accounting records such as a Cash Receipts Journal (the basis for the Statement of Contributions for submission to the Commission on Elections or Comelec), a Cash Disbursements Book (the basis for the Statement of Expenditures for submission to the Comelec) or their equivalents. Individual candidates may opt to use a simplified set of bookkeeping records as long as these can provide accurate information.

Moreover, every candidate and treasurer of political parties/party-list groups should submit the statements of contributions and expenditures to the Comelec and the Revenue District Office where the candidates/political parties/party-list groups are registered within 30 days after the election.

Tax implications

Any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes that is duly reported to the Comelec will not be subject to gift or donor’s tax. This is provided under Section 13 of Republic Act 7166 or the “Act Providing for Synchronized National And Local Elections and For Electoral Reforms, Authorizing Appropriations.”

In relation to this, RMC 38-2018 provides that only those donations/contributions that have been utilized/spent during the campaign period as set by the Comelec are exempt from donor’s tax. Donations utilized before or after the campaign period are subject to donor’s tax and not deductible as political contributions on the part of the donor.

On the part of the candidate to whom the contributions were given, Revenue Regulations 7-2011 provides that, as a general rule, the campaign contributions are not included in their taxable income. The reason is that such contributions were given not for the candidate’s personal expenditure/enrichment but for the purpose of utilizing such for his or her campaign. Thus, to be considered exempt from income tax, these campaign contributions must have been utilized to cover a candidate’s expenditures for the electoral campaign.

Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s campaign expenditures, will be considered subject to income tax and as such must be included in the candidate’s taxable income as stated in his or her income tax return filed for the subject taxable year.

Moreover, RR 7-2011 also provides that any candidate, winning or losing, who fails to file the appropriate Statement of Expenditures required under Omnibus Election Code will be automatically precluded from claiming such expenditures as deductions from his or her campaign contributions. As such, the entire amount of such campaign contributions will be considered as directly subject to income tax.

Lastly, RMC 38-2018 provides that income payments made by political candidates and political parties/party-list groups on purchases of goods and services as campaign expenditures, and income payments made by individuals or juridical persons for their purchases of goods and services intended to be given as campaign contribution to political parties and candidates, will be subject to 5-percent creditable withholding tax (CWT).

In relation to this, expenses not subjected to the 5-percent CWT are not considered utilized campaign funds and candidates, political parties and party-list groups are precluded from claiming such expenditures as deductions from campaign contributions. The full amount corresponding to said expense should be reported as unutilized campaign funds subject to income tax.

Candidates and political parties are urged to be mindful of these rules and requirements.

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Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel).

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