Written by Susan M. Aquino, 14 June 2007
The votes have been cast and except for the formal proclamation of some and the expected protests of other losing candidates, the political fiesta is over.
After the elections, political analysis became the order of the day and various opinions have been offered as to why some candidates failed miserably at the polls in spite of an abundance of financial resources and political machinery. But still for some, money proved to be the winning factor.
In the final analysis, winning an election, much like gambling, is really a game of chance. The expected pay-off from the money contributed by a benefactor to the coffers of the candidates may be but a pipe dream as the election results unfold.
Win or lose, the country’s election and tax laws provide stringent requirements with regard to political contributions The Synchronized Elections Act of 1991 (Republic Act 7166) requires each candidate and the treasurer of the political party to file a true and itemised statement of all campaign contributions and expenditures with the Commission on Elections (COMELEC) within thirty days after election day. The Omnibus Election Code likewise directs the contributors to file a similar statement.
Thus, under Section 3 of COMELEC Resolution No. 7794 issued on December 27, 2006, all political contributors are required to file a statement with the COMELEC providing among others, the amount of contribution, within thirty (30) days from the day of the election (or up to June 13, 2007).
Failure to file this statement of contributions and expenditures within the period provided by law will prevent the winning candidate from assuming the duties of his or her office and will also constitute an administrative offense on the part of the political benefactors. More importantly, failure to file this statement will expose them to the donor’s tax because the tax exemption on political contributions as provided by the law is limited only to those duly reported to the COMELEC as provided in Section 13 of RA 7166. As discussed in my previous article, “Taxable benevolence” (dated 12 April 2007), political contributions are generally considered as donations subject to donor’s tax. However, exemption from donor’s tax apply provided they are reported to the COMELEC.
But with all these legal obligations imposed on political benefactors, the law seems to be silent on the deductibility of political contributions from gross income. Corporate benefactors, especially, may be interested to know if political contributions they made are deductible for income tax purposes. After all, huge sums of money have been spent by some corporations and unfortunately for some, they might not even get the so-called return of investments as the candidate they supported may have lost in the elections.
The Tax Code states that expenses may be deducted from gross income provided they are considered ordinary and necessary in carrying on or are attributable to, the development, management, operation and/or conduct of the trade, business or exercise of profession of the taxpayer.
In various BIR Rulings, it has been ruled that deductible expenses are those which are directly connected with and proximately resulting from carrying on the business of the taxpayer and must be shown to be appropriate and helpful in the development of the taxpayer’s business for the pursuit of income and profit.
From a general perspective, political contributions may be viewed as helpful in the development of the taxpayer’s business since most often than not, private businesses contribute to the campaign kitty of political candidates not purely for benevolent reasons but really for business reasons.
On this basis, political benefactors may justify the deductibility of their political contributions from their gross income. They can even stretch this supposition further by citing the Supreme Court decision in Atlas Consolidated Mining and Development Corporation (102 SCRA 246) which ruled that there is no hard and fast rule on the right to a deduction and that the intention of the taxpayer may often be the controlling factor in making a determination. If this is the case, then the intentions of some may seem to entitle them to such a deduction.
As candidly admitted by the petitioners in the case of Abello vs. Commissioner of Internal Revenue (G.R. No. 120721,February 23, 2005), an electoral contribution is given to a candidate or candidates who in their perception would promote not only the general welfare but also to promote its own interests.
Taken in this context, political contributions seem to fall under the category of “necessary” but there may be serious doubts if such can be called “ordinary” .
In the Atlas decision, the Supreme Court distinguished between the two terms when it stated categorically that an expense is rendered necessary when the expenditure is helpful in the development of the business of the taxpayer, and ordinary when it “connotes a payment which is normal in relation to the business of the taxpayer”.
Viewed in this light, political contributions cannot, by any stretch of the imagination, be considered normal to the business of the taxpayer.
A possible basis to justify deductibility of political contributions may be found in Section 34 (H) (2) (c) of the Tax Code which provides that donations given to non-government organizations (NGOs) are considered deductible from the gross income of the donors subject to the limitations provided therein.
It’s possible that some party lists that ran in the last elections which are organised for charitable, social welfare purposes, among others, may be accredited and recognized as NGOs, thus under this circumstance, the political contributions to the party list organizations may be tax deductible.
Having said that, taxpayers making political contributions should be careful in claiming tax benefit from political contributions made. Unless the political contributions would qualify as expenses that are ordinary and necessary to their business as contemplated under the law, said contributions run the risk of being disallowed as deduction from the taxpayer’s gross income.
