Written by Susan M. Aquino, 12 April 2007
With the constant bombardment of political ad campaigns on television, radio and print media, one can no longer escape the political fiesta that has become a staple of Philippine elections.
Watching a favourite program on TV these days also means having to endure the constant barrage of political slogans of candidates either asking us to “plant” him in the Senate or asking us to “forgive her” for past transgressions.
With the national and local elections just around the corner, constant exposure and name recall are two of the important factors that may spell the difference between winning and losing.
To stage a political campaign obviously costs a lot. A recent news item disclosed that a political ad campaign during prime time TV costs about P301,133.00 for thirty seconds.
The Fair Election Act or Republic Act No. 9006 grants each bona fide candidate or registered political party a total of 120 minutes of television advertisement throughout the campaign period. A cash-awashed, monied candidate must have a whooping P72.3 million funds to be able to consume said 120-minute air time.
Moreover, the Rules and Regulations implementing RA 9006, allow an official candidate of political parties to spend a total of P3.00 for every registered voter in the constituency where they filed their certificate of candidacy.
As for political parties and coalition, they are allowed a budget of P5.00 for every voter currently registered in the constituency or constituencies where they have official candidates.
Translated into the number of registered voters in this country, the allowable amount seems to run into millions not to mention the undeclared sum that would be needed to mount a vigorous campaign.
It is not surprising then for these candidates to rely heavily on political contributions from friends and supporters to be able to sustain the campaign momentum until the end of the campaign period.
What then is the proper tax treatment of political/campaign contributions? Are such political/campaign contributions considered taxable donations and therefore subject to the donor’s tax prescribed under Section 98 of the Tax Code?
Under the Civil Code of the Philippines, a donation is defined as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.”
Thus, for political/campaign contributions to qualify as donations, the contribution must be given purely out of the generosity of the donor without expectation of any payment or favor, material or otherwise, from the donee.
It was argued that the giving of electoral contributions cannot be construed as an act of liberality without any consideration since the act of giving such contributions constitutes an attempt on the part of the giver to influence the results of an election by supporting candidates whom he/she feels would serve his/her interests.
The argument seems to say that political contributions are not without strings attached to be considered as a donation but in reality, given for a valuable material consideration to be collected, so to speak, after a candidate assumes the position.
To a certain extent this argument may seem to be correct in light of the present realities of Philippine politics.
The Supreme Court (SC), however, had taken a different position in regard to this issue. In the recent case of Manuel G. Abello et. al. vs. Commissioner of Internal Revenue and Court of Appeals,, G.R. No. 120721 dated February 23, 2005, the SC ruled that political contributions are in the nature of taxable gifts as they comply with the three elements of a donation, which are: a) the reduction of the patrimony of the donor; b) the increase in the patrimony of the donee, and c) the intent to do an act of liberality.
Without making moral judgments on the argument that political contributions are not strictly without consideration, the SC emphatically declared that the purpose of the giver cannot be considered as a material consideration to remove said act from the definition of a donation which to my mind though, does not seem to complement the third element of a donation.
The Abello decision echoed an earlier ruling of the BIR which described a political contribution to be a taxable gift on the ground that it is made without any intent to repay and is merely for personal affection, charity or philanthropy (BIR Ruling No. 344-88). Accordingly, since political contributions are considered taxable gifts, the same are subject to the donor’s tax.
An exception to this rule, however, is provided under Section 13 of Republic Act 7166 (“The Act Providing for Synchronised National and Local Elections), which clearly exempts political contributions duly reported to the Commission on Elections (COMELEC) from the donor’s tax.
With the election fever continuing to heat up and as contributions continue to flow into the campaign kitties of candidates, supporters of political candidates should carefully consider the tax implication of political contributions before making their contributions.
Since the amount of the donor’s tax is generally significant, i.e., 30% of the gross donation if the donation is made to strangers, it would be best to properly report the political contributions to the COMELEC to avoid unnecessary tax risk.
Political contributions that are not properly accounted for in accordance with COMELEC rules are exposed to possible assessment for deficiency donor’s tax.
The practical difficulties on the part of the BIR in monitoring and running after these unreported contributions, though, is another matter.
A related and equally important issue is the deductibility of the political contributions as business expenses which will be discussed in my next article.
