Tax Articles

Tax on Prizes and Awards

By: Atty. Rodel C. Unciano

Atty. Rodel C. Unciano Partner   +632 8403-2001 loc.380 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Indeed, prizes galore for our athletes who are bringing home accolades for the Philippines from the recently concluded Paris Olympics. With the long list of prizes awaiting our winning athletes, there is now a question as to whether or not these prizes and awards are subject to tax.

There are a few provisions of the Tax Code of 1997, as amended, in respect to the taxability of prizes and awards. But as a general rule, prizes and winnings are included as part of the gross income that should be subjected to income tax. That is by virtue of the express provision under Section 32 of the Tax Code. Also, under Section 24 of the Tax Code, prizes and other winnings are subject to a final tax at the rate of twenty percent (20%), except prizes amounting to ten thousand pesos (P10,000.00) or less which shall be subject to regular tax, and winnings amounting to ten thousand pesos (P10,000.00) or less from the Philippine Charity Sweepstakes and Lotto which shall be exempt from tax.

Under Section 32 of the Tax code, prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievements are not subject to tax under the following conditions: 1) The recipient was selected without any action on his part to enter the contest or proceeding; and 2) The recipient is not required to render substantial future services as a condition to receiving the prize or award.

On the other hand, all prizes and awards in sports competitions are likewise not subject to tax provided that these are granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations.

So, to the question, are the prizes and awards given to our countrymen who once again gave honor to the country in the field of athletics free from tax?

Following the provisions of the Tax Code, it would seem that for so long as the prizes and awards are given to the athletes in recognition of their excellent participation in a sports competition that is sanctioned by their national sports associations, the prizes and awards in whatever kind and source shall not be subject to Philippine tax. The law does not distinguish as to whoever the giver is. The law says “all prizes and awards” which may be interpreted to include all prizes from anybody else, which therefore includes the numerous rewards from the private sector.

This is seemingly consistent with the mandate of Republic Act (“RA”) No. 7549 which exempts all prizes and awards granted to athletes in local and international sports tournaments from the payment of income and other forms of taxes. Also, pursuant to RA 7549, such prizes and awards given to said athletes shall be deductible in full from the gross income of the donor, and the donors of said prizes and awards shall be exempt from the payment of donor's tax.

Note though that there is no clear precedent on this as of the moment. There could be other views contrary to this.

Note also, that as provided under our laws, to qualify for tax exemption, the prizes and awards must be given to the athlete. But some groups may be generous enough to give rewards, not to the athlete, but to the coach or to someone else who may have direct or indirect participation in the tournament or perhaps given to someone else who may have directly or indirectly contributed to the athlete’s fruitful participation in the competition. Would the reward be taxable?

Well, the Tax Code provides that the value of property acquired by gift, bequest, devise, or descent shall not be subject to income tax. So, the awards, rewards or incentives given to the coach or to someone else may qualify for income tax exemption on the premise that these are in the nature of gifts which are given to them out of the liberality of the giver.

But of course, the liberality of the giver is not free from tax. Under Section 98 of the Tax Code, donor’s tax shall be levied, assessed, collected, and paid upon the transfer by any person, resident or nonresident, of property by gift. Thus, every person, whether natural or juridical, who transfers or causes to transfer property by gift, whether the gift is direct or indirect and whether the property is real or personal, shall be subject to donor’s tax.