Tax Articles

Taxability of Election Contribution

By Atty. Jose Emilio M. Teves

The May 2019 Elections are fast approaching. People everywhere, from radio blurbs to posts on social media are showing support for their respective candidates.
The most tangible way to support a candidate is to give a donation. Normally, when a person gives a donation to another individual or entity, he shall be subject to donor’s tax. However, contributions given to candidates or political parties will not be subject to donor’s tax. This is provided under the Omnibus Election Code (OEC) and Republic Act No. (RA) 7166.

The Omnibus Election Code further clarifies that only donations that were spent during the campaign period would be exempt from donor’s tax. Thus, donations used before or after the campaign period would be subject to donor’s tax.

This principle is reiterated in Revenue Memorandum Circular 31-2019, issued by the BIR. The RMC notes that only donations or contributions that have been utilized or spent during the campaign period as set by the COMELEC shall be exempt from donor’s tax. Donations utilized before or after the campaign period are subject to donor’s tax and not deductible as political contribution on the part of the donor.

The laws and issuances are harmonized for a consistent interpretation for campaign donations. These laws must be read with the changes made by the Corporation Code for campaign contributions.

In the old version of the Corporation Code, there is an express prohibition for Corporations, domestic and foreign, to give donations in aid of any political party or candidate or for purposes of partisan political activity. The old Code reads: “no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity.”

However, as of 2019, the New Corporation Code has modified the prohibition. Now, the prohibition applies only to foreign corporations, as they have changed the phrasing to read: “…that no foreign corporation shall give donations in aid of any political candidate or candidate for the purpose of partisan political activity.”

It would seem, therefore, that domestic corporations can donate to a political party, or candidate, for the purpose of a partisan political activity. Partisan political activity, broadly defined, are “acts designed to have a candidate elected or not or promote the candidacy of a person or persons to a public office." 

It appears that domestic corporations can support candidates during the campaign period. However, as stated earlier, the donation shall be tax exempt only if the donation occurs during the campaign period. While corporations can promote a candidate before the campaign period, the same will be subject to donor’s tax. Likewise, contributions received or utilized after the campaign period will also be taxed.

However, the Omnibus Election Code provides that there are contributions made by juridical entities, like corporations, which are considered prohibited. Specifically, these are public or private financial institutions, juridical entities operating a public utility or exploiting a natural resource, juridical entities which have a contract with the government to provide goods or services, juridical entities with a franchise or incentive or similar privilege granted by the government, juridical entities granted loans or accommodations in excess of 100,000.00php or educational institutions which amount to no less than 100,000.00php. Thus, if the domestic corporation does not fall within the prohibition, then it is free to make a donation to the political candidate or party.