Tax Articles

Taxability of campaign contributions

By Atty Rodel C. Unciano

As the 2022 elections draw near, I find it timely to revisit once again the taxability of campaign contributions to candidates, political parties and party-list groups considering that financial aid from supporters for campaign purposes will surely flood the campaign trail especially this time that the pandemic is making the campaign more difficult to launch than it used to be.

But before we proceed, let me remind all candidates, political parties/party list groups and campaign contributors of their duty to register or update their registration with the appropriate Revenue District Office of the Bureau of Internal Revenue in relation to their candidacy, pursuant to Revenue Regulations 8-2009, as amended and as circularized in Revenue Memorandum Circular 38-2018. All candidates and political parties/party list groups shall register Non-VAT Official Receipts to be issued for every contribution received, whether in cash or in kind.

Proceeding now to the taxability of campaign contributions, as circularized in Revenue Memorandum Circular (RMC) 38-2018 and as reiterated in RMC 31-2019, campaign contributions are not included in the taxable income of the candidate to whom they were given, the reason being that such contributions were given not for the personal expenditure or enrichment of the concerned candidate, but for the purpose of utilizing such contributions for the campaign. In order to be considered as exempt from income tax, the contributions must be utilized to cover a candidate’s expenditures for his/her electoral campaign.

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

As a condition for the deductibility of the campaign expenditures, any candidate or political party or party-list group must file with the Commission on Elections (Comelec) a Statement of Contributions and Expenditures required under the Omnibus Election Code. Any candidate or political party or party-list group, whether winner or loser, who fails to comply with this requirement shall be automatically precluded from claiming such expenditures as deductions from the campaign contributions, making the entire amount directly subject to income tax.

Every candidate and treasurer of the political parties or party-list groups shall submit the Statement of Contributions and Expenditures to the Comelec and Revenue District Officer where the candidates or political parties or party-list groups are registered within 30 days after the election.

Income payments made by political candidates and political parties or party-list groups on their purchases of goods and services as campaign expenditures shall be subject to the five percent (5%) creditable withholding tax (CWT). 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 shall likewise be subject to five percent (5%) creditable withholding tax.

Expenses that were not subjected to the five percent (5%) CWT are not considered utilized campaign funds, and the candidates, political parties or party-list groups are precluded from claiming such expenditures as deductions from their campaign contributions. As such, the full amount corresponding to said expense shall be reported as unutilized campaign funds subject to income tax.

Under the Omnibus Election Code, contributions in cash or in kind to any candidates, political parties, or party-list groups are exempt from the imposition of Donor’s Tax. Only those donations or 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 contribution on the part of the donor.