Tax Articles

Tax Treatment of Campaign Contributions

By Donato U. Vergara, III

We have previously discussed in this column a number of times the tax implications of campaign contributions and their usages. Let me further discuss some of these in view of the issuance of Revenue Memorandum Circular (RMC) No. 22-2022, reminding everyone, particularly those running as candidates or participating in the May national and local elections, of their obligations. The said circular addresses the candidates, political parties, and party-list groups as well as campaign contributors of their registration, bookkeeping, invoicing, and other compliance requirements. But I will limit my discussion to the tax treatment of the campaign contributions both on the part of the contributor and the candidate or political party.

On the part of the contributor. The New Civil Code of the Philippines defines donation as an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. When a person contributes to a candidate or political party, he parts with something without consideration. A campaign contribution, therefore, falls within the definition of donation.

For tax purposes, the transfer of property through donation is subject to the donor’s tax, which is now imposed at the rate of 6% computed on the amount of the donation. Does this apply to campaign contributions?

While campaign contributions are donations, there are specific rules governing the imposition of donor’s tax. The Tax Code itself recognizes that any contribution in cash or in-kind to any candidate, political party, or coalition of parties for campaign purposes shall be governed by the Election Code. In relation to this, the Omnibus Election Code of the Philippines exempts from the imposition of the donor’s tax contributions made in cash or in-kind to candidates, political parties, or party-list groups.

The exemption, however, is subject to some conditions. First, the said contribution is duly reported to the COMELEC. It follows that contributions that are not reported to the COMELEC shall not be entitled to the exemption. Second, only those donations/contributions that have been utilized/spent during the campaign period as set by the COMELEC shall be exempt from the imposition of the donor's tax. If the contribution is spent outside of the campaign period, the same should be subject to the donor’s tax.

It should also be noted that RMC 22-2022 still refers to the old provision of the Corporation Code of the Philippines (BP Bilang 68), which prohibits domestic and or foreign corporations from giving donations in aid of any political party or candidate or for purposes of partisan political activity. Following this provision, donations made in violation of this rule shall be subject to donor's tax and may not be deducted as political contributions on the part of the corporation. The Revised Corporation Code of the Philippines, however, limits the prohibition from giving donations in aid of any political party or candidate or for purposes of partisan political activity to foreign corporations. As there is no more prohibition from the giving of donations by domestic corporations, I believe the exemption from donor’s tax should likewise extend to their donations made in favor of candidates or political parties.

On the part of the candidate and political party. There is income when there is a flow of wealth. There is no flow of wealth when the recipient of an amount of money or property is not benefited and the same is eventually disbursed or distributed. This is the reason why receipts of campaign contributions are not considered income and therefore not taxable.

Campaign contributions do not form part of a candidate’s or political party’s taxable income because the same is given not for the enrichment of the concerned candidate or personal expenditures. The contributions are to be utilized for the campaign. Thus, it is a condition for the exemption of the campaign contribution from tax that it is utilized for the electoral campaign. In addition, it has to be used during the campaign period. If not, it does not qualify for exemption and should be subject to the usual taxes imposed on income.

Contributions utilized before the campaign period do not comply with these requirements. Thus, the amount, net of expenses, is subject to tax. Similarly, excess campaign funds which are not returned by the candidate or political party do not comply with the conditions for exemption as they are in fact not utilized. They are flow of wealth coming into the hands of the candidate or political party, and there being no law exempting these from tax, the excess campaign funds are subject to income tax.

For this May election, the excess campaign fund shall be reported for income tax purposes depending on the registration of the candidate. If he is registered as professional or self-employed, the excess campaign funds shall be declared for the quarter ending June 30, which shall be filed/paid on or before August 15 of this year. If the candidate is purely a compensation income earner, the excess fund shall be included in the income tax return to be filed on or before April 15 of the following taxable year. A candidate who is neither a self-employed nor a compensation income earner shall declare the excess campaign funds by filing a short-period return for the period-covering January 1 up to the date of the election. Political parties and party-list groups shall follow the rules for domestic corporations in reporting the excess funds as part of taxable income.

These are just among the reminders that need to be observed by candidates and political parties. A reference should be made to RMC 22-2022 for other details.