Taxes along the electoral campaign

With the campaign period for the May 2022 elections yet to officially begin – February 8 for those vying for national office and March 25 for those aspiring to local office – the pressure to raise the profile candidates has unquestionably begun. Given the volume of transactions involved in mounting a serious campaign, political teams should ensure that they meet their tax obligations, especially during this time when our government needs the revenue most.

Tax exemptions only apply to contributions or donations made during the campaign period. Thus, the rules cited here are not applicable to donations made before or after the campaign period set by the Electoral Commission (Comelec).

As part of the compliance requirements imposed by Revenue Circulars (RMC) 038-18 and RMC 031-19, all individual candidates, political parties, party list groups and campaign contributors for the national and local elections of May 2022 must register or update their registrations. with the Bureau of Internal Revenue (BIR) and pay the corresponding annual registration fee. Except for individual applicants who do not engage in commercial activity, those mentioned above are also required to obtain a registration certificate from the BIR.

While individual candidates have the option of using a simplified set of accounting records, political parties and groups of party lists are required to register and maintain account books and accounting records. In addition, individual candidates, political parties and groups of party lists are required to keep records of contributions and expenditures for a period of three years from the end of the year in which the election took place.

Individual candidates, political parties and groups of party lists must additionally register official VAT-free (RO) receipts, which they must issue for each contribution received, whether in cash or in kind. Contributions received in kind will be valued at their cash equivalent or fair market value. Original ROs should be issued to contributors/donors while duplicates should be retained by political parties/party lists and candidates.

Meanwhile, revenue payments made by political candidates and political parties/party list groups on purchases of goods and services as campaign expenditures and revenue payments made by individuals or corporations for purchases of goods and services intended to be donated as campaign contributions to political parties and candidates are subject to a creditable five percent (CWT) withholding tax.

The following are among those considered to be covered by the extended withholding tax: media services, printing works, artists’/entertainment fees, and rentals of real estate and personal property. The corresponding BIR 2307 form (creditable withholding tax certificate) must be issued on request. Therefore, the five percent CWT must be deposited and remitted no later than the last day of the month following the end of the quarter in which the withholding was made.

Expenses not subject to the five percent CWT should be considered unused campaign funds. Due to the non-withholding of the five percent CWT, candidates, political parties/party list groups concerned cannot claim these expenses as deductions from their respective campaign contributions. Thus, the entire amount corresponding to said expense will be considered as unused campaign funds subject to income tax.

It should be noted that with reference to Taxation Regulation (RR) 07-11, RMC 038-18 expressly provides that “as a general rule, campaign contributions are not included in the taxable income of the candidate to whom they were remitted, the reason being that these contributions were not made for the personal expenses/enrichment of the candidate concerned, but for the purpose of using these contributions for his campaign. Thus, to be considered exempt from income tax, these campaign contributions must have been used to cover a candidate’s election campaign expenses.

Any unused/excess campaign funds, or campaign contributions net of candidate campaign expenses, will be considered subject to income tax. Therefore, this unused amount must be included in the candidate’s taxable income as shown on their tax return filed for the taxation year in question. No other deduction, itemized or optional, may be made on said taxable income.

Expenses incurred by candidates who have been given free of charge, such as the use, rental or rental of land, water or aircraft used in the campaign, will be assessed by the candidate, who must declare the corresponding amount the cost of using it. according to the tariff in force in the locality. This amount must be included in the total expenses incurred by the candidate.

In addition, all candidates and treasurers of political parties and party list groups must submit their respective Statements of Contributions and Expenditures (SOCEs) to Comelec and the District Revenue Office having jurisdiction over them within 30 days of the election. ‘election. Failure to file the appropriate SOCE with Comelec will automatically prevent the candidate from claiming these expenses as campaign contribution deductions. Therefore, the total amount of campaign contributions received by the candidate will be considered directly subject to income tax.

In the meantime, since national corporations (except those expressly prohibited by the omnibus election code) are now permitted under the revised corporations code to make campaign contributions, they must comply with the aforementioned rules in order to benefit possible donor tax exemptions.

Strict compliance with the rules set by the BIR must be ensured by individual candidates, political parties and groups of party lists, as any breach of these rules may be subject to civil and criminal penalties indicated in the tax code such as amended by Revenue Memorandum Ordinance 7-2015. .

The author is a director of the Tax and Corporate Services division of Deloitte Philippines (Navarro Amper & Co.), a member of the Deloitte Asia Pacific Network. For comments or questions, email [email protected] Deloitte Asia Pacific Ltd. is a company limited by guarantee and a member firm of Deloitte Touche Tohmatsu Ltd. Members of Deloitte Asia Pacific Ltd. and their related entities, each separate and independent legal entities, provide services from more than 100 cities across the region, including Auckland, Bangkok, Beijing, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur, Manila, Melbourne, Osaka, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo and Yangon.

Comments are closed.