Law Innovations (Philippines)

Updates in Philippine law, upgrades for the Filipino lawyer

Are Campaign Contributions Subject to Donor’s Tax?

Posted by Oli Reyes on November 17, 2009

With the Philippine campaign season approaching, it is worth asking whether campaign contributions are subject to the donor’s tax which is generally assessed on all gifts pursuant to the National Internal Revenue Code.

The quick answer is “No”. Section 13 of Republic Act No. 7166 explicitly provides that “[a]ny provision of law to the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or coalition of parties for campaign purposes, duly reported to the Commission [on Elections] shall not be subject to the payment of any gift tax.” The phrase “duly reported to the Commission” establishes an important caveat, and it is very arguable that such contributions which were not reported to the COMELEC may be subject to the donor’s tax. Who is bound to “duly report to the COMELEC” for the purposes of Section 13? Both the campaign donor and the candidate/political party receiving the campaign contributions are duty-bound under law to report these contributions with the COMELEC. Under Section 99 of the Omnibus Election Code (B.P. 881), the person who gives campaign contributions is obliged to file with the COMELEC not later than thirty days after the election “a report under oath stating the amount of each contribution, the name of the candidate, agent of the candidate or political party receiving the contribution, and the date of the contribution.” At the same time, under Section 14 of Republic Act No. 7166, within the same thirty-day period, the candidate and the treasurer of the political party are also obliged to file “the full, true and itemized statement of all contributions and expenditures in connection with the election.”

Does the National Internal Revenue Code have anything to say on the matter? Section 99(C) does say that “[a]ny 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, as amended.” It should be noted that while Republic Act No. 7166 is not the “Election Code” itself nor did it supplant the Marcos-era Omnibus Election Code, the latter law did amend B.P. 881 in several respects, so there should be no question that Section 13 of Rep. Act No. 7166 serves as a proper authority referred to under Section 99(c) of the NIRC.

There is a leading case on the matter, Abello v. CIR (G.R. No. 120721, 23 February 2005). However, the core ruling of this 2005 decision was already rendered obsolete with the passage of Republic Act No. 7166 fifteen years earlier, a fact which the Supreme Court itself admits at the end of its discussion. Prior to Republic Act No. 7166, the laws had been silent on whether campaign contributions were subject to donor’s tax, and the Court employed that silence to declare that subject donations, which were made during the 1987 national elections, were subject to the tax in the same manner that other gifts were. Abello remains interesting in how the petitioners tried to argue that campaign contributions were inherently exempt from gift taxes, and how the Supreme Court rejected those arguments. A sampler:

The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G. Abello, Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of Senator Edgardo Angara, without any material consideration.  All three elements of a donation are present.  The patrimony of the four petitioners were reduced by P882,661.31 each.  Senator Edgardo Angara’s patrimony correspondingly increased by P3,530,645.24. There was intent to do an act of liberality or animus donandi was present since each of the petitioners gave their contributions without any consideration.

Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby leaving no room for construction. xxx

Since the purpose of an electoral contribution is to influence the results of the election, petitioners again claim that donative intent is not present.  Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of political contributions.  This Court reiterates that donative intent is not negated by the presence of other intentions, motives or purposes which do not contradict donative intent.

Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift is the liberality of the donor, while the consideration for a political contribution is the desire of the giver to influence the result of an election by supporting candidates who, in the perception of the giver, would influence the shaping of government policies that would promote the general welfare and economic well-being of the electorate, including the giver himself.

Petitioners’ attempt is strained.  The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation.  Senator Angara was under no obligation to benefit the petitioners.  The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received.  In fact, as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater good.

In fine, the purpose for which the sums of money were given, which was to fund the campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a donation. xxx (citations omitted)

It would be interesting to speculate how different the complexion of Abello might have been had the Supreme Court contended with the framework popularized in such U.S. cases as Buckley v. Valeo that campaign spending is constitutionally protected speech. After all, there is something off-putting to the notion that the exercise of free speech may be burdened with a tax. However, and perhaps because that aspect was not raised by the parties, the Supreme Court did not consider that formulation in Abello, and more pertinently, the Court had sort of already pronounced its disdain for Buckley in 1998, with Osmena v. COMELEC.

Still, unless Section 13 of Republic Act No. 7166 were repealed or amended, the exemption from donor’s taxes of campaign contributions is settled. There may remain questions to be asked. Could the donation be considered a campaign contribution if it were donated before the candidate files her/his certificate of candidacy? After all, one becomes a candidate only upon filing the certificate of candidacy before the COMELEC and should be considered a private individual prior to that point.

You may also want to read Rosa Michelle Bagtas’s recent column in Businessworld, where she discusses the donor’s tax issue, as well as additional concerns that have arisen with a recent BIR Revenue Regulation imposing a creditable withholding tax of 5% on income payments made in relation to political campaigns.


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