You see that pale, blue dot? That’s us. Everything that has ever happened in all of human history has happened on that pixel. All the triumphs and all the tragedies, all the wars all the famines, all the major advances... it’s our only home. And that is what is at stake, our ability to live on planet Earth, to have a future as a civilization. I believe this is a moral issue, it is your time to cease this issue, it is our time to rise again to secure our future.
This is a quote from the 2006 Grammy Award winning documentary “An Inconvenient Truth”. The pale blue dot is of course reference to the planet earth. In the documentary, former US Vice-President Al Gore makes an extremely convincing argument that due to the effects of global warming, our planet will be headed for environmental disaster unless this generation takes immediate action. Whether you are unconvinced of this argument or have accepted this as gospel truth, it would be great if you could watch this excellent documentary if you have not done so already, as it is 100 minutes of viewing time that will be well spent.
As you may be aware there are a number of organizations and non-government organizations, both domestic and international, advocating causes related to the preservation of our environment, as well as other equally noble causes. If we are to save our world from impending ecological disaster and all other malevolent creations of humankind, it makes sense to provide support to these organizations that advocate these causes. As most if these organizations are not established for profit, they depend a lot on contributions for their existence. In addition, more businesses today have incorporated charitable or philanthropic initiatives into their business plans. While some companies go about this by donating to established charitable organizations, foundations, and NGOs, others have chosen to establish their own philanthropic organizations. However, as this column relates to topics on taxation, allow me to discuss some developments concerning the tax treatment of donations to charitable or non-government organizations. Our tax laws do appear to give the deserved importance the role that NGOs play in nation building. This is reflected in our tax legislation concerning the tax treatment of donations to NGOs.
Under Section 34(H) par. c of the Tax Code of 1997, contributions or gifts actually made to accredited NGOs may be deductible in full from gross income. Stated otherwise, contributions made to accredited NGOs may serve as a means of reducing a company’s tax burden as this would effectively reduce a company’s tax base through the creation of a deductible expense which would appear to be non-business related. It makes sense from the perspective of good governance to be able to contribute to the betterment of society and at the same time derive some form of tax benefit from a philanthropic act. Further, our Tax Code defines an NGO as a non-profit domestic organization operated exclusively for scientific, research, educational, character building and youth and sports development, health, social welfare, cultural or charitable purposes no part of the net income of which inures to the benefit of any private individual. Our tax laws also require that not later than the 15th day of the third month following the close of the NGO’s tax year, it makes utilization directly for the active conduct of activities constituting the purpose for which it was organized and that the level of administrative expenses on an annual basis should not exceed 30 percent of its total expenses. It further provides that once the NGO is dissolved, its assets shall be distributed to another NGO organized for the same purpose or to the State for public purposes or by a court to another organization to be used in a manner shall best accomplish the purpose for which the dissolved NGO was organized.
It must be emphasized that before a deduction made to an NGO can be claimed as a full deduction, the NGO must first go through a process of accreditation. Our tax laws require that this process be in accordance with regulations issued by the Department of Finance. Consequently, the Bureau of Internal Revenue issued Revenue Regulations No. 1-98 to govern the process of making sure that donations that may be claimed as a full deduction are made to NGOs that undergo a process of accreditation. These regulations delegated the responsibility of accreditation to the Philippine Council for NGO Certification or PCNC, a private voluntary, non-stock, non-profit corporation. As stated in its website, the PCNC’s primary purpose as a service organization is to certify non-profit organizations that meet established minimum criteria for financial management and accountability in the service to underprivileged Filipinos.
However, by virtue of Executive Order No. 671, the authority to accredit NGOs has now been transferred by the Government from the PCNC to the various government agencies such as the Department of Social Welfare and Development for charitable and/or social welfare organizations, foundations and associations including but not limited to those engaged in youth, child, women, family, disabled persons, older persons welfare and development; the Department of Science and Technology for organizations, associations and foundation primarily engaged in research and other scientific activities, the Philippine Sports Commission for organizations, foundations and associations primarily engaged in sports development; the National Council for Culture and Arts for organizations, foundations, and associations primarily engaged in cultural activities and the Commission on Higher Education for organizations, foundations and associations primarily engaged in educational activities. While the accreditation function has been transferred to these government agencies, the said government agencies already accredited by PCNC are still required to comply with the Standards and Guidelines as provided for in Revenue Regulation No. 13-98. The rationale behind the transfer of the accreditation function appears to be the interpretation of the legal principle of undue delegation of power which prohibits government from delegating its responsibilities to the private sector. Consequently, the effect of the transfer on NGOs that have accreditation obtained from the PCNC was clarified by the BIR in Revenue Memorandum Circular No. 14-08 (RMC). The RMC states that certificates of accreditation issued by the PCNC as of Nov. 15, 2007 will continue to be effective until March 31, 2008. Those affected NGOs are now directed to renew accreditation with the respective government agencies. Based on updates in the PCNC website, there appear to be initiatives to have the PCNC continue its role in accrediting NGOs.
Whatever is the outcome of these initiatives, the purposes of legitimate NGOs will be well served if the business sector is encouraged to participate in strengthening the NGO’s capacity by offering tax breaks on charitable contributions and perhaps, that pale blue dot that Al Gore mentioned will continue to be blue for generations to come.
(Manuel P. Salvador III is a Director for Tax and Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG International, a Swiss Cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email manila@kpmg.com.ph or msalvadoriii@kpmg.com)