Elections and taxes

It was a beautiful Sunday morning on the 10th of January and I was driving along Roxas Boulevard from EDSA, heading in the direction of the Luneta Park at around 9:15 a.m.  As I approached the area near the Department of Foreign Affairs, I had to slow down as there were a lot of private cars parked along two lanes of Roxas Boulevard, aside from those parked in the service/access road in that area.

The first thing came to mind was the election period had just begun day, and some electoral candidates or political parties were getting an early start.  Of course, I could be wrong, and the people parked along Roxas Boulevard were there for some more important event or occasion.  But given that I had already been reminded of the election period, I think we should all be aware of the taxes involved and imposed on the more active participants of elections, from political parties, to candidates, to donors.  As a salaried employee, whose income taxes are timely and properly withheld by my employer, I would like to know if these participants (whether they win or lose) are likewise paying the correct taxes on their activities.  Wouldn’t you?

Firstly, Section 99(C) of the National Internal Revenue Code of 1997, as amended (Tax Code) states that any contribution in case or in kind to any candidate, political party or coalition of parties for campaign purposes shall be governed by the Omnibus Election Code of the Philippines, as amended (Election Code).  And as stated in the Election Code, these contributions, duly reported to the Commission on Elections (Comelec) are not subject to donor’s tax.  Unreported, the contributions are subjected to donor’s tax.

Secondly, Revenue Regulations (RR) No. 07-2011 states that while campaign contributions are not part of a candidate’s taxable income (hence not subject to income tax), these campaign contributions must have been used to “cover” a candidate’s expenditures for his/her electoral campaign.  The excess of the campaign contributions are, thus, subject to income tax and must be included in the candidate’s taxable income for the said taxable year.  Remember that any candidate, winning or losing, who fails to file the appropriate Statement of Expenditures with the Comelec is automatically precluded from claiming the expenditures as a deduction from the campaign contributions, and as such the entire amount of contributions are considered as subject to income tax.

For withholding tax purposes, the purchase of goods and services that are part of the campaign expenditures are subject to a five percent (5%) creditable withholding tax.  This is required of the payor of the goods and services, whether the payor is a political party or a candidate of local and national elections, or individuals or juridical persons for their purchases of goods and services intended to be given as campaign contributions. 

Note that even individuals making payments should withhold, as long as the goods and services being purchased by the individuals are intended to be given as campaign contributions.  Of course, with the act of withholding, the candidates, political parties, and specific contributors have to issue the standard certificate of taxes withheld (BIR Form No. 2307), in triplicate, to the provider of goods and services.  Note the general rule provided under RMC No. 85-2012, reminding all withholding tax agents that failure to issue BIR Form No. 2307 will result in the mandatory audit of the withholding agent, upon verified complaint filed by the provider of goods and services.

Note under RR No. 02-1998, as amended, the failure to withhold on the payments will result in the denial of the claim of deductions on said payments in the event the failure to withhold is discovered during an audit investigation.  So for the expenditures to be properly claimed as deductions, the payments have to have been reported to the Comelec, and have to have been subjected to withholding tax.

So what about registration of individual candidates and political parties (including party list groups).  In 2013, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 48-2013, to remind participants during the midterm elections of their special duties and responsibilities as taxpayers. While no new issuances have been released for this year’s elections, some of the requirements may still be applicable.

For example, under said RMC, the then new participants during the 2013 midterm elections were required to register with the BIR, or update their registration if already previously registered since the 2010 national and local elections.  It would be logical that the new participants for the 2016 elections register with the BIR, while those registered since 2010 and 2013 update their registration.  Note that said RMC required registration for election purposes even for individual and corporate contributors of either the candidates or the political parties, or both.  The registration requirements are provided separately under RMC No. 40-2010.  Of special mention here would be that political parties are registered under the tax type of non-stock, non-profit organizations in the BIR ITS.  Included under the registration requirements for candidates and political parties is the registration of adequate books and other accounting records such as cash receipts journal, cash disbursements book or their equivalent.

Another reminder is that under RMC No. 15-2013, every candidate, treasurer of a political party and person acting under authority of that candidate or treasurer must:

• Issue a receipt for every contribution received, and to obtain and keep a receipt stating the particulars of every expenditure made.

• Keep detailed, full and accurate records of all contributions received and expenditures incurred by him and by those acting under his authority, setting forth therein all information required to be reported.

• Be responsible for the preservation of the records of contributions and expenditures, together with all pertinent documents, for at least three (3) years after the holding of the election referred to, and for their production for inspection by the Comelec or its duly authorized representative.

As far as official receipts (ORs) are concerned, the previously registered candidates and political parties should already have the proper ORs printed.  For the new candidates or political parties, the BIR might revive the use of the “BIR-printed” non-VAT ORs. These are actually Non-VAT ORs in booklets, printed for the BIR, which used to be distributed to newly BIR-registered taxpayers that have not yet secured the necessary Authority to Print (ATP) ORs.  To date, however, there is still no issuance on this concern.

Finally, when the elections are over, what do the candidates, political parties, and contributors do with all the paper (ORs, books of account, accounting records, summaries, BIR Forms, etc.) they have generated?

RMC No. 15-2013 states the BIR registration of individuals, in their capacities as candidates, automatically ends after 30 days from the date of the elections. However, the BIR registration of the political parties continues to exist. Further, the BIR requires political parties and all candidates to preserve the records of contributions and expenditures, together with all pertinent documents, for at least three years after the holding of the election to which they pertain to.  In this case, the three-year period would be counted from 2016. These records may be subjected to an order for their production for inspection as authorized by the Commissioner of Internal Revenue (CIR).  Hence, even if the candidates are no longer registered with the BIR, they can still be subject to an audit investigation.

For the unused ORs after the 2013 elections, the same were required to be returned to the BIR, with the summary/schedule of ORs used, within 10 days from the end of the elections.  Note all the post-election requirements do not distinguish between the winning and losing candidates, and the political parties.

Does this requirement to keep accounting records and other documents likewise apply to the campaign contributors? Contributors are not expressly mentioned in RMC No. 15-2013 as covered by the requirement to either register books of account, and/or preserve the same. On the other hand, the BIR may argue that since a campaign contributor is subject to registration requirements under RMC No. 40-2010, they should likewise be required to maintain books of account pertaining to election transactions, and keep the pertinent documents for three years. Notwithstanding the additional requirements imposed on campaign contributors, and the risk of possible audit investigation, these requirements should be but a small price to pay for continuously supporting candidates and political parties the contributors believe in.  For me, as a taxpayer, I would just like to see the electoral candidates set the example by following the aforementioned tax rules and regulations, and by paying the correct amount of taxes.

Andrew James Gerard Dulay Ruiz is a director from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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