BIR warns of penalties vs unregistered, tax-evading candidates, political parties

MANILA, Philippines — The taxman has reminded candidates, political parties, as well as campaign financiers of their obligations ahead of the national elections on May 9, warning to slap penalties against unregistered taxpayers and tax evaders.

Internal Revenue Commissioner Caesar Dulay issued the revenue memorandum circular (RMC) on February 21, similar to his predecessors at the Bureau of Internal Revenue (BIR) who issued such reminders during election campaign season.

“All candidates, political parties/party-list groups, and campaign contributors are required to register with the BIR, issue official receipts, and withhold taxes [under existing laws and regulations]. The registration of political parties or party-list groups shall be made with the revenue district office having jurisdiction over their head office or principal office,” Dulay said.

“It shall be the duty of every individual candidate and political parties/party-list groups, upon the filing of the certificate of candidacy, whether for local or national position to register, or to update their registration with the BIR for those who have previously registered as withholding agents,” the BIR chief added.

RMC No. 22-2022 listed down the documentary requirements, including pertinent BIR forms, as well as copies of certificates of candidacy (COCs) from the Commission on Elections (Comelec).

On top of paying a P500 annual registration fee and obtaining a certificate of registration from the BIR, candidates and parties must keep and register their accounting books and other records.

“All candidates and political parties/party-list groups shall also register non-VAT [value-added tax] official receipts (ORs) to be issued for every contribution received, whether in cash or kind valued at fair market value. The original copies of such ORs shall be issued to the contributor/donor while the duplicate shall be retained by the issuing candidate/political party/party-list,” Dulay said.

Dulay said that “as a general rule, campaign contributions are not included in the taxable income of the candidate to whom they were given, the reason being that such contributions were given not for the personal expenditure/enrichment of the concerned candidate, but for the purpose of utilizing such contributions for his/her campaign.”

“Thus, to be considered as exempt from the income tax, these campaign contributions must have been utilized to cover a candidate’s expenditures for his/her electoral campaign during the campaign period,” the BIR chief added.

As such, all unspent or excess campaign funds as well as donations “shall be considered as subject to income tax and as such, must be included in their/his taxable income as stated in their/his income tax return (ITR),” Dulay said.

“No further deduction, either itemized or optional, shall be made against the said taxable income. Further, any candidate or political party/party-list group, whether winning or losing, who fails to file with Comelec the statement of contributions and expenditures required under the Omnibus Election Code shall be automatically precluded from claiming such expenditures as deductions from the campaign contributions making the entire amount directly subject to income tax,” he added.

As for donor’s tax, Dulay said the exemption will only apply to “donations/contributions that have been utilized/spent during the campaign period as set by Comelec.”

Dulay said that “donations made by corporations in violation of the Corporation Code of the Philippines are subject to donor’s tax and may not be deducted as political contributions on the part of the donor/corporation.”

Dulay reminded candidates and political parties that income payments for their purchases of goods and services as campaign expenditures will be subject to 5-percent creditable withholding tax (CWT).

The CWT will also apply to payments for media services, printing jobs, talent/entertainment fees, as well as lease of real and personal properties.

The same expanded withholding tax must be paid for income payments made by individuals for goods and services intended as campaign contributions.

The 5-percent CWT will apply to payments regardless of the source of funds, whether through donations or contributions or from personal funds.

“Expenses incurred by the candidates which were given free-of-charge, such as use, rental or hire of land, water or aircraft, equipment, facilities, apparatus and paraphernalia used in the campaign shall be assessed by the candidate and declare the amount commensurate with the expenses for the use thereof, based on the prevailing rate in the locality and shall be included in the total campaign contributions received and expenses incurred by the candidate,” Dulay said.

“Expenses that were not subjected to the 5-percent CWT as herein required are not considered utilized campaign funds, and the candidates, political parties/party-list groups are precluded from claiming such expenditures as deductions from his/her/its campaign contributions. As such, the full amount corresponding to said expense shall be reported as unutilized campaign funds subject to income tax,” he added.

All taxpayers must file the pertinent BIR CWT returns plus the statement of contributions and expenditures stamped “received” by Comelec on or before March 1, 2023.

Also, all candidates and parties must preserve their records of contributions and expenditures for at least five years after the elections and must be ready to produce these documents if they were to be inspected by the BIR commissioner.

After the elections, all candidates and political parties must submit to Comelec and their BIR revenue district office their respective statements of contributions and expenditures within 30 days after the May 9 polls.

Dulay warned that “all candidates, political parties and party-list groups who failed to register and comply with the requirements of the BIR will be subjected to penalties” under the Tax Code.

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