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Tax obligations of election candidates

With the national and local elections a few weeks away, candidates are scaling up their efforts to win the hearts of voters. We all know that running for public office is a costly undertaking funded by contributions and monetary support.

But, are you also aware of the registration, invoicing and tax filing requirements that all candidates, political parties, and even campaign contributors must comply with? After the election season, they are required to submit reports to the Bureau of Internal Revenue (BIR) within 30 days after the election. Moreover, campaign contributions may qualify for income tax and donor’s tax exemptions.

With the upcoming election, the BIR issued Revenue Memorandum Circular (RMC) No. 22-2022 to remind election candidates of the stringent administrative requirements during the campaign season. Some guidelines also apply to campaign contributors not running for public office. Highlights of the RMC are summarized as follows:

BIR REGISTRATIONUpon filing their certificate of candidacy, all candidates and political parties/party-list groups are required to register or update their registration with the BIR. Registration is to be performed at the Revenue District Office (RDO) having jurisdiction over the political subdivision where the candidate is seeking election, or if this is not applicable, registration may also be based on the candidate’s principal residence or registered office address.

Individual candidates must be registered as “Professional -— In General” and tagged as “Politician” while political parties/party list groups are tagged as “Political Party” under the special code in the BIR registration system. Campaign contributors must also be registered with the BIR, with individual contributors registering as taxpayers under Executive Order 98.

All candidates and political parties must pay an Annual Registration Fee of P500 before the Certificate of Registration (CoR) is issued. However, a CoR will not be issued to individual candidates who are not engaged in business.

REGISTRATION OF BOOKSAll candidates and political parties are required to register and maintain adequate books and other accounting records (which includes the cash receipts/disbursements journal) that will serve as the basis for the Statement of Contributions and Expenditures (SoCE) to be submitted to the Commission on Elections (Comelec).

Alternatively, the RMC allows individual candidates to use a simplified set of bookkeeping records, as long as these can provide accurate information.

ISSUANCE OF BIR-REGISTERED NON-VAT OFFICIAL RECEIPTSAll candidates and political parties are required to issue BIR-registered non-VAT ORs for every contribution received, whether in cash or in kind. For contributions in kind, the Fair Market Value should be indicated in the OR.

The original OR must be issued to the contributor/donor, while the duplicate must be retained by the issuing candidate/political party/party-list.

PRESERVATION OF RECORDSAll political parties and candidates must preserve records of contributions and expenditures for 10 years, pursuant to Section 235 of the Tax Code, as implemented by Revenue Regulations No. 5-2014.

In addition to the above registration and bookkeeping requirements, the RMC also provides guidelines for the following taxes:

INCOME TAXGenerally, campaign contributions are excluded from the taxable income of the candidate based on the assumption that the contributions are to be used to cover the candidate’s campaign expenditures and not for the personal enrichment of the candidate.

Thus, to be exempt from income tax, the contributions should be fully utilized during the campaign period. Any unutilized campaign funds (campaign contributions less campaign expenditures) are treated as taxable income (without any further deductions) of the recipients and reported in their respective annual income tax returns.

It is also crucial for each candidate or political party to file the SoCE with the Comelec within 30 days after the election, as required by the Omnibus Election Code. Otherwise, the recipient is automatically precluded from claiming such expenditures as deductions from the campaign contributions, making all contributions directly subject to income tax.

DONOR’S TAXDonations/contributions are exempt from the 6% donor’s tax, provided these have been utilized during the campaign period and duly reported to the Comelec. However, following RMC No. 38-2018, utilized donations before or after the campaign period are subject to donor’s tax and should not be claimed as a deductible expense of the donor.

WITHHOLDING TAXA 5% withholding tax applies on the following:

• Purchases of goods/services by political candidates and political parties as campaign expenditures; and

• Purchases of goods/services by individuals or juridical persons intended to be given as campaign contributions to political parties and candidates.

Moreover, the general rule for the payor to issue a certificate of withholding tax (BIR Form No. 2307) as evidence of the Creditable Withholding Tax (CWT), upon demand must also be followed.

Withholding of tax is crucial since expenses that were not subjected to the 5% CWT are not considered utilized campaign funds, and therefore, (1) cannot be claimed as deductions against campaign contributions; and (2) must be reported as unutilized campaign funds subject to income tax.

PENALTIESAll parties covered by the RMC who fail to register and comply with the requirements of the BIR will be subject to compromise penalties provided under Revenue Memorandum Order (RMO) No. 7-2015.

Since they are vying for the privilege to be public servants, candidates are called to the civic duty of nation-building, which includes abiding by tax regulations. Candidates who are compliant with their tax obligations may be deemed to reflect a style of leadership and governance anchored in honesty, transparency, and accountability — qualities that this country urgently needs in these times of uncertainty.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice

Jasmin L. Chan is a Senior Associate at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network.

jasmin.chan@pwc.com

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