Reviewing the role of media on candidate’s tax reporting

Post-election activities are just as tiring  as campaign period activities, if we take the perspective of those who work behind the platforms, cameras, and microphones. When the smoke clears and the dust settles, there remains the responsibility to account for campaign spending, informing the regulators, and being ready to address allegations of violation, which in the realm of taxation, is in the form of a tax assessment, carrying with it deficiency taxes and corresponding penalties.

On May 3, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order No. 16-2016 entitled “Submission of Report on Commercials and Advertisements through Media (Television, Radio, Print and Internet/On-Line) of Candidates in the May 9 National and Local Elections.” The RMO requires all media outlets, such as, but not limited to, television and radio stations, print ad or publications companies, as well as online advertisers, to submit information through a report, following a prescribed format, for services secured and paid to promote individual and party-list group candidates in the recently concluded national and local elections.

As a backdrop to RMO No. 16-2016, it is best to highlight that, under Section 13 of Republic Act (RA) No. 7166, “An Act Providing for Synchronized National and Local Elections and for Electoral Reforms, Authorizing Appropriations Therefor and for Other Purposes,” any contributions, in cash or in kind, to any candidate, political party, or coalition of parties for campaign purposes, duly reported to the Commission, shall not be subject to payment of any gift tax. In line with this provision of law, the BIR issued earlier this year, Revenue Memorandum Circular (RMC) No. 30-2016, reiterating that only those campaign donations or contributions that have been utilized or spent during the campaign period, as set by the Commission on Elections (Comelec), are exempt from Donor’s Tax.

Every election involves a gargantuan amount of disbursement by the candidates and the political parties, enough to facilitate a non-recurring and election-specific contribution to our Gross Domestic Product.  According to the director general of the National and Economic and Development Authority (NEDA), Emmanuel F. Esguerra, previous studies on the impact of national elections revealed increases in GDP between 0.5 and one percentage point during election years. And with the increased flow of money in our economic system, we can expect our tax authority to be on the watch for any assessable transactions and activities along with the consequential increases in the collection of income and value-added tax, primarily from those who work for the candidates and their political parties as well as their suppliers of goods and services.

According to the Comelec, the campaign spending limit set for candidates who ran for the post of president and vice-president in the 2016 national and local elections is at P543,638,440 based on the P10 spending limit for each of the 54,363,844 registered voters as Jan. 7.

Section 14 of RA 7166 mandates that every candidate and treasurer of the political party shall file with the Comelec the full, true and itemized statement of all contributions and expenditures in connection with the election within 30 days after the day of election. According to the same provision, no person elected to any public office shall assume the duties of said public office until he has filed the statement of contributions and expenditures required.

Based on the foregoing, RMO No. 16-2016 is a prime example of third-party checks employed by the BIR to determine compliance (and noncompliance) by a target group of taxpayers. The coverage of the report are the candidates for president, vice-president, senator, and party-list group participating in the party-list system of representation, where campaign period is from Feb. 9 to May 7 with the report covering the period Nov. 9, 2015 to May 7, 2016 and candidates for members of the House of Representatives, elective regional, provincial, city, and municipal officials, where campaign period is from March 25 to May 7 with the report covering the period Dec. 25, 2015 and May 7, 2016.

Among the information required to be disclosed in the report are: the date or dates of telecast, broadcast, or posting; exact time of airing; duration of telecast or broadcast; name of candidate subject of the commercial or advertisement; payor (indicating whether paid by the candidate or by a sponsor or donor); and the amount paid to the media outlet. The report shall also include a sworn declaration duly signed by the authorized representative of the media outlet certifying the completeness and accuracy of the information contained. Considering that the report may consist of multiple pages, it is also required by the RMO that a softcopy of the report in a Digital Versatile Disk-Recordable (DVD-R) be submitted.

The report and its softcopy shall be submitted to the appropriate Revenue District Office (RDO) or Large Taxpayers Division (LTD) where the subject media outlet is duly registered not later than 15 days from the end of the campaign period, or until May 22. The concerned RDO or LTD are tasked to immediately verify tax compliance and determine assessable donations based on the reports in relation to donated commercials, advertisements or any media publications for campaign purposes in favor of the candidates.

Interestingly, RMO No. 16-2016 states that non-submission of the report shall be subject to a penalty of P1,000 for each failure to submit within the deadline of May 22. The payment of said penalty will not relieve the media outlet from the requirement of submitting the prescribed report. What is more burdensome is that the media outlet will be included in the priority audit program of the concerned investigating revenue office in case of noncompliance.

With the campaign period and elections over, the regulators will be at work in ensuring that campaign spending limits were faithfully observed and the offices of the candidates and political parties will be consumed with the task of reporting campaign expenditure. With the media outlets being the most expensive, and arguably the most traceable, form of campaign expenditure, the BIR, through RMO No. 16-2016, has devised a reasonably effective method of tracing potential internal revenue leaks. With the imminent change in administration, taxpayers have yet to see how these rules will be implemented.

Philip Marion A. Ortal is a supervisor 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].