Vote wise, tax wise

In light of the upcoming May 9 elections, one of the issues that has been raised is the importance of complying with the requirements of the Bureau of Internal Revenue (BIR) for all those that are running for elected posts.

Compliance with the BIR must be upheld before, during, and after the campaign period. To begin with, the BIR issued Revenue Memorandum Circular (RMC) 22-2022 to remind everyone, particularly those who are running as candidates, political parties, and party-list groups, as well as campaign contributors, of their obligation to register with the BIR, issue official receipts, and withhold taxes.

In terms of registration, the required submissions for individual candidates are the following: Duly accomplished BIR form 1901, any identification issued by an authorized government, and Certificate of Candidacy (COC) from the Commission on Elections (Comelec). Further, the individual candidate shall be registered as “professional – in general” and tagged as “politician” under the special code in the BIR registration system. Meanwhile, the political parties/party-list groups shall be required to submit the duly accomplished BIR form 1903 and COC from the Comelec. The said political parties/party-list groups shall be tagged as “political party” under the special code of the BIR registration system. The registration shall be made with the Revenue District Office (RDO) and the RDO itself shall maintain the list of all registered candidates and political parties to monitor and update the registration record after the election. Afterwards, the registrants have to pay a P500 annual registration fee and will be issued a Certificate of Registration (COR). Moreover, the COR is no longer required to be issued for individual candidates who are not engaged in business.

All candidates and political parties/party-list groups in the elections are also mandated to keep books and accounting records, and to register non-VAT official receipts (ORs) to be issued for every contribution received, whether in cash or kind valued, at fair market value. The original copies of the ORs shall be issued to the contributor/donor while the duplicate shall be retained by the issuing candidate, political parties or party-list groups.

For the income tax treatment, generally, the campaign contributions are not included in the taxable income of the candidate since the purpose of such contributions is to be utilized for the expenditures during the campaign period and not for the personal expenditure or enrichment of the concerned candidates. Thus, the unutilized campaign funds shall be subjected to income tax and be reported in the Income Tax Return (ITR) of the candidates and political parties/party-list groups. The tax return to be filed depends on the registration of the candidate. If the individual candidates are registered as professional or self-employed, the unutilized campaign funds shall be declared for the quarter ended June 30 using BIR form 1701Q and must be filed on or before Aug. 15 of the same taxable year. Further, if the candidates are registered as purely compensation earners, they shall file BIR form 1700 on or before April 15 of the following taxable year. If neither of the two, they shall declare the unutilized campaign funds by filling out a short-period return from   Jan. 1 up to the date of election using BIR form 1700 on or before Aug. 15 of the same taxable year. Political parties and party-list groups shall follow the rules for domestic corporation in reporting the excess funds as part of taxable income.

Aside from income tax, donations or contributions, whether in cash or in kind, that have been utilized or spent during the campaign period are also exempt from donor’s tax except those donations made by corporations in violation of Section 36(9) of the Corporation Code of the Philippines.

Now for withholding tax obligations, income payments made by candidates and political parties/party-list groups on purchase of goods and services as campaign expenditures, and by individuals or judicial persons on purchase of goods and services intended to be given as campaign contributions shall be subjected to a five percent creditable withholding tax (CWT). These may include, but are not limited to media services, printing jobs, talent/entertainment fees, and rentals of both real and personal properties. The deadline of five percent CWT shall be filed and remitted not later than the last day of the month following the close of the quarter during which withholding was made using BIR form 1601EQ.

Within 30 days after the election, every candidate and treasurer of political parties/party-list groups shall submit the Statement of Contributions and Expenditures to Comelec and to the RDO where they are registered.

Importantly, all candidates, political parties, and party-list groups who failed to register and comply with the above stated shall be penalized.

To sum it all up, we may have been too focused on the upcoming elections, but I hope this serves as a gentle reminder to all political candidates on their responsibilities before, during, and even after the campaign period. And, to the Filipino citizens, tax is one vital thing that keeps our economy going, and so to speak, we should also be keen on future leaders’ tax history and/or performance. How they manage and pay their taxes reflect how responsible they are as citizens, taxpayers, and followers of the law. Cliché as it is, but a good follower does make a good leader.

Mariel Rea V. Panganiban is a tax analyst from the tax group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice 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 KPMG International or KPMG RGM&Co.

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