Are Campaign Contributions Subject To Donor's Tax?: Posted by Oli Reyes On November 17, 2009

Are Campaign Contributions Subject to Donor’s Tax?
Posted by Oli Reyes on November 17, 2009
With the Philippine campaign season approaching, it is worth asking whether campaign contributions are subject to
the donor’s tax which is generally assessed on all gifts pursuant to the National Internal Revenue Code.
The quick answer is “No”. Section 13 of Republic Act No. 7166 explicitly provides that “[a]ny provision of law to
the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or coalition of
parties for campaign purposes, duly reported to the Commission [on Elections] shall not be subject to the payment
of any gift tax.” The phrase “duly reported to the Commission” establishes an important caveat, and it is very
arguable that such contributions which were not reported to the COMELEC may be subject to the donor’s tax. Who
is bound to “duly report to the COMELEC” for the purposes of Section 13? Both the campaign donor and the
candidate/political party receiving the campaign contributions are duty-bound under law to report these
contributions with the COMELEC. Under Section 99 of the Omnibus Election Code (B.P. 881), the person who
gives campaign contributions is obliged to file with the COMELEC not later than thirty days after the election “a
report under oath stating the amount of each contribution, the name of the candidate, agent of the candidate or
political party receiving the contribution, and the date of the contribution.” At the same time, under Section 14 of
Republic Act No. 7166, within the same thirty-day period, the candidate and the treasurer of the political party are
also obliged to file “the full, true and itemized statement of all contributions and expenditures in connection with
the election.”
Does the National Internal Revenue Code have anything to say on the matter? Section 99(C) does say that
“[a]ny contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended.” It should be noted that while Republic Act No. 7166 is not
the “Election Code” itself nor did it supplant the Marcos-era Omnibus Election Code, the latter law did amend B.P.
881 in several respects, so there should be no question that Section 13 of Rep. Act No. 7166 serves as a proper
authority referred to under Section 99(c) of the NIRC.
There is a leading case on the matter, Abello v. CIR (G.R. No. 120721, 23 February 2005). However, the core
ruling of this 2005 decision was already rendered obsolete with the passage of Republic Act No. 7166 fifteen years
earlier, a fact which the Supreme Court itself admits at the end of its discussion. Prior to Republic Act No. 7166,
the laws had been silent on whether campaign contributions were subject to donor’s tax, and the Court employed
that silence to declare that subject donations, which were made during the 1987 national elections, were subject to
the tax in the same manner that other gifts were. Abello remains interesting in how the petitioners tried to argue
that campaign contributions were inherently exempt from gift taxes, and how the Supreme Court rejected those
arguments. A sampler:
The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G. Abello, Jose C.
Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave P882,661.31 to the campaign funds of Senator
Edgardo Angara, without any material consideration. All three elements of a donation are present. The patrimony
of the four petitioners were reduced by P882,661.31 each. Senator Edgardo Angara’s patrimony correspondingly
increased by P3,530,645.24. There was intent to do an act of liberality or animus donandi was present since each
of the petitioners gave their contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is clear and unambiguous,
thereby leaving no room for construction. xxx
Since the purpose of an electoral contribution is to influence the results of the election, petitioners again claim that
donative intent is not present. Petitioners attempt to place the barrier of mutual exclusivity between donative
intent and the purpose of political contributions. This Court reiterates that donative intent is not negated by the
presence of other intentions, motives or purposes which do not contradict donative intent.
Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift is the
liberality of the donor, while the consideration for a political contribution is the desire of the giver to influence the
result of an election by supporting candidates who, in the perception of the giver, would influence the shaping of
government policies that would promote the general welfare and economic well-being of the electorate, including
the giver himself.
Petitioners’ attempt is strained. The fact that petitioners will somehow in the future benefit from the election of the
candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove
political contributions from the purview of a donation. Senator Angara was under no obligation to benefit the
petitioners. The proper performance of his duties as a legislator is his obligation as an elected public servant of the
Filipino people and not a consideration for the political contributions he received. In fact, as a public servant, he
may even be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater
good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign of Senator Angara
in his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a donation. xxx
(citations omitted)
It would be interesting to speculate how different the complexion of Abello might have been had the Supreme
Court contended with the framework popularized in such U.S. cases as Buckley v. Valeothat campaign spending is
constitutionally protected speech. After all, there is something off-putting to the notion that the exercise of free
speech may be burdened with a tax. However, and perhaps because that aspect was not raised by the parties, the
Supreme Court did not consider that formulation in Abello, and more pertinently, the Court had sort of already
pronounced its disdain for Buckley in 1998, with Osmena v. COMELEC.

Still, unless Section 13 of Republic Act No. 7166 were repealed or amended, the exemption from donor’s taxes of
campaign contributions is settled. There may remain questions to be asked. Could the donation be considered a
campaign contribution if it were donated before the candidate files her/his certificate of candidacy? After all, one
becomes a candidate only upon filing the certificate of candidacy before the COMELEC and should be considered a
private individual prior to that point.

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Are Campaign Contributions Subject to Donor’s Tax?

Posted by Oli Reyes on November 17, 2009

authority referred to under Section 99(c) of the NIRC.

of the petitioners gave their contributions without any consideration.

thereby leaving no room for construction. xxx

the giver himself.

pronounced its disdain for Buckley in 1998, with Osmena v. COMELEC.

private individual prior to that point.

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