Tax Corner & Corporate Platform: COVID-19 Donations and its Tax Consequence

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By Atty. Josephrally L. Chavez, Jr.

Donation in its simplest term is an act of generosity, big-heartedness, or a charity at that. Legally speaking, it is the act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. On the other hand, the Tax Code grants authority to the Bureau of Internal Revenue to collect the donor’s tax.

Basically, the purpose of imposing a donor’s tax is to raise revenue so that the government can defray the necessary and legitimate expenses of the country. Further, donor’s tax is imposed to complement or augment estate tax since there is a loss of revenue collection anticipated when the subject of inheritance or the estate is split by donation prior to the time of death. While this tax-saving device is legally allowed, the basic purpose is to prevent at least the nonpayment of the related tax. So, if one is to escape estate tax on a gratuitous transfer, the donor’s tax will set in.

Under TRAIN, the rate of donor’s tax is simplified from a graduated tax rates of 2% to 15%, now, a fixed rate of 6%.

But are all kinds of donations subject to tax? Should a donor, by his act of generosity, having a big heart and a champion of charitable works be burdened by tax liabilities? Whether an individual or juridical person, should the imposition need not distinguish? And thereafter, is not the donor entitled to a certain benefit or tax courtesy for that matter?

In these trying times, COVID-19 or pandemic epoch, the Filipino Bayanihan spirit has once again illustrated the fighting chutzpah and solidarity of the nation. While taxes are obligations arising from law, what then really, are the tax obligations both of the donor and the done in this case?

Regardless of who the recipient or the donee is, with no distinction, the amount of P250,000 donation is donor’s tax-exempt. The exemption is granted on every first P250,000 of every donation made on a cumulative basis by the same donor during the calendar year;

A total or full exemption on donor’s tax is granted on gifts or donation made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government [with no condition] and gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization are likewise exempt from donor’s tax with a few conditions provided under the Tax Code.

Simply put, as long as the donee is one of the aforementioned, there is no burden on the part of the donor to pay the tax.

Noteworthy, the donor while not asking anything in return from the government despite the gift, the help or the donation extended, there is a corresponding tax benefit under the Tax Code. The wisdom is to encourage these acts of liberality even prior to this COVID-19. It is a form of tax incentive where the donor can claim such by way of tax deduction or a deductible expense from its gross income.

Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, or to accredited domestic corporation or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to non-government organizations is deductible.

And the good news is, the deduction is allowed in full. Why? The Tax Code is explicit on this.

Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth, and sports development, human settlements, science and culture, and in economic development are contributions considered as deductible in full. Even those donations made to an accredited nongovernment organization are deductible in full.

This is even bolstered by Revenue Regulations 9-2020, issued on 6 April 2020 acknowledging the private sector in responding to the heed of the government’s call in the fight against COVID-19. The Regulation authorizes the full deductibility of the donation against the gross income of the donor-corporation/individual which may include cash, donations of all critical or needed healthcare equipment or supplies, relief goods and use of property, whether real or personal. The requirements or supporting documents are very simple. Just the deed of donation and the certificate of donation (BIR Form 2322).

Donations to private hospitals and/or non-stock non-profit educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, NGOs (even if non-accredited), trust or philanthropic organization and/or research institution or organization and local private corporations, civic organizations/institutions are given the same full tax deductibility under the Regulation. It only requires the President of the donor-Corporation or any of its authorized officers, or by the donor-individual himself, stating the name of the done, the date and amount of donation and stating that it was made solely for the purpose of supporting the efforts to fight COVID-19 during the period of the state of national emergency together with the proof of purchase if the donation is in kind.

Finally, the donations of all critical or needed healthcare equipment or supplies and relief goods like food packs, rice, canned goods, noodles etc., are not to be treated as transactions deemed sale subject to VAT under Section 106(B) of the NIRC. And that, any input VAT attributable to such purchase of goods is creditable against any other output tax.