IT’S THE most wonderful time of the year, with people worldwide gearing up for Christmas by dispensing gifts. The spirit of the season truly crosses all boundaries of culture, economic background or social status, and business people are definitely not immune to the wave of giving as they sign hefty checks to the objects of their generosity.
Before sending out those gifts, however, it is important to consider the tax implications. Almost everything is taxable, so it should not come as a surprise that the tax authorities also have their eye even on holiday acts of kindness.
Strictly speaking, gifts to strangers -- i.e., anybody who is not a sibling, spouse, ancestor, or lineal descendant; or a relative by consanguinity in the collateral line within the fourth degree of relationship -- are subject to 30% donor’s tax. However, gifts to qualified donee institutions duly accredited by the Philippine Council for Non-Government Organizations (NGO) Certification, Inc. (PCNC), are exempt from donor’s tax provided that the donor complies with certain conditions prescribed by law and other relevant issuances.
The Tax Code provides exemptions from donor’s tax on donations to qualified institutions. In addition, donors to these institutions may enjoy full deductibility of their gift from taxable income. However, to be entitled to the tax exemption, the donor engaged in business is required by Revenue Regulation (RR) No. 02-03 to submit a notice of donation on every gift worth at least P50,000 to the Revenue District Office (RDO) with jurisdiction over the donor’s place of business, within 30 days after receipt of the qualified donee institution’s duly issued certificate of donation.
The certificate of donation shall be attached to the notice of donation, stating that not more than 30% of the said donation/gifts for the taxable year shall be used by such accredited nonstock, nonprofit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101 (A)(3) and (B)(2) of the Tax Code.
In addition to the requirements stated above, the Bureau of Internal Revenue (BIR) also recently issued Revenue Memorandum Circular No. (RMC) 86-2014 dated 5 December 2014, clarifying the valuation of contributions or gifts actually paid or made in computing taxable income, as part of the substantiation requirement under Section 8 of RR 13-98. Under the said 1998 revenue regulations, taxpayers claiming donations as deductions from gross income must present to the BIR the Certificate of Donation indicating the actual receipt and date of donation, and the amount of cash, or acquisition cost if in property.
The mandatory information under Section 8 of RR 13-98 is now required to be provided in the Certificate of Donation (BIR Form 2322) as prescribed by the new RMC 86-2014. BIR Form 2322 consists of two parts -- a donee certification and a donor’s statement of values. The donee certification indicates the donee’s confirmation of receipt of donation, the date it was received, and the amount of cash or the description of the property donated; and is signed by an authorized representative of the donee organization.
On the other hand, the donor statement provides the description, acquisition cost and net book value of the property donated as reflected in the financial statements of the donor, signed by an authorized representative. A copy of the sales document will also be required to support the acquisition cost claimed by the donor.
The numerous requirements unfortunately discourage the business sector in availing of the grant. It suppresses the spirit of giving by mandating requirements that negate the purpose of the incentive if not fully complied with and followed to the letter.
The Congress must evaluate the taxation of donations. Stringent requirements for the availment of tax incentives on donations discourage donors from continuing their generous contributions. There seems to be no logical reason for a donation to be taxed when the income from which such donation came from has already been taxed. If anything, generosity should be applauded and encouraged by the government.
The context of much giving is the calamities that plague our country. In most cases, victims of such calamities cannot depend on the government to provide for their needs. During such times, we can only turn to the private sector to augment the assistance to the victims by donating whatever resources they can spare. However, after donating whatever cash or property is available, the donor is then slapped with an astounding 30% donor’s tax. Why do we punish donors for their acts of kindness?
Yet, despite the difficulties imposed by the donor’s tax, we should always remember the true meaning of Christmas and celebrate this season with generosity and love. It is good to give generously and wholeheartedly. By all means let us be merry, but let us also be wise: before handing out precious gifts, remember to comply with the new requirements under RMC 86-2014 to avail of the exemptions.
On behalf of the Punongbayan & Araullo family, we wish you a Merry Christmas and a Prosperous New Year!
Iderlyn P. Magsambol-Demain
Let’s Talk Tax
Punongbayan and Araullo