On how and why generosity is taxable in the Philippines by Mon Abrea November 24, 2013 Let’s take a break from hating and criticizing the government in handling relief operations. Although many of us have generously donated our time and financial resources in almost all ways possible, it will never be enough to bring back the lives and homes destroyed by the two recent tragedies—the earthquake and the storm surge in the Visayas region. I suspect no government, even those of developed countries, could prepare enough to eliminate casualties for such. Rather than politicking and lamenting on what obviously could have not been prevented, we should look instead into strategic areas for improvement, especially on the supposedly limitations of our government to respond immediately given its trillion budget. Equally important is to support institutional reforms with the aid of legislation, which will assure us an honest and functional government beyond the Aquino administration. Empowerment Budget In 2012, the national budget has been designed to be a Results-Focused Budget with a total appropriation of P1.816 trillion, 10.4 percent higher than the previous year. The social service sector—education, health, social welfare, employment, etc.—got the biggest share at P567.9 billion. The economic services sector—agriculture, agrarian reform, communications, roads and other transport—followed with P439.5 billion. There seemed to be no allocation for Disbursement Acceleration Program (DAP) and yet the government spent more than P70 billion and P50 billion in 2011 and 2012, respectively—nine percent of which went to select legislators. Is this what they call “Pag-gugol na Matuwid,” where each and every peso spent by government should count in empowering the people and in building a prosperous nation? According to the 2012 People’s Budget published by the Department of Budget and Management (DBM), “The government will escalate the reforms it already began towards ensuring that public spending leads to direct, immediate and substantial benefits for various marginalized sections of society: students deprived of free and quality basic education, patients urgently needing proper healthcare facilities in the countryside, farmers without access to effective irrigation and post-harvest facilities, and millions of other Filipinos who have been sinking in joblessness, poverty and hopelessness for so long.” I guess, it will not be a problem if the Commission on Audit (COA) takes a look at the government spending from 2011 to 2013, especially the DAP funds purportedly intended to boost economic spending. While the 2013 Empowerment Budget is at P2.006 trillion—P980.7 billion of which was appropriated for Special Purposes Funds (SPF) at the President’s disposal—a survivor of super typhoon Yolanda couldn’t care less. As for those of us spared, we may have avoided the storms but not the tax on donations. Tax In Times Of Crisis Under section 98 of the National Internal Revenue Code (NIRC), direct or indirect gifts, real and personal properties, and tangible or intangible assets are subject to 30 percent donor’s tax if given to strangers like typhoon victims. For the purpose of this tax, a “stranger” is a person who is not a: (1) Brother, sister (whether by whole or half-blood), spouse, ancestor, and lineal descendant; or (2) Relative by consanguinity in the collateral line within the fourth degree of relationship. It may sound absurd but there’s tax even in times of crisis. And if you want to avoid it, take note of the following gifts or donations, which are exempt from donor’s tax: a. Gifts made to or for the use of the national government or any entity created by any of its agencies; b. Gifts in favor of non-profit, non-government organizations (NGOs) accredited by BIR; and c. Any contribution in cash or in kind to any candidate or political party for campaign purposes. However, for donations to non-accredited NGOs, the deduction is allowed only to the extent of 10 percent for an individual donor, and five percent for a corporate donor, of the donor’s business income as computed before the donation. Except for the five percent withholding tax due from the political candidate, contributions for campaign funds are absolutely tax-free and sky’s the limit as to the amount. Corruption And Reform With the pending investigation on the P10 billion PDAF scam and constitutionality issue of DAP, taxpayers are even more apprehensive to pay the right taxes. In the recent interview of Commissioner of Internal Revenue (CIR) Kim Henares, she said the performance of BIR has improved a lot since 2010. In as much as I would want to agree with her, P450 billion (or more) losses due to tax evasion permeates in our corrupt system. Her administration may have reached the trillion mark in tax collection, but taxpayers remain in the dark, unwittingly ready to compromise to move ahead of the bureaucracy. If the sole metric for BIR performance is hitting the collection goal, Henares is indisputably right in her assessment. Admittedly, it is easier to criticize BIR than to actually instill genuine reform. However, an efficient tax administration must not in any way disregard the importance of reforming three critical areas: people, process and technology. Henares is perceived to be incorruptible but how about the more than 2,000 examiners directly dealing with taxpayers? Her job is not just to collect the right taxes but to make it easy and convenient for all taxpayers to be honest in complying with BIR regulations. The road toward genuine tax reform should lead us to a sound tax system—a system that is fair and square. It must uphold its three basic principles: (1) fiscal adequacy, which means the sources of revenues should be sufficient to meet the demand of government expenditures; (2) theoretical justice, which means that the tax burden should be in proportion to the taxpayer’s ability to pay; and (3) administrative feasibility, which means our tax laws should be capable of a convenient, just, and effective administration. Consequently, our legislators must revisit our tax code and pass bills that will broaden the taxpayer base and will increase voluntary compliance without imposing new taxes. BIR, for its part, has to focus on improving taxpayer’s satisfaction, as 98 percent of our collections remain voluntary. As a response, professionals and businessmen must engage in initiatives such as the Citizen Tax Planning (CTP) Certification Program, where honesty is integrated in their business model to improve their voluntary compliance. In the midst of the recent tragedy, our government must recognize the heroic efforts of everyone immediately responding to help the victims of the super typhoon. Even with the threat of being taxed for his generosity, a true Filipino will always be ready to give a helping hand. Bayanihan (a spirit of communal unity or effort to achieve a particular objective) is a very Filipino characteristic and we are once again witnessing it. Our tax administration must draw inspiration from this to bring Filipinos together and help our country move forward with a sound tax system. Note to the President: Please declare a tax holiday in all areas affected by the recent calamities. The tax relief will further boost our economy, as more people would want to help in rehabilitating the affected provinces. Instead of collecting taxes, BIR examiners can accept donations, which may also be considered as tax credit. The amount of losses from non-collection of taxes during the tax holiday can be compensated by the generosity of our people through their outright donations. ******* A Game-Changing Tax Strategy Attend the Third Philippines Tax Summit on November 26 to 27 at the Pan Pacific Hotel in Manila. Together with a former BIR director and equally reputable tax experts of the country, I will discuss the 31 most important things you need to know during BIR audits and the game-changing tax strategy to avoid penalties and compromises. For reservations and free copies of the Ctrl+TAX+Del handbook, “31 Most Frequently Asked Questions by Entrepreneurs,” call (2) 345-4789 or e-mail [email protected]. Mon Abrea is the founding president of the Center for Strategic Reforms of the Philippines (CSR Philippines), a non-profit organization that champions and consolidates initiatives to empower the MSMEs. He is also the Chief Strategy Officer of the country’s first social consulting enterprise, the Abrea Consulting Group (ACG), which offers strategic finance and tax advisory services to businesses, professionals and individuals. Feedback is welcome at consult.acg.ph.
Posted on: Mon, 02 Dec 2013 19:17:58 +0000
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