Last week, many believers all over the world celebrated the most important event in the Christian calendar — Holy Week. For devout Christians like me, Holy Week is a time for prayer, sacrifice, repentance, and reflection. This year, however, Holy Week was celebrated differently in response to the government’s call to contain the transmission of COVID-19. Christian rituals and local traditions were carried out without crowds, while masses were televised or streamed online. Undoubtedly, this outbreak continues to affect life in more ways than we could have imagined. We can bear witness to how this pandemic brought new meaning and significance to our lives. It invited us to see the greater reality of what is important in life, brought many people back to their faith, and inspired people to show more kindness and empathy for others.
As COVID-19 brought the world economy to a screeching halt, the government’s available funds to implement the measures and programs laid out under the Bayanihan to Heal as Once Act may not last until the pandemic is over. Thus, with COVID-19 cases still rising, the urgent need for financial assistance and donations in kind has become a primordial concern. Donations and gifts generally have tax consequences. Hence, to draw the needed support and help from the private sectors, stakeholders, and individuals, the Bureau of Internal Revenue (BIR) relaxed certain rules on the taxation of donations and gifts during this extraordinary time.
In Revenue Regulations (RR) No. 09-2020 dated April 6, the BIR laid down the guidelines on availing of full deductibility against gross income of donor-corporation/donor individuals for specific donations/gifts when given for the sole and exclusive purpose of combating COVID 19 during the state of national emergency.
In the RR, cash donations, donations of all critical or needed health care equipment or supplies, relief goods, and use of property whether real or personal (shuttle service, use of lots/buildings), may be deducted from the taxable gross income of the donor, provided that the donations are made to the National Government or entities created by any of its agencies (including public hospitals) which is not conducted for profit, or to any political subdivision of the Government, including fully-owned government corporations. The full deductibility is allowed regardless of whether the donations are covered by the National Economic and Development Authority (NEDA)’s annual priority plan. These donations must be supported by a Deed of Donation. On the other hand, if the recipient is an accredited non-stock, non-profit educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, non-government organization, trust or philanthropic organization and/or research institution or organization, the certificate of donation (BIR Form 2322) must be submitted to the BIR as a supporting document, while the Notice of Donation has been dispensed with.
It should be noted that the above donations are already exempt from donor’s tax according to Section 101 of the Tax Code, as amended.
Moreover, RR 9-2020 allows exemption from donor’s tax and full deduction from gross income those donations in cash and kind even if given to private hospitals, non-accredited non-stock non-profit educational and/or charitable religious, cultural or social welfare corporations, institutions, foundations, non-government organizations, trust or philanthropic organizations, research institutions or organizations; and to a local private corporation or international organization/institutions who partner to serve as a conduit with accredited NGOs and/or 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 government, subject to the timely submission of applicable documentary requirements (e.g. Sworn Certification, BIR-registered Acknowledgment receipt, proof of purchase, and donee’s liquidation report, as may be applicable). These documentary requirements shall be submitted to the corresponding Revenue District Office within 60 days from the lifting of the Enhanced Community Quarantine. Note though, that these documentary requirements are not applicable to donations to foreign institutions or international organizations which are fully deductible in pursuance of or compliance with agreements, treaties, or commitments entered into by the government of the Philippines and the foreign institutions or international organizations or in pursuance of special laws.
Also, the RR provides that donations of all critical or needed health care equipment or supplies such as personal protective equipment (PPEs), testing kits and relief goods such as food packs (rice, canned goods, noodles, etc.) and water shall not be treated as transactions deemed as sales subject to VAT. Any input VAT attributable to such purchase of goods shall be creditable against any other output VAT.
As a gentle reminder though, the donors and donees should maintain the relevant documents supporting the donation, as the BIR has the power to examine books of account and pertinent documents in a possible future audit.
RR 09-2020 and other BIR issuances during the Enhanced Community Quarantine are acts of kindness that have somehow provided our kababayan relief in this extraordinary time. Donations and gifts are subject to tax rules, but acts of kindness are limitless. They know no tax boundaries. As we continue to reflect on the deep meaning of Holy Week, we are reminded that as the recipient of God’s loving kindness and mercy, we too are called to spread God’s kindness by looking beyond our petty concerns such as being inconvenienced by the lockdown, or being deprived of certain freedoms and luxuries, and to empathize with the sufferings and pains of others.
At this terrible time, every act of kindness such as merely staying at home to flatten the curve of COVID-19, giving donations, extending help to our front liners, refraining from complaining and spreading negative thoughts, or just being prudent when sharing news in social media can help an extra mile in battling this pandemic. After all, the Greek fabulist and storyteller, Aesop, said: “No act of kindness, no matter how small, is ever wasted.”
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Farrah Andres-Neagoe is a senior manager of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.