It is an enshrined policy in our Constitution for the State to encourage non-governmental, community-based, or sectoral organizations that promote the welfare of the nation. This mandate is made more important today for Filipinos left impoverished and vulnerable, caused by the looming effects of the geopolitical disruptions affecting our country. In line with this mandate, the National Internal Revenue Code (Tax Code) provides tax incentives to persons who contribute to accredited institutions (Donee Institutions).
Section 34(H) of the Tax Code allows taxpayers to recognize a limited deduction equivalent to 10% of taxable income for individual taxpayers, and 5% of taxable income for corporate taxpayers who contribute to Donee Institutions. The contribution or gift should be for the use of accredited domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural, or educational purposes, for the rehabilitation of veterans, to social welfare institutions, or to non-government organizations (Accredited NGOs), in accordance with regulations of the Secretary of Finance (SoF), upon recommendation of the Commissioner of Internal Revenue (CIR).
The Tax Code allows full deductibility of contributions made to Accredited NGOs, provided the following conditions are present: 1.) the accredited NGO shall utilize the contributions directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated, not later than the 15th day of the third month after the close of the accredited NGO’s taxable year in which contributions are received, unless extended; 2.) the level of administrative expenses of the Accredited NGO shall, on an annual basis, not exceed 30% of the total expenses; 3.) in the event of dissolution, the assets of the Accredited NGO would be distributed to another Accredited NGO organized for similar purposes, or to the State for public purpose; 4.) the amount of any charitable contribution of property other than money shall be based on the acquisition cost of said property; and, 5.) all the members of the Board of Trustees do not receive compensation or remuneration for their services to the aforementioned organization.
Section 101(A) of the Tax Code recognizes a full exemption from donor’s tax, but adds that not more than 30% of said gifts shall be used by such donee for administrative purposes.
In 1998, the Department of Finance issued Revenue Regulation No. 13-98 to implement Section 34(H) of the Tax Code (RR 13-98). The SoF identified the Philippine Council for NGO Certification, Inc. (PCNC) as the “Accrediting Agency.” RR 13-98 described the PCNC as being comprised of several NGO networks, namely: the Caucus of Development NGO Networks, Philippine Business for Social Progress, the Association of Foundations, the League of Corporate Foundations, the Bishops-Businessmen’s Conference for Human Development, and the National Council for Social Development Foundation. The PCNC was required to examine and evaluate non-stock, non-profit corporations and NGOs as a prerequisite for their registration with the Bureau of Internal Revenue (BIR) as a qualified donee institution based on the following major criteria: a.) mission and goals; b.) resources; c.) program implementation and evaluation; and, d.) planning for the future.
In 2003, Executive Order No. 221 was issued, mandating the Department of Social Welfare and Development (DSWD) to license, accredit, and provide consultative services to social welfare and development agencies (SWDAs) or any other institutions and organizations engaged in social welfare activities. As a result, in 2008, EO 720 was issued to further strengthen the accreditation system, adding the DSWD as a member of the Board of Trustees of the PCNC.
Most recently, on May 7, Executive Order No. 117 (EO 117) was promulgated, designating the DSWD as the sole accrediting entity for SWDAs. SWDAs are defined in Republic Act No. 4373 (RA 4373) as non-stock, non-profit corporations, organizations or associations engaged in providing, directly or indirectly, social welfare and development programs and services, and obtains its finances, either totally or in part, from any government agency or instrumentality, whether foreign or local, or from the community by direct or indirect solicitations, and other fund-generating activities. SWDAs are required to employ a sufficient number of qualified and registered social workers who shall supervise and take charge of its social work functions, in accordance with accepted social work standards of the Philippine Regulatory Board for Social Workers.
Currently, SWDAs are required to secure two separate accreditations — one from the PCNC as a precondition for registration with the BIR, and another from the DSWD for regulatory compliance. The definition of SWDAs appears to overlap with Accredited NGOs in RR 13-98. EO 117, however, has directed that it is the DSWD that will act as the sole accrediting entity for SWDAs, removing them from the jurisdiction of the PCNC, citing the 2018 Ease of Doing Business (EODB) and Efficient Government Service Delivery Act.
The SoF, CIR, and DSWD have been directed to issue necessary implementing rules aligned with EO 117. To ensure the streamlining of the accreditation process in line with the EODB, the rules should address and define the requirements for classifications of Donee Institutions, whether as Accredited NGOs or SWDAs. The rules must be clear as to who are still covered by the PCNC. Moreover, the rules should incorporate criteria ensuring that accredited Donee Institutions shall make utilization directly for the active conduct of social welfare purposes, aligned with the very thrust and objective behind the grant of the tax exemptions.
(The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not offered as, and does not constitute, legal advice or legal opinion.)
Rozina E. Salcedo is an associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.
