Tempering taxes in the spirit of bayanihan

It is said that difficult times bring out the best in people. This has never been more apparent than right now when we see people and governments helping each other while grappling with the COVID-19 pandemic themselves. In the Philippines, bayanihan (community spirit) prompted the private sector to mobilize and extend help, particularly to those at the forefront of the fight against the disease.

Recognizing this, the Department of Finance, with the recommendation of the Bureau of Internal Revenue (BIR), released Revenue Regulations (RR) No. 9-2020 on 7 April 2020. This provides tax benefits for donations made during the enhanced community quarantine (ECQ) period. The regulation is based on Republic Act (RA) No. 11469 or the “Bayanihan to Heal as One Act” which authorizes the President, among others, to grant any benefit to ease the burden on individuals during the ECQ period and to undertake measures to carry out national policy.

Donations to the Government and accredited donee institutions

RR No. 9-2020 reiterates the donor’s tax exemption granted by the Tax Code to donations made to (1) the National Government or any entity created by its agencies conducted as non-profit, including public hospitals; or (2) to any political subdivision and qualified institution, as well as the deductibility of these gifts from gross income for income tax purposes. RR No. 9-2020 now emphasizes the full deductibility of donations made under Section 101 of the Tax Code when given for the sole purpose of combatting COVID-19 during the state of national emergency. This includes (1) cash donations; (2) critical or needed healthcare and supplies such as personal protective equipment (PPEs), medical equipment including testing kits; (3) relief goods; and (4) the use of personal and real estate properties.

For donations to the Government or any of its entities of political subdivisions to be fully tax deductible, RR No. 9-2020 prescribes that these must be properly documented through a Deed of Donation. On the other hand, donations made to accredited non-stock non-profit educational and/or charitable, religious, cultural, social-welfare corporations or institutions, including non-government organizations (NGOs), should be properly documented by a Certificate of Donation (BIR Form No. 2322).

Donations to private entities and other institutions

Furthermore, RR No. 9-2020 provides that donations to combat COVID-19 shall also be exempted from donor’s tax when given to the following: (1) private hospitals and non-stock non-profit educational and/or charitable, religious, cultural, social-welfare corporations or institutions, and NGOs even if not accredited; and (2) private corporations, civic organizations, and international organizations provided that these institutions and corporations directly transfer the donations or partner with accredited NGOs, the National Government or any of its agencies or political subdivisions.

RR No. 9-2020 mandates that donations to private entities and other institutions should also be properly documented. For the donor’s tax exemption and full deductibility to apply, the documentation must be submitted within 60 days from the lifting of the ECQ to the BIR Revenue District Offices where the donor and donee-recipients are registered.

Closer scrutiny of RR No. 9-2020 reveals that this regulation is consistent with its goal to ease burdens during this period, especially for donors. Normally, a notice of donation must be submitted to the BIR prior to the donation for the donor to claim donor’s tax exemption and full tax deductibility. However, RR No. 9-2020 has made it clear that the notice of donation is dispensed with for donations to the Government and accredited donee institutions. While the subject regulations still require relevant documentation, depending on the recipient, these need not be presented outright to the BIR to claim the existing tax benefits.

Donations to private entities and other institutions are likewise granted a significant benefit. As a major point, the recipient NGO need not be accredited for the donation to be tax exempt and fully deductible, subject to compliance with specific conditions and the submission of required documents within the given period. This is an exemption to existing rules that require NGOs to be accredited to qualify for donor’s tax exemption and full deductibility.

RR No. 9-2020 is also beneficial from an overall perspective. Considering that the identified donations are mostly donations in kind, the RR is clear that these donations will not be considered as transactions deemed sales for VAT purposes, resulting in the implication that the donation of goods is not subject to VAT. This provision is especially valuable to taxpayers in the manufacturing and production sectors, such as food producers. Notwithstanding, the donor can still claim the benefit of input VAT that it can use to offset its output VAT from its sales.

RR No. 9-2020 is also given retroactive application. All donations made beginning 16 March 2020 (upon the declaration of state of calamity due to COVID-19) can claim the tax benefits even if these were made before the release of RR No. 9-2020 on 7 April 2020.

True community spirit in these trying times

However, it must be emphasized that RR No. 9-2020 is very specific only to the current COVID-19 situation. The items subject to the donor’s tax exemption and deductible donations are targeted to meet current needs, such as those for PPEs and relief goods. Moreover, RR No. 9-2020 itself is valid only during the 3-month effectivity of R.A. No. 11469, unless this law is extended or withdrawn by Congress or ended by the President. Assuming that R.A. No. 11469 took effect on 25 March 2020 upon publication and is valid for three months until 23 June 2020, RR No. 9-2020 will follow the same effectivity period.

It is heartening to see that Government recognizes and appreciates the contribution and initiative of the private sector in these trying times. Indeed, it is through bayanihan and the partnership between the public and private sectors that the COVID-19 challenge can be managed in addressing the basic needs and public health of the people.

Betheena C. Dizon is a Senior Director from the International Tax and Transaction Services team of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.