Tax on Internet Election Ads
by admin
The Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 8-2009 (RR 8-09) entitled “Amending Further Secs. 2.57.2 and 2.57.3 of Revenue Regulations No. 2-98, as amended, Subjecting to Creditable Withholding Tax the Income Payments Made by Political Parties and Candidates of Local and National Elections of All Their Campaign Expenditures and Income Payments Made by an Individual or Juridical Person Forming Part of Their Campaign Contributions to Candidates of Local and National Elections and to Political Parties” on October 22, 2009.
Payment of proper taxes by candidates during election campaign is viewed as a civic duty. RR 8-09 declares that the candidates have the civic duty of assisting in nation building which can be attained with them being involved in complying with their tax obligations.
RR 8-09 imposes a 5% withholding tax on election campaign-related goods and services including advertisements. Briefly, in a withholding tax system, taxes are collected by the BIR through a withholding agent. A portion of the amount paid to the seller of goods or services is withheld by the designated withholding agent. The amount withheld is later turned-over by the withholding agent to the BIR.
The withholding agents are:
- Candidates;
- Political parties; and
- Individuals or juridical persons who give political contributions to candidates and political parties.
The following are simple illustrations of how RR 8-09 should work:
- Candidates and political parties who buy goods and services for purposes of election campaign shall withhold 5% from the amount (purchase price) of the goods and services paid or to be paid to the provider or seller of campaign-related goods/services. Thus, for taxation purposes, the provider of the goods and services shall only be entitled to receive 95% of the amount or purchase price.
- Individuals or juridical persons who purchase goods and services to be given to a candidate or political party shall likewise withhold 5% from the purchase price.
The Philippine internet scene is already experiencing the 2010 election campaign fever. Websites are increasingly becoming a very handy avenue for election campaign propaganda. At present, we already have different websites for presidential candidates like Noynoy Aquino (www.nonoy.ph), Villar (www.akalamo.com), Erap (www.erap.ph) and Bayani Fernando (www.bayanifernando.com.ph). These websites are being updated regularly and maybe until the election fever cools down.
As websites are not specifically excluded from the coverage of this 5% withholding tax then, if we are to apply RR 8-09, the following goods/services related to internet election campaign shall be subject to 5% withholding tax:
- Web Host and Domain Server Providers;
- Premium Softwares used in the website;
- Advertisers paid to advertise the website; and
- Web creator, administrator and staff, if any.
The above-enumeration (web host, etc.) are goods and services related to election campaign. Simply stated, these are reasonably within the term “campaign expenditures”. Thus, it appears that internet election campaign expenditures should be subject to 5% withholding tax.
However, there is doubt if RR 8-09 would be fully implemented to internet election campaign goods and services. For example, Bayani Fernando’s website is actually being advertised by Google ads (see photo below):
Of course, the BIR will not collect the 5% withholding tax from Google which is a company based in California, USA. Instead, BIR should collect, theoretically, from Bayani Fernando the withholding agent. Truly, the full implementation and enforceability of RR 8-09 will be put to test in these internet-based election campaign and gimmicks. Will the BIR actually ascertain or at least approximate the extent of tax implications of internet election campaign?
Facebook is free. But, it is not the future President, Senator, Representative, Governor, or Mayor who is behind that keyboard updating his status or website for campaign purposes right?
Twitter? We’ll see. ##
