Frequently Asked Questions: Tax Exemption
Q: What is tax exemption?
Tax exemption is a reduction or elimination of the taxes normally imposed on individuals and organizations by the government.
Q: Are NGOs/NPOs exempt from paying tax?
Tax exemption, according to Section 30 of the Tax Code, can be granted to an organization that is non-stock and nonprofit, and operated or organized exclusively for charitable purposes. It is essential to remember, however, that this tax exemption is not absolute.
However, NGOs, whether engaged or not in microfinance activities, are not exempt with respect to their withholding tax liabilities. They are required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding.
Q: What is Donor’s Tax (aka Gift Tax)?
Donor’s Tax is a tax imposed on the privilege of transmitting property by and from a living person to another by way of donation.
Q: What is a ‘donee institution’?
An organization with a donee institution status is granted the right to receive tax-deductible and tax-exempt donations under the 1995 Tax Code. The PCNC can certify NGOs for this status, which is subject to the final approval of the BIR. Donors to a donee institution are entitled to donor’s tax (30% of donation plus 12% value added tax) and 100% tax deductibility of donations from gross income of donor company.
Q: How can I have my NGO accredited as a donee institution?
The accreditation of NGOs/NPOs to donee institutions can be done by the following agencies: Department of Social Welfare and Development, for charitable/social welfare organizations, and foundations; Department of Science and Technology, for organizations engaged in research and other scientific activities; the Philippine Sports Commission for organizations and foundations engaged in sports development; National Council for Culture and Arts, for organizations engaged in cultural activities; and the Commission on Higher Education, for organizations engaged in educational activities.
Previously, the PCNC was the duly designated accrediting entity for donee institutions. However, it was eventually deemed that it may amount to an undue delegation of power, since the PCNC is a private body. With the issuance of Executive Order No. 671 (October 2007), this function has been transferred to the several agencies listed above.
Q: What is the basis of the BIR to grant an NGO the donee institution status?
The NGO must be certified by the PCNC (Philippine Council for NGO Certification).
Q: Are there tax benefits granted to taxpayers who donate to accredited institutions?
Yes! Donors enjoy certain tax privileges like deductibility of donations and exemption from donor’s tax.
Full deductibility of donations is allowed only for donations to accredited NGOs. For donations to non-accredited NGOs, the deduction is allowed only up to 10% for an individual donor and 5% for a corporate donor, of the donor’s business income.
Donations to accredited NGOs/NPOs shall be exempt from donor’s tax as long as not more than 30% of the said donations for the taxable year shall be used by such NGO for administration purposes.
Q: Do NGOs receive tax incentives?
Yes, Philippine NGOs receive tax incentives under the law, such as tax exemption and donee institution status, which allows local donations to be deducted from the donors’ taxable income and exempted from donors’ tax.
Q: Can the donations be deducted in full?
Yes, donations, contributions or gifts that are made within the taxable year to accredited NGOs can be fully claimed as deduction. However, the deduction cannot exceed 10% of the income of an individual donor, and 5% for a corporate donor.