THEY probably thought they got a free pass to flood television with political ads beyond the airtime and spending limits set in law, having run commercials before the 90-day campaign period could start last February 9.
But the top candidates for president and vice president, as well as those who donated and bankrolled their pre-campaign ads, had better think again, according to lawyers and officials of the Bureau of Internal Revenue (BIR).
By the letter and spirit of anti-graft and tax laws, say the lawyers and tax officials, their pre-campaign period airing of political ads does not free the candidates and their donors of all liabilities.
By PCIJ’s calculations, the combined actual ad spending of six presidential candidates and four vice-presidential candidates from November 1, 2009 to February 8, 2010 comes up to P1.472 billion. By most standards, the amount is huge enough to compromise these candidates, most of whom are incumbent public officials.
The figure is also huge enough to shore up the tax collection drive of the BIR amid the country’s rising fiscal deficit — if the candidates’ donors have paid taxes.
Just last week, BIR Commissioner Joel Tan-Torres said his agency has collected only P100 million from the five-percent withholding tax slapped on all political contributions and campaign expenditures of candidates during the campaign period.
The amount is just a fraction of the BIR’s target to collect P1.2 billion from the five-percent withholding tax because it applies only to the official campaign period from Feb. 9 to May 8 for national candidates, and from March 26 to May 8 for local candidates.
Tan-Torres told reporters that the P1.2-billion projected collections covered the period from December 2009, or after the period for filing of candidacy up to the May elections. He said he expects to increase “by hundreds of millions” the tax yield from campaign expenses in the coming weeks. Then again, perhaps Tan-Torres should look farther back, or before the campaign period commenced.
In truth, on the part of the candidates who are incumbent senators, mayors, and public officials, the Code of Conduct and Ethical Standards for Public Officials and Employees or Republic Act No. 6713 stipulates that they should not receive any gifts or donations of any sort or amount.
On the part of the still unnamed donors, whether private persons or corporate entities, tax laws prescribe that they should have paid donors’ taxes on the amounts they gave to finance their favored candidates’ political ads. These donors, moreover, should have reported and paid the donors’ tax within 30 days from the date of transaction, or until last March 9.
Donations made to strangers (not related by blood or affinity to donee or beneficiary) are taxed a flat rate of 30 percent. Donations made to relatives entail payment of taxes of two percent to 15 percent, depending on the amount. Donations worth P10 million are imputed a flat tax of P1.04 million, and the excess amount an additional 15 percent.
A 30-percent flat tax on the total actual spending by six presidential candidates alone from November 1, 2009 to February 8, 2010 comes up to about P300 million, or thrice as much as what Tan-Torres said the BIR has collected until last week.
Ten big spenders
Based on published rate cards of media agencies minus 50 percent in discounts and commissions , the top six candidates for president – Liberal Party’s Senator Benigno S. Aquino III, Nacionalista Party’s Senator Manuel Villar, Pwersa ng Masang Pilipino’s Joseph Estrada, Bagumbayan Party’s Senator Richard Gordon, Lakas-CMD’s Gilberto Teodoro Jr. (defense secretary until November 15, 2009), and Bangon Pilipinas’s Eddie Villanueva – had spent a total of P1.178 billion from November 1, 2009 to February 8, 2010.
Meanwhile the top four contenders for vice president — LP’s Senator Manuel Roxas III, NP’s Senator Loren Legarda, PMP’s Makati Mayor Jejomar Binay, and Bagumbayan’s Bayani Fernando (Metro Manila Development Authority chief until late October) — had spent a total of P294.41 million (again based on the published rate cards minus discounts and commissions) during the same period.
Of the 10 candidates who were the biggest spenders on pre-campaign political ads, five are senators (Aquino, Villar, Gordon, Roxas, Legarda), one a mayor (Binay), and two others, recently resigned executive officials (Teodoro and Fernando).
Another senator and presidential hopeful, Ma. Consuelo ‘Jamby’ Madrigal, had yet to air a political ad up to the end of the first month of the campaign.
Those among these candidates who are still public officials should not have received donations in cash or kind from any parties for political ads that focus primarily on their common pecuniary interest: To get elected to high office. Up until their respective resignations, this also applied to Teodoro and Fernando.
Paid for by friends?
Taped copies of these candidates’ political ads that aired on national television before February 9 invariably carried the salutary notice, “paid for by friends of….”
Except for Villar, who has repeatedly said that he is spending his own money on political ads and has a declared net worth of P1.04 billion in 2008, there is hardly proof in their latest statements of assets, liabilities, and net worth (SALNs) that the nine other candidates could similarly draw from a deep well of personal funds to pay for their pre-campaign ads.
R.A. No. 6713 or the Code of Ethical Conduct for Public Officials and Employees prohibits the solicitation or acceptance, directly or indirectly, of any gift, gratuity, favor, entertainment, loan or anything of monetary value from any person in the course of their official duties, or in connection with any operation being regulated by, or any transaction which may be affected by the functions of their office.
Accepting such gifts or donations makes them liable for graft and conflict of interest, an offense punishable, including expulsion from public office, under election laws.
Unlike Villar, Teodoro – who began airing ads before his resignation as defense secretary — and the rest of the candidates from the Senate are much less affluent. Separately, their claimed net worth in their latest Statements of Assets, Liabilities, and Net Worth are much smaller in value than the tons of money that they had splurged on political ads from November 2009 to February 8, 2010, according to the Nielsen Media database that PCIJ has analyzed.
For sure, election laws are largely silent on the limits and reporting requirements for pre-campaign expenses. The situation turned murkier when, in November 2009, the Supreme Court practically lifted the ban on pre-campaign activities
Section 15 of Republic Act No. 8436, as amended by Section 13 of R.A. No. 9369, provides that “any person who files his certificate of candidacy within the period for filing shall only be considered as a candidate at the start of the campaign period for which he filed his certificate of candidacy.”
The third paragraph of the same provision states that “unlawful acts or omissions applicable to a candidate shall take effect only upon the start of the aforesaid campaign period.”
No campaign, no bet
It was this provision that the Supreme Court cited in its ruling last November that saw it reversing itself and saying that election offenses can be committed by a candidate “only” upon the start of the campaign period.
In the high tribunal’s own words: “Indeed, there is no ‘election campaign’ or ‘partisan political activity’ designed to promote the election or defeat of a particular candidate or candidates to public office simply because there is no ‘candidate’ to speak of prior to the start of the campaign period.”
As a result, all unlawful acts and omissions applicable to a candidate were deemed to take effect only beginning February 9, and all prior partisan and campaign activities, beyond the purview of election laws.
Still and all, the high court’s decision did not suspend any other laws of the republic, notably those on the ethical conduct of public officials, and those on taxation, according to scholars from the University of the Philippines College of Law consulted by the PCIJ.
UP Law professor Solomon Lumba, a bar topnotcher, says the court’s decision affirmed as well that:
- Incumbent public officials who filed certificates of candidacy are still considered public officials since he/she shall be deemed resigned only upon the start of the campaign period.
In this instance, all laws regarding conduct and discipline of public officers especially Republic Act No. 3019, Republic Act No. 6713, and Presidential Decree No. 46 still apply to all incumbent public officials who are also candidates.
- The contributions made by private citizens and public and private institutions not prohibited by law to persons who have filed their certificates of candidacy cannot be governed by the election laws – and may not be exempted from taxes – since the latter is still not considered a candidate until the campaign period starts.
30-percent tax
By all indications, even in the BIR’s opinion, the candidates and their donors are not entirely without liability for spending oodles of money on pre-campaign ads.
BIR legal department head Maperoma Cantillep says that as a matter of law, even relatives by blood or affinity, within the fourth degree, who had donated to the candidates, have to pay tax. If they donate more than P100,000, fixed tax rates from two to 15 percent kick in.
Under this schedule defined in the Tax Code’s Sections 98 and 99, donations worth P10 million carry a flat tax of P1.04 million, and the excess, up to 15-percent tax.
Cantillap says that those who had donated more than P10 million to candidates who are “strangers” or not their relatives by blood of affinity, should have paid taxes equivalent to 30 percent of their total donations.
“Up-front buo na kaagad percentage tax n’yan,” she says. “That should be 30 percent of the donation.”
As Cantillep sees it, elections are like cockfights. “It’s hard to run for president without money,” she says. “(You have to have) supporters to invest in you. There’s no difference here with putting a bet on a gamecock — they bet on you, they give you help or a donation.”
Cantillep says she does not recall seeing the names of billionaire Villar or any of the other top candidates for president and vice president in the BIR’s list of top taxpayers. She does know, however, that noontime show host Willie Revillame, a Villar endorser, and Aquino’s famous sister Kristina Bernadette ‘Kris’ Aquino rank high on the list.
And while Villar now says that he is using his own money for his runaway political ads, this was not always so. Indeed, his own statements of electoral contributions and expenses in the 2001 and 2007 polls, enrolled huge donations made by a brother and two executives from Villar family-owned firms.
Corporate donations
In this instance, Cantillep remarks: “If I’m an individual, it’s my own expense, that’s not a donation to self.” But, she adds, “If the amounts came from a corporation to a natural person, that’s different because that (is still considered) a ‘stranger’.”
Donations made by Villar companies to Villar’s pre-campaign ads should also be levied a 30-percent tax, she says, “even if you’re a stockholder of the corporation because the two have separate personalities.”
Bangon Pilipinas’s Villanueva is in a similar situation. His Jesus is Lord ministry and its Zoe Broadcasting Network had been listed in the 2004 elections to be among his top contributors. For the 2010 polls, a significant portion of Villanueva’s pre-campaign political ads had aired on QTV Channel 11, a joint venture of a GMA-7 Network subsidiary and Zoe Broadcasting Network, Inc.
Comments Cantillep: “If that’s his own money, then (Villanueva) should show something that will prove this is so. Otherwise, our assumption is that it came from somewhere else. And if it came from somewhere else, that makes it a donation from a stranger or somebody.”
“Kung joint venture… that is still a donation,” she says. “What could their common venture be, their common business (in an election)? Who’s the beneficiary here, isn’t he it?”
Too, the law bars firms holding state franchises, including TV networks, from donating to candidates.
Yet if the rules are stringent on private citizens running for public office, the Constitution firmly sets a higher bar of conduct for public officials. It states: “Public office is a public trust. Therefore, public officers must at all times be accountable to the people and serve them with utmost degree of responsibility, integrity, loyalty and efficiency.”
Thus, all public officials but especially those aspiring for the highest office “must be free from any taint which may cast doubt upon their character and capacity to serve the public truthfully and honestly.”
This duty, according to Lumba, “is especially important when those public officers have already expressed their intent to run for public office and have filed their respective certificate of candidacies but were still not considered as candidates and deemed resigned from their respective positions.”
And yet even before the campaign period could commence last February 9, observes the UP legal expert, “these incumbent officers already make known their presence to the public through infomercials, radio, TV, and newspaper ads.”
Vacuum of sorts?
“Legally speaking there could be an issue,” he says. “The first issue is that of a violation of the antigraft laws under Republic Act 3019 or the Code of Ethics of Public Officers under Republic Act 6713.”
He further points out that such activities cannot not be regulated at all. “A vacuum will then result if during this period there is no law that will govern election campaigning before the official campaign period starts,” he says.
Anti-graft laws are, in fact, more specific on the matter of public officials accepting or soliciting gifts of any sort, in the course of their official duties. Lumba concedes, though, that the last phrase, may lend the candidates an excuse from the law. It may be argued, he says, that soliciting and accepting campaign donations are not within the purview of an official’s duties.
“The problem is that it’s not clear what is punished,” says Lumba. “For example in RA 6713… it also states it must be in the course of the official duty of the public officer. So if I were the public officer who received it and I were sued under this law, I would say that I am not guilty because it was not given in the course of my official duties. It was actually given for the position I am running for in the future so it is not clear that the public officer can be held liable under those laws.
Lumba stresses that the spirit of the law argues against accepting anything of significant value regardless of whether it has to do with an official’s present position or not. The problem, he says, is that “criminal laws are construed strictly against the state, that before you can hold someone criminally liable, that person is really within the ambit or provisions of these laws. So it’s gonna be a fight.”
The Code of Conduct and Ethical Standards for Public Officials prohibits the solicitation or acceptance, directly or indirectly, of any gift, gratuity, favor, entertainment, loan or anything of monetary value from any person in the course of their official duties or in connection with any operation being regulated by, or any transaction that may be affected by the functions of their office.
R.A. No. 6713 defines “gift” as “a thing or a right to dispose of gratuitously, or any act or liberality, in favor of another who accepts it, and shall include a simulated sale or an ostensibly onerous disposition thereof. It shall not include an unsolicited gift of nominal or insignificant value not given in anticipation of, or in exchange for, a favor from a public official or employee.”
A 1995 Supreme Court decision had also said that what makes an act of a public official or employee fall within this provision is his or her “intent to gain, to obtain pecuniary advantage, or enrich him or herself materially while discharging his official duties, although not necessarily using his office.”
It is therefore not necessary, according to Lumba, for a public official to use his position to solicit funds; his acceptance of such while discharging his official duties is enough.
In addition, Presidential Decree No. 46 says public servants cannot receive, directly or indirectly, any gift, present or any other form of benefit in the course of official duties.
Not even for Christmas
The decree also makes it punishable “for any public official and employee, whether of the national or local governments, to receive, directly or indirectly, and for private persons to give, or offer to give, any gift, present or other valuable things on any occasion, including Christmas, when such gift, present or other valuable thing is given by reason of his official position, regardless of whether or not the same is for past favor or favors or the giver hopes or expects to receive a favor or better treatment in the future from the public official and employee concerned in the discharge of his official functions. Included within the prohibition is the throwing of parties or entertainment in honor of the official and employee or his immediate relatives.”
Lumba says this much is clear in the decree’s letter and spirit: A public official is prohibited from receiving directly or indirectly any gift from private persons given by reason of his official position.
Moreover, he says, the decree imposes upon the official the duty to conduct himself above suspicion and reproach. It notes as well that gifts of large amounts are instantly subject to suspicion.
A public official, says Lumba, cannot use as a reason that the gift or contribution, is not for election campaigning purposes since he is still not considered as a candidate. A public official, he says, cannot invoke the law when it is in his favor and reject it when it is unfavorable.
Other laws pertinent to taxation and elections should apply as strictly to individual and corporate funders of the candidates’ pre-campaign political ads, according to election-law expert Luie Tito Guia, a founder of the public-interest law group Libertas or Lawyers’ League for Liberty.
Although he allows that “pre-campaign expenses are a big gap in the law,” Guia says that public officials — particularly senators running for high office — should not have accepted or solicited gifts and donations from campaign contributors, and their donors should have paid taxes.
If the candidates solicited and received donations before February 9 and their donors failed to pay taxes, “these are clear violations of the law,” he says.
Ambiguity in law
Lumba agrees, but worries that candidates and their donors will try to squeeze past the taxes by using a possible ambiguity in the law.
“Under Republic Act 7166, it says that donations for campaign purposes are tax-exempt so long as they are reported to the Comelec, but it doesn’t provide for a period,” he says. “So if I give the donation 10 years ago, I have to report it when? After the elections? So is this a campaign donation, or must there be a campaign existing before this can be considered a campaign donation?”
As for the candidates, Guia says that while such an error will not automatically disqualify them (as violations of election laws are the grounds for disqualification), it opens them to possible charges of violations of anti-graft and ethics laws.
According to Section 13 of R.A. No. 7166, contributions or donations to election campaigns duly reported to the Commission on Elections shall be exempt from Donor’s Tax.
The law defines “election campaign” or “partisan political activity” as an act designed to promote the election or defeat of a particular candidate or candidates to a public office. But lawyers also say that as things stand, a contribution may only be made to a person who has filed a certificate of candidacy at the start of the campaign period. Only the contributions that satisfy these conditions can thus be considered exempt from tax.
Lawyers note, though, that tax exemptions must be strictly construed against the one claiming the exemption because the law does not look with favor on tax exemptions. Those seeking exemptions are precisely required to justify it “by words too plain to be mistaken and too categorical to be misinterpreted,” says Lumba.
Contributions that do not satisfy these conditions are considered to be gifts and donations, and thus subject to donor’s tax under Section 91 of the National Internal Revenue Code. BIR Ruling No. 344 also says that political contributions in the Philippines are considered taxable gifts.
The BIR’s Cantillep, for her part, remarks that the capacity of donors to fork out hundreds of millions of pesos to candidates is also a matter of great import.
She says that while the BIR is not bothered that there are “filthy rich” donors who could give “piles of money,” it is interested in whether these donors “pay taxes and within the 30-day deadline from the date they transmitted their donations.”
The National Internal Revenue Code is clear, says Cantillep: “Thirty days after the date the gift is made, thereon shall be paid at the time of filing… it’s pay as you file.” – With additional reporting by Ed Lingao, PCIJ, March 2010