Tax Exemption of Raffle Prize from a Government-Sponsored Project

February 21, 2001 BIR RULING NO. 005-01 Sec. 24 (B) (1) 000-00 Hon. Ramon B. Cardenas Senior Deputy Executive Secretary Chairman, OP-Oversight Committee Office of the President Malacaang Palace S i r : This refers to your letter dated December 10, 1999 requesting that the grand prize of the Philippine Centennial Commemorative 100,000 PISO Note Raffle Draw, consisting of one Jaguar Daimler V8 costing P6,900,000.00 be exempted from the payment of tax on prizes imposed under Section 24(B)(1) of the National Internal Revenue Code, considering that the raffle is a government sponsored project. In reply, please be informed that pursuant to said provision of the Tax Code, a final tax at the rate of twenty percent (20%) is imposed, among others, upon prizes and winnings derived by individuals from sources within the Philippines. Accordingly, the winner of the said car, whether he is a citizen or a resident alien, is subject to a final tax of 20% based on the fair market value of said car which under Section 57(A) of the Tax Code, should be withheld by the organizer as withholding agent in the same manner and subject to the same conditions as provided in Section 58 of the same Code. As it is, the tax on prizes and winnings is imposed on the winner although the responsibility for the withholding of such tax is entrusted by law upon the payor. The fact that the raffle is a government-sponsored project does not constitute a valid ground to exempt the individual-recipient of the prize from the 20% final tax. Likewise, there is no provision of in the Tax Code exempting the government, in general, from the responsibility of withholding the tax. However, the 20% final tax for prizes and winnings (irrespective of the amount) is not applicable to a corporation since this is not included among the income subject to the 20% final tax of a corporation under Section 27(D)(1) of the Tax Code of 1997. Consequently, if the prize be won or awarded to a private corporation, government-owned or controlled corporation, agency or instrumentality, there will be no requirement for the withholding of the 20% final tax. However, in the hands of the corporate-winner, the prize or winning shall, instead, be subject to the 32% corporate income tax under Section 27(A) of the same Code. Please be guided accordingly. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue