Guidelines for Deductibility of Donations Made to the Government

July 2, 2003 BIR RULING NO. 005-03 R.A. 7875 34 (H) Philippine Health Insurance Corporation City State Centre Building 709 Shaw Boulevard, Pasig City Attention: Val S. Valila Vice President for Membership & Marketing Gentlemen : This refers to your letter dated 22 February 2002 requesting for appropriate guidelines on Section 34 (H) (2) (a) of the Tax Code of 1997 relative to the Medicare Para sa Masa Program . It is represented that the Indigent Program or Medicare Para sa Masa Program is a key component of the National Health Insurance Program aimed at providing social health insurance to the poorest of the poor; that last August 09, 2001, the National Economic and Development Authority (NEDA) issued a certification declaring the Medicare Para sa Masa to be a priority program under the government's National Priority Plan; that with the issuance of said Certification, donation by private entities to PhilHealth was declared to be fully deductible; that this serves as an incentive to those who would like to donate for the purpose of enrolling indigent families under the Medicare Para sa Masa . Aside from the issuance of appropriate guidelines on Section 34 (H) (2) (a) of the Tax Code of 1997, you likewise request sample computations for individual and corporate sponsors reflecting the effect of donations to the Medicare Para sa Masa . In reply, please be informed that the pertinent portions of Section 34 (H) of the Tax Code of 1997 provide: "SEC. 34. Deductions from Gross Income . "xxx xxx xxx "(H) Charitable and Other Contributions . "(1) In General . Contributions or gifts actually paid or made within the taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purposes, or to accredited domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to nongovernment organizations, in accordance with rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, no part of the net income of which inures to the benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of an individual, and five percent (5%) in the case of a corporation, of the taxpayer's taxable income derived from trade, business or profession as computed without the benefit of this and the following subparagraphs. "(2) Contributions Deductible in Full . Notwithstanding the provisions of the preceding subparagraph, donations to the following institutions or entities shall be deductible in full: "(a) Donations to the Government . Donations to the Government of the Philippines or to any of its agencies or political subdivisions, including fully-owned government corporations, exclusively to finance, to provide for, or to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development according to National Priority Plan determined by the National Economic and Development Authority (NEDA), in consultation with appropriate government agencies, including its regional development councils and private philanthropic persons and institutions: Provided, That any donation which is made to the Government or to any of its agencies or political subdivisions not in accordance with the said annual priority plan shall be subject to the limitations prescribed in paragraph (1) of this Subsection; "xxx xxx xxx" In addition, Sec. 15 of R.A. 7675 (also known as the National Health Insurance Act of 1995) provides that: cIaCTS "SEC. 15. Exemption from Taxes and Duties . The Corporation [PHIC] shall be exempt from the payment of taxes on all contributions thereto and all accruals on its income or investment earnings. Any donation, contribution, bequest, subsidy or financial aid which may be made to the Corporation shall constitute as allowable deduction from the income of the donor for income tax purposes and shall be exempt from donor's tax, subject to such conditions as provided for in the National Internal Revenue Code, as amended. Thus, with regard to the deductibility of donations for income tax purposes, under Section 34(H) of the Tax Code of 1997, the same are deductible in full if they are given to the Government or to any of its agencies or political subdivision to be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture, and in economic development as described in the priority plan prepared by NEDA. Undoubtedly, the Indigent Program or Medicare Para sa Masa Program , being a key component of the National Health Insurance Program and aimed at providing social health insurance to the poorest of the poor, is in furtherance of said priority activities; especially in health and in economic development. Such being the case, the donations to the Medicare Para sa Masa Program are deductible in full for income tax purposes since these are covered by the National Priority Plan of the NEDA, based on the August 09, 2001 certification issued by the NEDA Director-General and Secretary of Socio-Economic Planning. In this regard, deductible donations of an individual donor (engaged in trade or business) and a corporate donor shall be computed as follows: For example: Contribution = P50,000 Gross income (of individual engaged in trade or business or corporation) P1,000,000 Less: Deductions (excluding deductible contributions) 400,000 Net Income before contributions 600,000 Less: Allowable contributions 50,000 (Note: deductible in the year the contribution was made) Taxable Income P550,000 ====== This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue