Tax Deductions on Gifts

As Filipinos, we like to express our gratitude and generosity towards others by giving them gifts. It’s not just a part of our culture but also a custom that we put a lot of thought and effort into, especially on valuable occasions. We also carry this trait to our businesses by form of donations to strengthen our Corporate Social Responsibility efforts.

These gifts and donations are subject to donor’s tax. It is imposed on the gratuitous transfer of property between two or more persons during their lifetime. This applies regardless of whether or not the transfer is in trust, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible.

Generally, donations made to strangers are subject to 30% donor’s tax based on the net gift. For this purpose, the Tax Code defines a “stranger” as a person who is not a brother, sister, spouse, ancestor and lineal descendant, or a relative by consanguinity in the collateral line within the fourth degree of relationship. On the other hand, donations to relatives exceeding P100,000 are subject to graduated tax rates ranging from 2% to 15%, while those below P100,000 are exempt.

Imposing taxes on gifts might seem unreasonable as it puts a burden on a person who gives away property, without expecting anything in return. To be fair, the Tax Code also provides exemptions to certain donations such as those made on account of marriage up to P10,000 (in case of a resident donor); gifts made to or for the use of the national government or any entity created by any of its agencies; and gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization (NGO), trust or philanthropic organization or research institution or organization, provided not more than 30% of said gifts will be used by such donee for administration purposes.

In addition, donations to accredited NGOs or those accredited by the Philippine Council for NGO Certification, Inc. shall also be deductible for purposes of computing the net taxable income of the donor. However, in order to claim the deduction, the Bureau of Internal Revenue (BIR) provides certain conditions which should be followed.

Many privileges are provided by the government to encourage businesses who continue to extend gifts or donations to specific groups with special needs. All the more, this just makes the act of giving in this time of pandemic more compassionate and rewarding.