Renewal of accreditation as donee institutions

Renewal of accreditation as donee institutions

by Arnold P. Supilanas

Although genuine charity requires nothing in return, charity is a virtue rewarded under Philippine tax laws. Donee institutions owe it to their kind-hearted donors to ensure that the tax privileges reserved for charitable acts are enjoyed without any uncertainty in the event of BIR examination. Hence, donee institutions are being directed to renew their accreditation before the said date with the proper accrediting government entity.

Full deduction from gross income is allowed for purposes of computing the individual or corporate income tax of the donor-taxpayer if donations are made to the government, to certain foreign institutions or international organization, and to accredited nongovernment organizations (NGOs). They are also exempt from donor’s tax. On the other hand, limited deduction of not more than 10% of an individual donor’s taxable income computed without  the benefit of this deduction, is allowed if the donation is made to non-stock, non-profit organizations that are not accredited. The limitation is even higher at 5% for a corporate donor.

As the corporate income tax is at a rate of 35%, the donor enjoying full deductibility effectively shoulders only 65% of the amount of his gift or contribution while 35% is borne by the government in the form of a reduction in the donor’s income tax payable to government.

The “subsidy” is given on the presumption that donee institutions supplement the government in the performance of governmental functions and responsibilities. This privilege is practically a form of allocation of government funds and it is therefore government’s responsibility to ensure that the privilege is enjoyed only by those who are entitled to it.

The donee must be organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof. Restrictions are prescribed as to their level of administrative expenses and the utilization of the donations for the purpose or function for which they were organized and operated.

Previously, the Philippine Council for NGO Certification, Inc. (PCNC) was the duly designated accrediting entity for donee institutions. With the issuance of Executive Order (EO) No. 671 dated Oct. 22, 2007, the function of accrediting donee institutions has been transferred from PCNC to the following government agencies effective Nov. 16, 2007:

1. Department of Social Welfare and Development — for charitable and/or social welfare organizations, foundations and associations including but not limited to those engaged in youth, child, women, family, disabled persons, older persons, welfare and development
2. Department of Science and Technology — for research and other scientific activities
3. Philippine Sports Commission — for sports development
4. National Council for Culture and Arts — for cultural activities
5. Commission on Higher Education — for educational activities.

EO 671 upheld the same standards and guidelines set by the Department of Finance relative to the accreditation of non-stock, nonprofit corporations/NGOs as provided for in Revenue Regulations 13-98.

As with similar transitions to new rules, there are bound to be issues and problems in the implementation of the accreditation rules by the new accrediting entities.

Early on, religious organizations have been asking to which government entity they could apply for accreditation. There is none designated in the EO.

There are currently close to 400 entities in the list of PCNC-accredited donee institutions posted at their Web site. Under the new rules, all these entities have to renew their accreditation with the designated government agency on or before March 31 to retain the tax privileges for donations they expect to receive after this date.

The transition rules did not provide for the effectivity date of the new certificates — whether they retroact to the date of filing of the application or just on the date of issuance. If the issuance of the new certificates will take time, there may be delays in the flow of
funds to donee institutions that may also cause delays in the implementation of their programs for their beneficiaries.

Donee institutions, therefore, are well-advised to submit their applications early and ensure that the required documentary support are in order. Donors, on the other hand, are reminded to check the accreditation status of the recipients of their donations if they want to ensure that they will fully enjoy the tax relief for their charitable deeds.