Gifts and Taxes

Published in Daily Tribune on August 6, 2021
by: Vanessa Arrha A De Leon

The amazing performance of our athletes in the Tokyo 2020 Olympics has elicited a flurry of well-deserved gifts and incentives from both the public and private sector. These gifts serve as recognition of the blood, sweat, and tears that our athletes had shed, both literally and figuratively to attain their personal dreams of Gold. With their receipt of these rewards and incentives, however, comes questions of their taxability, specifically on the part of the donors as the taxes due on such gifts are, under the law, payable by them.

Taxation of gifts is governed by our Tax Code, which states that a tax shall be due on a transfer of property when such transfer is done by way of a gift (i.e., gratuitously or without consideration). In such instance, the nature of the gift does not affect its taxability and the tax is applicable whether the gift is directly or indirectly given and whether the property to be donated is real or personal, tangible or intangible.

Under our current laws, the rate of tax for gifts and donations is 6% for a calendar year which, as mentioned above, is payable by the donor. This is because, in giving gifts, what is being taxed is not the property but the privilege of the donor in giving the gift.

As a rule, all gifts are subject to a donor’s tax, unless there exists a law that clearly and indubitably provides for its exemption. For example, the Tax Code provides that when the total gift given by a donor does not exceed Php250,000 during a taxable year, the total gifts given are exempt from the 6% donor’s tax. It is only when the total gifts given for the year exceeds Php250,000 that the donor’s tax is due but the law provides that the basis for such tax shall be computed on the total amount of the gifts in excess of Php250,000.

For winning the Gold, Ms. Hidilyn Diaz received several gifts from notable big-name sponsors in the private sector. Aside from cash gifts, several donors have pledged to gift her with real properties consisting of a house and lot in Tagaytay, as well as a condominium unit. In a recent report, the tally of gifts to be received by Ms. Hidilyn has already reached north of Php40,000,000.

A statement released by the Bureau of Internal Revenue (BIR) clarified that such gifts, having already exceeded the threshold amount of Php250,000.00, are subject to the 6% donor’s tax provided under the Tax Code, as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
But what of Republic Act No. 7549? Section 1 of this law provides for tax exemption of all prizes and awards granted to athletes in local and international sports tournaments and competitions held in the Philippines or abroad and sanctioned by their respective national sports associations.

While at first blush, the incentives and rewards pledged to Ms. Diaz should be considered tax-exempt under R.A. 7549, a careful reading of this law seems to indicate otherwise. Those who espouse the theory that the “incentives” and “gifts” pledged to Ms. Diaz should not be tax exempt argue that what R.A. 7549 actually exempts from taxation are “prizes” and “awards” in local and international sports tournaments granted by their organizers – not “incentives” or “gifts” given by sources outside of the relevant sports tournaments. Hence, these “incentives” and “gifts” are not tax exempt. This argument is well taken considering the legal truism that a tax exemption should be strictly construed.

Nevertheless, given the heavy financial requirements, which Filipino athletes must meet to compete at the Olympic level, something Ms. Hidilyn Diaz can readily attest to, the author suggests the passing of a law akin to R.A. 7549, which should provide a clear exemption of the “incentives” and “gifts” pledged to Ms. Diaz and athletes like her from donor’s tax. This should go a long way in encouraging generosity from donors, as well as helping potential Filipino Gold Medalists attain their dreams.