MANILA, Philippines—An official of the Commission on Elections (Comelec) said Thursday the proposed withholding tax on political campaign expenditures would help prevent candidates from overspending and using illegal funds.

Comelec Commissioner Rene Sarmiento said Revenue Regulation 8-2009 issued by the Bureau of Internal Revenue (BIR) proposes to impose a five percent withholding tax on candidates’ campaign expenses and contributions.

“Aside from boosting government revenue collection, the tax scheme will provide a check-and-balance mechanism and prevent overspending. Comelec can crosscheck and verify if the campaign expenditures to be submitted to us 30 days after the elections will amount to the taxable expenses submitted to BIR,” said Sarmiento.

“This new tax scheme will also prevent the entry of illegal funds from narco-politics and prostitution and the use of state resources. We can also prevent quid pro quo or instances when illegal money from donors with vested interests or agenda are spent on a candidate and after the candidate wins, he will enact laws to benefit his campaign financier,” he said.

“It is for these views that I am inclined to favor the campaign tax although I believe with or without the Comelec's approval, BIR will implement it,” he added.

BIR officer-in-charge Joel Tan-Torres agreed.

“The new tax scheme will help us identify candidates who are dishonest taxpayers and, thus, help make the campaign spending more transparent,” Tan-Torres said.

He clarified that under the new tax scheme, BIR will not disclose—even to other government agencies—the identity of donors or contributors for campaign funds because it is “against the law.”

He added that BIR centers will be posted in all Comelec offices nationwide to simplify the registration of 2010 candidates as withholding tax agents after they have filed their certificates of candidacies (CoCs).

“In partnership with Comelec, BIR will make it easier for candidates to register as withholding agents so we will hold registration centers in all Comelec offices that will receive CoCs,” said Tan-Torres.

Tan-Torres told INQUIRER.net over a phone interview that the five percent campaign tax is under the expanded withholding tax system which has been in place 30 years ago.

“The five percent campaign tax is not imposed on the contributors, donors or candidates but on the supplier who rendered services or products for campaign. Under the new scheme, BIR will give tax credits to suppliers who already remitted taxes on campaign services. So by April next year, BIR will deduct these tax credits on campaign services from the supplier's annual income tax so in essence there is no additional tax collected,” explained Tan-Torres.

To illustrate this, Tan-Torres cited as example a candidate who gets t-shirts from a supplier for P100.

Under the old tax scheme, the supplier would earn P100 for printing the candidate's t-shirts, the tax of which would be included in the annual taxable income subject to 32 percent tax every April, said Tan-Torres.

Under the new scheme, the supplier would have to remit P5 to BIR as withholding tax or five percent of the P100-transaction—so he only gets P95 for printing the shirts. Since the supplier paid the five percent tax for campaign transactions ahead of his annual income tax, he would be given a tax credit by the BIR, said Tan-Torres.

During the audit of the annual taxable income, the tax credit should be given to BIR so it will be deducted from his annual tax collections. So if the supplier's annual business taxes amounts to P40, the supplier need only to pay P35 since he paid P5 as withholding tax for the campaign services rendered, explained Tan-Torres.