Introduction

In the Philippines, the tax treatment of donations to non-governmental organizations (NGOs), particularly those with religious purposes, is governed by a framework designed to encourage philanthropy while ensuring compliance with fiscal policies. Accredited religious NGOs, such as churches, religious foundations, and faith-based charitable entities, often receive donations in the form of cash, property, or services. A common query arises regarding whether these donations are subject to a 1.5% withholding tax, which could impact both donors and recipients. This article explores the legal basis, exemptions, conditions for accreditation, tax implications, and related considerations under Philippine law, drawing from the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) No. 10963 (TRAIN Law), RA No. 11534 (CREATE Law), and relevant Bureau of Internal Revenue (BIR) regulations.

The short answer is that genuine donations to accredited religious NGOs are generally not subject to the 1.5% withholding tax, as this tax applies to specific income payments rather than gratuitous transfers. However, understanding the nuances is essential to avoid misclassification and potential liabilities.

Legal Framework for Taxation of Donations

The National Internal Revenue Code and Key Provisions

The NIRC provides the primary statutory basis for taxing donations and related transactions:

Section 98 to 104 (Donor's Tax): Donor's tax is imposed on the transfer of property by gift at a flat rate of 6% on the net value exceeding PHP 250,000 per year. However, donations to accredited NGOs, including religious ones, are exempt from donor's tax if the donee is qualified under the law.
Section 30 (Tax-Exempt Entities): Religious, charitable, scientific, athletic, or cultural corporations or institutions are exempt from income tax provided no part of their net income inures to the benefit of any private individual and the income is used exclusively for their exempt purposes. This includes accredited religious NGOs organized as non-stock, non-profit corporations under the Revised Corporation Code (RA No. 11232).
Section 34(H) (Deductions from Gross Income): Donors can deduct contributions to accredited donee institutions from their gross income for income tax purposes, subject to limits (generally 10% for individuals and 5% for corporations of taxable income).
Sections 57 and 58 (Withholding Taxes): Withholding taxes are mechanisms to collect income taxes at source. There are two main types:
- Final Withholding Tax (FWT): Applied to certain passive incomes like interest, dividends, and royalties.
- Creditable Withholding Tax (CWT) or Expanded Withholding Tax (EWT): Applied to payments for goods, services, and other income subject to tax, as detailed in Revenue Regulations (RR) No. 2-98, as amended.

The 1.5% rate specifically appears in the context of EWT under RR No. 2-98, but it is not a standalone "1.5% withholding tax on donations." Instead, EWT rates vary:

1% on payments for goods to certain sellers.
2% on payments for services to general professional contractors.
Higher rates (e.g., 5% or 10%) for professional fees, rentals, etc.

Donations, being gratuitous and not in exchange for goods or services, do not fall under these categories. They are not considered "income payments" subject to withholding under Section 57.

Revenue Regulations and BIR Rulings

RR No. 14-2007 and PCNC Accreditation: The Philippine Council for NGO Certification (PCNC) accredits NGOs for donee institution status. Accredited religious NGOs must meet criteria such as being non-stock, non-profit, with at least 50% of funds used for charitable activities, and proper financial reporting. Once accredited, donations to them qualify for tax incentives.
BIR Ruling No. DA-098-2007 and Similar Issuances: The BIR has consistently ruled that pure donations to tax-exempt religious organizations are not subject to withholding tax, as they do not constitute taxable compensation, fees, or rents. For instance, tithes, offerings, and voluntary contributions to churches are treated as exempt donations, not income.
RR No. 16-2005 (As Amended by TRAIN and CREATE Laws): These amendments reduced certain withholding rates but did not introduce withholding on donations. The CREATE Law, effective 2021, further clarified exemptions for non-profit entities, emphasizing that religious NGOs must maintain their exempt status through annual compliance.

If a "donation" is reclassified by the BIR as a payment for services (e.g., a religious NGO providing consulting or event services in exchange for funds), it could trigger EWT at applicable rates (e.g., 5% for professional services). However, this requires evidence of quid pro quo, which is absent in true donations.

Accreditation Requirements for Religious NGOs

For a religious NGO to enjoy tax benefits on donations:

Registration: Must be registered with the Securities and Exchange Commission (SEC) as a non-stock, non-profit corporation, with religious purposes stated in its articles of incorporation.
BIR Certification: Obtain a Certificate of Tax Exemption (CTE) from the BIR, confirming compliance with Section 30.
PCNC Accreditation: For donor's tax exemption and deductibility, accreditation by the PCNC is required. This involves:
- Submission of financial statements audited by a CPA.
- Proof of at least three years of operation.
- Demonstration that funds are used for religious, charitable, or social welfare activities.
- Renewal every three to five years.

Without accreditation, donations may still be exempt from income tax for the NGO but not deductible for the donor, and potentially subject to donor's tax.

Religious organizations like dioceses or parishes may also qualify under special rules, such as those for the Catholic Church under historical concordats, but they must still comply with NIRC provisions.

Tax Implications for Donors and Recipients

For Donors

Individuals and Corporations: Donations to accredited religious NGOs are deductible up to the limits in Section 34(H). No withholding tax is required when making the donation, as it is not a taxable transaction for the donor beyond donor's tax (which is exempt for qualified donees).
Documentation: Donors must obtain official receipts from the NGO, indicating the donation's value and purpose, to claim deductions. Failure to do so may lead to disallowance during audits.
Special Cases: In-kind donations (e.g., property) require valuation and may involve VAT if deemed a sale, but pure donations are VAT-exempt under Section 109.

For Religious NGOs

Income Tax Exemption: Donations are not taxable income if used for exempt purposes. Any commercial income (e.g., from schools or hospitals run by the NGO) may be subject to tax unless related to the religious mission.
No Withholding Obligation on Receipts: Since donations are not "income payments," the NGO does not withhold tax on them. However, if the NGO pays salaries or fees, it must act as a withholding agent.
Compliance and Audits: NGOs must file annual information returns (BIR Form 1702) and maintain books of accounts. Misuse of funds can revoke exemption, leading to back taxes.

Potential Pitfalls and Reclassifications

Disguised Payments: If a donation is actually compensation (e.g., a company "donating" to a religious NGO controlled by an employee), the BIR may reclassify it, imposing EWT (e.g., 10-15% on professional fees) and penalties.
Foreign Donations: Cross-border donations may involve additional considerations under tax treaties, but withholding is still not applicable to pure gifts.
Related Taxes: While not withholding tax, donations may attract:
- Value-Added Tax (VAT): Exempt for pure donations.
- Documentary Stamp Tax (DST): Generally not applicable to donations.
- Estate Tax: Donations inter vivos can reduce estate tax liability.

Judicial and Administrative Precedents

Philippine courts have upheld the exemption for religious NGOs in cases like Commissioner of Internal Revenue v. Court of Appeals (G.R. No. 124043, 1996), emphasizing that religious activities are protected under the Constitution's non-establishment clause, but tax exemptions are statutory privileges requiring strict compliance.

BIR rulings, such as Ruling No. 015-2012, confirm that church collections are donations, not business income, hence no withholding.

Recent Developments and Reforms

As of 2025, no amendments have introduced a 1.5% withholding tax on donations. The BIR continues to focus on digital compliance, requiring e-filing for NGOs. Proposals under pending bills (e.g., for enhanced NGO transparency) may affect accreditation but not withholding directly.

Conclusion

Donations to accredited religious NGOs in the Philippines are not subject to a 1.5% withholding tax, as this tax targets income payments rather than gratuitous contributions. Instead, such donations benefit from exemptions under donor's tax and deductibility for income tax, provided accreditation and compliance are maintained. Donors and NGOs should consult BIR rulings or tax professionals for specific scenarios to ensure proper classification and avoid recharacterization. This framework supports the vital role of religious NGOs in society while upholding fiscal integrity.