PNoy’s P37-M excess campaign
funds: Curious, puzzling details

Last of Two Parts

WEEKS after the May 2010 elections, a question confounded Benigno Simeon ‘Noynoy’ C. Aquino III and his fund-raisers and allies in the Liberal Party: What to do with excess campaign donations that had then reached tens of millions of pesos?

In winner-takes-all fashion, not just votes but also funds had flooded the Aquino camp. This is even as a fund-raiser and a senior campaign staff would later say in separate interviews that Aquino had already served notice that he did not want to accept more donations. In Aquino’s mind, says the senior campaign staff, the last-minute bettors were not true believers but simply people angling to cut deals with the emerging election victor.

Aquino’s sisters had a thought to return the excess campaign funds. But the fund-raiser says that led to questions like: Which donor should get money back? How to assign amounts to return? By then, 96 donors, including about a dozen Aquino relatives, had pitched in donations of several thousand pesos to P100 million. The fund-raiser, a big and respected businessman, says he and his colleagues advised Aquino to just turn over the excess donations to a non-profit charity group such as the Ninoy and Cory Aquino Foundation.

In his Statement of Election Contributions and Expenditures (SECE) that he filed with the Commission on Elections (Comelec) within the first deadline of June 9, 2010, Aquino reported that he had raised a total of P440,050,000 in campaign contributions but incurred only P403,119,981.81 in campaign expenditures. This left Aquino P36,930,018.19 or nearly P37 million in excess campaign funds.

For sure, Aquino demonstrated in his SECE a unitary exemplary act that all other candidates for national office in the May 2010 elections failed to emulate. Unfortunately, the initial honesty showed by Aquino remained just that. Since then, he has not followed it up with a full disclosure of what he did with the money, and nothing more may have been said about it had PCIJ not popped the question to the president in a first letter last Jun. 15.

Apparently, Aquino did not donate the excess funds to charity, as his fund-raisers had advised. And while election laws are silent on what candidates should do with excess campaign funds, the Bureau of Internal Revenue (BIR), in Revenue Regulation No. 7-2011 dated Feb. 16, 2011 settles the impasse: it says that excess campaign funds should be recorded as the candidate’s income during the election year, and thus, subject to income tax.

Taxable income

In its “Policies and Guidelines” clause, the BIR’s new regulation states: “Unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s campaign expenditures, shall be considered as subject to income tax, and as such, must be included in the candidate’s taxable income as stated in his/her Income Tax Return (ITR) filed for the subject taxable year.”

Citing the BIR regulation as basis, recently appointed Comelec Commissioner Christian Robert S. Lim, in response to PCIJ’s query about Aquino’s excess campaign funds, wrote in an email: “Aside from paying the correct income tax, candidates with excess campaign funds must declare the same in their ITR (income tax return).  For the 2010 May elections, candidates who fail to declare in their ITR of 2010, the deadline of which was 15 April 2011, they can be held liable for tax evasion and/or falsification of their ITR.  However, the agency primarily tasked with the prosecution of this offense is the BIR and the Department of Justice.”

Lim, who was among the lawyer-volunteers of Aquino during the 2010 elections campaign, has been designated by the Comelec En Banc as head of the poll body’s Campaign Finance Steering Committee.

Lim also wrote in his email to PCIJ: “While Section 13 of Republic Act No. 7166 (Synchronized Elections Law) exempts contributions from gift tax as long as it has been duly reported to the Commission on Elections, it has always been my position that unutilized contributions form part of the income of the candidate and must be subject to income tax.  One of the thrusts of the Ad Hoc Campaign Finance Steering Committee was to make this a reality.”

Official documents do not show Aquino as having recorded the excess funds in his ITR, and apparently did not pay taxes on these. But his Malacañang deputies say Aquino returned some of the money to donors, and used the rest of the funds to pay withholding taxes on campaign expenses to the BIR, and for the printing of sample ballots.

Used three ways

Edwin Lacierda, who was Aquino’s spokesperson during the campaign and who has kept that role in the Palace, said in a letter to the PCIJ dated Jun. 29, 2011: “(The) President is well aware that electoral contributions were to be used solely for the purpose of supporting his candidacy for President and was never intended to be for his personal benefit.”

Lacierda also said that Aquino spent the excess campaign donations three ways.

First: “Out of the Php36,930,018.19 (excess campaign donations), Php18,356,859.88 was remitted to the Bureau of Internal Revenue representing 5% creditable withholding income tax on election related purchases. Please note that under Revenue Regulations No. 8-2009, all income payments made by political parties and candidates were subjected to 5% creditable withholding tax. Hence, political parties and candidates were under obligation to deduct and withhold 5% from all income payments to their suppliers during the campaign and remit the same to the (BIR).”

Second: “The campaign also spent around Php4,000,000.00 for the printing of sample ballots that were distributed nationwide before the elections. This expenditure was not included in the (SECE) because under Section 101(k) of the Omnibus Election Code, the cost of printing sample ballots shall not be taken into account in determining the amount of expenditures which a candidate may lawfully incur in connection with his candidacy.”

And third: “The rest of the excess campaign funds were actually returned to some of the donors who made substantial contributions to the campaign.”

In short, Lacierda said that of the P36.9 million in excess campaign donations Aquino raised, net of supposed withholding tax paid to the BIR and the printing of sample ballots, what remained was P14.5 million.

Returned or not?

The presidential spokesperson then later asserted that President Aquino returned P14 million to three donors. On Jul. 1, 2011, Lacierda authorized his staff, Kristine Joanne D. Basa, to move a second email to the PCIJ.

It stated: “Further to our email regarding President Aquino’s excess campaign contributions last Wednesday, June 29, 2011, please be informed that the donors to whom we returned a portion of their contributions to are the following:

“1. Atty. Fulgencio Factoran – He donated Php 20 million; We returned Php 10 million;

“2. Mr. Gerry Esquivel – He donated Php 10 million; We returned Php 2 million; and

“3. Dr. Alex Ayco – He donated Php 5 million; We returned Php 2 million.”

Further verification by PCIJ revealed that the claimed return-to-sender acts may have not been consummated at all as of Jul. 3, 2011 or two days after Lacierda’s office sent a second email to PCIJ.

In a phone interview with the PCIJ on Jul. 3, Sunday, Factoran said: “Sinabi sa akin, baka balikan daw ako ng pera. May plano raw silang magbalik ng pera (I was told I may have money returned to me. They said they planned to return money).”

Asked when he was informed that he would be given back part of his P20-million campaign donations, Factoran replied: “Tinawagan nila staff ko, sinabihan na magbabalik daw sila ng pera (They called up my staff, saying they were going to return money).”

Factoran then begged off from answering any more questions about the matter, saying he would call up PCIJ later. He has yet to contact the Center as of press time.

Bigger donors

Yet, why Factoran, Esquivel, and Ayco were singled out as recipients of the campaign funds to be returned – out of the 96 donors who bankrolled Aquino presidential bid – remains a mystery.

After all, there were other donors who contributed more substantial amounts, including Aquino cousin Antonio ‘Tonyboy’ Cojuangco, who topped the list with his P100-million contribution; businessmen Martin Ignacio Lorenzo and Chiong Bu Hong, who gave P20 million each; Aquino’s youngest sister and entertainment celebrity Ma. Kristina Bernadette A.Yap, who gave P15 million; and current Finance Secretary Cesar Purisima, who gave P10 million.

The closeness to Aquino of the three donors handpicked to receive reimbursements is well established, however.

Factoran had served as environment and natural resources secretary of Aquino’s mother, the late President Corazon ‘Cory’ C. Aquino. 

Architect Gerardo ‘Gerry’ Esquivel is Aquino’s friend from high school at the Ateneo de Manila University. The chairman of ASEC Development and Construction Corp. that was contracted to build the Tribeca 3 and 4 Towers, Esquivel was appointed administrator of the Metropolitan Waterworks and Sewerage System (MWSS) by Aquino on Jan. 15, 2011.

Dr. Alexander ‘Alex’ Ayco is a cardiologist who assisted Cory Aquino during her treatment for colon cancer and until her death on Aug. 1, 2009. On Jan. 31, 2011, President Noynoy Aquino appointed Ayco as board member of the Philippine Health Insurance Corp. or Philhealth.

The PCIJ contacted Rafael ‘Rapa’ C. Lopa, Aquino’s cousin and executive director of the Ninoy and Cory Aquino Foundation, who was his most trusted representative to donors – apart from his four sisters – during the campaign. Lopa promised to check what had happened to the excess campaign funds with a group assigned to “post-election issues” that included Aquino’s election lawyer Eloisa De Vera Sy.

On Jun. 30, 2010, Aquino had appointed Sy as deputy presidential legal counsel. Sy passed the bar in 2004 and since then has worked with the law firm MOST (Marcos, Ochoa, Serapio & Tan) of Executive Secretary Paquito N. Ochoa, Jr.

She served as Aquino’s lawyer in the 2007 elections, at about the same time that she also counseled now Sen. Ferdinand ‘Bongbong’ Marcos, Jr. in the Marcoses’ alleged ill-gotten wealth cases before the Presidential Commission on Good Government. Marcos’s wife, Louise Araneta-Marcos, is a founding partner of MOST Law.

More questions

PCIJ sought further explanation in large part because Lacierda’s accounting of how Aquino disbursed his excess campaign donations raises more questions and doubts when assessed against election laws and revenue rules.

Reviewing Lacierda’s explanation on PCIJ’s request, Commissioner Lim himself commented in an interview: “The question is, what happened to the money? Is it there or isn’t it? Did you spend it? Aren’t you accountable?”

Lim said that if the President indeed returned part of the sum to some donors, “then there should be a receipt” of the return. If he did not, said Lim, “then he should have recorded it in his ITR” for the year 2010, when the excess donations were realized.

President Aquino’s options, he reckoned, include filing an amended ITR to recognize the amount, and perhaps donate the same to charity “or to the National Treasury, para mapakinabangan pa ng bansa (so the country can use it).”

2 BIR regulations

To verify the explanation Lacierda gave in his letters to the PCIJ, the PCIJ also interviewed BIR Commissioner Kim Jacinto Henares, who had also volunteered during Aquino’s campaign for the presidency.

Henares said that she would have to verify whether or not Aquino remitted P18.36 million in withholding tax payments for expenses incurred during the campaign. But she also said if it turns out that the BIR had records of such, they would not be able to release the information. “You have to ask the president,” she said.

According to Henares, though, there are two revenue regulations pertinent to the discussion.

The first is BIR Revenue Regulation 8-2009 issued on Nov. 12, 2009, which was issued by Henares’s predecessor, BIR Commissioner Joel Tan-Torres. It requires political parties and candidates to withhold a five-percent creditable withholding tax on their payments to their suppliers of campaign-related goods and services.

A tax on the income of suppliers, parties and candidates were directed to pay suppliers only 95 percent of the actual value of the goods and services purchased, and provide suppliers BIR Form 2307 to indicate the deduction on their payments. Come income-tax payment time, suppliers may then claim from the BIR creditable withholding tax credits.

In their election expense reports to Comelec, candidates and political parties were logically expected to already reflect the withholding tax deductions, as part of their total campaign expenditures. In Aquino’s case, the P403-million total expenditures he reported should have already accounted for the P20.15 million in withholding taxes that he should have remitted to the BIR early on.

And here’s why Lacierda’s claim that Aquino used P18.36 million of his P36.9-million excess campaign donations to remit to the BIR the “5% creditable withholding income tax” muddles more than it clarifies.

Bad implications

According to Commissioner Lim, Aquino should have already included that tax as part of the P403-million total expenditures that he reported to the Comelec. Even if one assumes Lacierda’s recollection is accurate, his computation is not: five percent of Aquino’s P403-million total expenditures comes up to P20.15 million.

The implications are bad: It’s either Aquino had under-reported his expenses in his Comelec report, or he had under-declared the withholding tax he remitted to the BIR.

Lacierda’s explanation also suggests that Aquino paid the withholding tax on his campaign expenditures after he had realized excess campaign donations.

Under BIR’s Revenue Regulation 8-2009, this is wrong, or at the very least, late filing. It states clearly that “the 5% CWT (creditable withholding tax) for a particular month shall be remitted to the BIR within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year.”

But then Lacierda’s computation was odd in another sense: P18.36 million is about 50 percent, not five percent, of Aquino’s P36.9-million excess campaign donations. But, of course, Lacierda said the P18.36 million referred to the “5% creditable withholding tax” on Aquino’s campaign expenditures that totaled P403 million.

Not finder’s keeper

The second pertinent BIR rule, according to Henares, is Revenue Regulation 7-2011, which bears her and Finance Secretary Purisima’s signatures and is dated Feb. 16, 2011. The regulation states that it “shall take effect immediately” even as its text was published in the newspapers only in mid-June 2011.

This is where the BIR ruled that excess campaign contributions “shall be considered as subject to income tax and as such, must be included in the candidate’s taxable income as stated in his/her Income Tax Return (ITR) filed for the subject fiscal year.”

Henares told PCIJ that the ruling seeks only to clarify what should in fact be clear and self-explanatory to all candidates: that their unused excess campaign donations should be recorded as part of their income, and thus, taxed.

She said the BIR issued this regulation to cover “certain types of income that have not been classified as taxable.” In the case of politicians and candidates, these include excess campaign donations. “If you have donations and you spent it (during the campaign), okay, that’s tax-exempt,” said Henares. “But if you did not, then you must pay taxes. There’s no finder’s keeper situation here.”

Before the regulation, she said, revenue laws affirmed that a taxpayer may earn income from generally three sources: his/her earnings or compensation, donations, and inheritance. In all cases, the BIR recognizes a “tax incident” or taxable transaction. Remarked Henares, “We don’t really care, we don’t judge, where you got your money, whether legally or illegally, for as long as you pay taxes.”

Asked if the BIR had known which candidates had reported excess campaign donations when it issued the regulation, Henares replied: “No, we did not. We have heard anecdotal stories but had not seen the reports filed with the Comelec.”

Asked if she or Purisima, who donated P10 million to the Aquino campaign, had known that the President had reported excess campaign donations when the BIR issued the regulation, she said, “Is that so? No, we did not.”

“If they returned the money, okay,” said Henares. “This is not about politics. We apply the law the way it should be applied. We don’t really care who it is.”

Unresolved

Some questions hang still: Did Aquino, in fact, realize P37 million in excess campaign donations or just P18 million? And had he, in truth, returned part of the amount to some donors, even as one of these said he was told it was just a plan for now?

Commissioner Lim of Comelec said that these matters must be clarified, especially since Aquino had himself shown initial honesty when he admitted he had excess campaign donations.

“Maybe the P36.9 million is excess only on paper,” Lim told PCIJ. “Campaign donations are often reported as gross amounts, and expenditures as either gross or net of withholding taxes.”

Nonetheless, Lim said that if Aquino had returned the amount to some donors, then these same donors would have to amend the amount of tax-deductible donations they had reported in their income tax returns for the year 2010.

But Lim admitted that because the rules on excess campaign donations were not as crystal back then during the campaign, “I won’t blame the candidates if they got confused.” Perhaps, he added, the rules should be strictly enforced beginning with the next elections.

“If I were a candidate, I (would) wish there was a law that says I could just return the excess money,” Lim said. For one, he sees Aquino’s decision to return his excess donations to some and not to all of his donors, problematic in itself. Noted Lim: “What standards should we use to return the money to certain donors, and how do you select which donors should get his money back?”

Quasi-public money

Election lawyer Luie Tito F. Guia meanwhile stressed that at core, the issues come down to “a question of disclosure” on the part of the president. Said Guia: “We should be told: Had he or had he not returned the money? If he had, where is the receipt? If he had not, where is the money?”

“All of these details are important,” he said, “because their explanation was given only as a reaction to inquiries from the press.” But he said that it is well and good that “they recognize the fact that they have to account for the money.”

Unless prompt and full disclosure is made by the Palace, Guia says that Lacierda’s explanation could just be dismissed as “mga paliwanag na naghahanap lang ng palusot, at baka di-nag-su-shoot ang mga palusot (excuses that are being passed off as explanations, and maybe the excuses aren’t quite cutting it).”

At day’s end, Guia said that discussing rules on excess campaign donations could have positive outcomes. “Perhaps the Comelec could take up this matter and rule on the issues,” he said.

In Guia’s mind, campaign donations are “quasi-public funds” that citizens give to support “a public good” – the conduct of elections. The funds should not go to lining the pockets of candidates, he said.

But while lawful limits on campaign spending remain unrealistic, and election laws are silent on what candidates should do with excess donations, Guia said that the predominant picture is both candidates and election officials tend to ignore breaches of the law, or even mindless spending by some candidates.

Worst of all, Guia pointed to a situation that recurs across the nation every election period: “’Yung iba kumakandidato bilang hanapbuhay. Hindi na gumagastos ng sariling pera, kumikita pa (There are those who make running for elections as a means of livelihood. They not only don’t spend their own money, they even make money).” - With research by Karol Anne M. Ilagan, PCIJ, July 2011