The Bureau of Internal Revenue (BIR) clarified on Monday that contributions to political parties and candidates are not subject to taxation.

"Those that are subject to 5-percent withholding tax are expenditures for purchases of goods and services like posters and other political paraphernalia used by candidates in their campaign," Senior Revenue Deputy Commissioner Joel Tan-Torres told a news conference.

The revenue official issued the clarification after prospective candidates in next year's polls protested the issuance of Revenue Regulations No.8-2009 which allegedly imposes a donor's tax on political contributions.

But Tan-Torres stressed that under Section 99 of the National Internal Revenue Code (NIRC), contributions to any candidate or political party for campaign purposes is governed by the Election Code and thus exempted from taxation.

Such contributions, however, should be fully reported to the Commission on Elections (Comelec) as required by election laws.

Tan-Torres also explained that the controversial revenue regulation was only issued to ensure that purchases of goods and service for the campaign and election activities of candidates and their contributors and supporters are subject to the withholding tax system like any other purchases by consumers.

He added that the regulations require all political parties and candidates to register with the BIR as withholding agent.

On Monday night, the BIR and Commission on Elections (Comelec) was scheduled to sign a memorandum of agreement on the implementation of the tax collection project, dubbed "Iboto Mo Kandidato, Nagbayad ng Buwis na Wasto."

BIR fieldmen were instructed by Revenue Commissioner Sixto Esquivias IV to brief candidates in their respective areas on the new requirements to educate the latter on their tax responsibilities.

Meanwhile, a ranking revenue official said the BIR expects to earn a P1 billion from the project, but could lose up to P50 billion due from corporations and rich individuals who usually divert portions of their tax payments to the coffers of politicians, a practice that has been going on for years.