PRO: TAXING THE CHURCH

DEFINITION OF TAX

Every government needs money to perform civil operations and to

administrative the running of the state, this money is generally collected from
the citizens of the state in the name of the tax. Thus, it becomes virtually
impossible for the government to run without tax essentially the lifeblood
theory. Taxation is the imposition by the state, by virtue of its sovereignty; of a
charge or burden either on a person, property or property rights with the end
in view of raising needed revenue for the support and operation (Aquino,
2013).

CONSTITUTIONAL LIMITATION

It should be remembered that although the power of taxation is encompassing

it is not without limits. Such limitations are derived not only from the nature
and characteristic of the power to tax but may also be gleaned from express
provisions of the 1987 Constitution.

The Constitution, by way of exempting certain institutions, also limits the

power of the State to tax. Exempt institutions include religious, charitable and
educational entities, non-profit educational entities, non-profit cemeteries,
churches, as well as non-stock and non-profit educational institutions. It
should also be noted that the Constitution also provides limits on legislative
power by providing for the procedure in levying taxes.

This exemption from corporate income tax is embodied in SECTION 30 OF

THE NATIONAL INTERNAL REVENUE CODE:
“A non stock corporation or association organized and operated
exclusively for religious, charitable, scientific, athletic, or cultural
purposes or for the rehabilitation of veterans, wherein NO PART OF
ITS NET INCOME OR ASSET shall belong to inure to the benefit of
any member, organizer, officer or any specific person shall be
EXEMPT FROM INCOME TAX. The income of whatever kind and
character of the foregoing organizations from any of their property, real
or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to
tax imposed under this Code.”

For non-stock, non-profit organizations - To substantiate this claim, the

institution must submit an annual information return and duly audited financial
statement. A certification of actual utilization and the Board resolution or the
proposed project to be funded out of the money deposited in banks shall also
be submitted.

HISTORY OF EXEMPTION

The state and church were governing as one before in the Spanish era. Thus,
the church is exempted from paying taxes because the government cannot
tax itself. The separation of the church and the state unveiled the church as
 an independent entity in the jurisdiction of the state hereby subject to adhering
to the policies of the state. The legislative groundwork covering the tax
exemption of religious and charitable institutions has long been established,
even as early as the Commonwealth period. The rationale for the exemption
springs from the BENEVOLENT NEUTRALITY APPROACH premised on the
ground that religious and charitable institutions are not engaged in profit-
seeking undertakings.

The issue of taxing the Church has always been a prickly issue for any
jurisdiction. It dates back to Medieval times when the Church and State are
one. It is ironic that in modern times, the exact opposite principle of separation
of the church and state is the main basis for the tax exemption granted to the
Church.

Generally, just relying on the specific tax-exemption provision of charitable

institution from our Tax Code, a non-stock, non-profit corporation is exempt
from paying income taxes at first glance. In some instances, organizations
tend to OVERLOOK the succeeding provision clearly stating that the
EXEMPTION ONLY APPLIES TO INCOME FOR NON-PROFIT ACTIVITIES.

ARTICLE XIV, SECTION 4 of the 1987 Constitution, reads:

“All revenues and assets of non-stock, non profit educational
institutions used actually, directly and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the dissolution
or cessation of the corporate existence of such institutions, their assets
shall be disposed of in the manner provided by law.”

The CTA reiterated the prevailing tax position in the Philippines that INCOME
FROM PROFIT-GENERATING ACTIVITY IS TAXABLE, REGARDLESS OF
THE DISPOSITION OF THE INCOME EARNED FROM SUCH ACTIVITIES.
Nonetheless, while this may be the case, an organization may still, at the
same time, remain tax-exempt on income from its actual charitable activities.
Therefore, it may be deduced that at the end of the day, the determining
factor for taxability lies in whether an activity is for profit or not.

DOUBTFUL ACTIVITIES AND CORRUPTION SCANDALS

“On Oct. 21, 2015, all six defendants in the City Harvest Church case were
found guilty of Criminal Breach of Trust in the false declarations and misuse of
approximately S$50 million in church donation funds (for varying purposes,
primarily to fund the international singing career of the pastor’s wife. Public
queries have been raised about the pastor’s $10 million dollar penthouse in
Sentosa, and his wife’s expensive lifestyle...”

“In 2007, a Buddhist leader was caught for misuse of $50,000 of charity funds
from Ren Ci Hospital (which was established by his Buddhist monastery) and
numerous “questionable” loans to fund his lavish lifestyle.”
“Although no wrongdoing has been insinuated, public queries have also been
raised about the New Creation Church’s billion-dollar project with Capitaland
to build a commercial retail venue in Buona Vista using charity funds...

“Large religious organizations are thus coming under scrutiny now – are the
rules governing their use of finances too relaxed today, thus leading to these
excesses?” (https://www.philstar.com/business/2016/07/04/1599267/will-duterte-dare-tax-
church#ROwkXZQcAHlgq7Ui.99)

Investigating its finances and what exactly happens to these would be a good
start for resolving the question of whether the Church should be taxed.

It is impossible to tell but what few Filipinos know is that there is a lot of
money coming from Church contributions, stocks and equity holdings.
Moreover there are still 23 friar lands in the Philippines. As a moneymaking
body the question is being asked if the Church or any other religious entities
(INC is another) should be taxed.

The Roman Catholic Church in the Philippines has been advised to undertake
reforms in managing its finances amid persistent reports of corruption within
its ranks.

MONITOR newsletter of the Catholic Bishops Conference of the Philippines

(CBCP) --- JUNE 2004 ISSUE reported of confirming corruption within the
country’s most influential institution, describing it as mere "scenarios."
a.) "Every now and then, we hear news concerning a Church
worker involved in some sort of embezzlement of funds in the parish,"
the report said.
b.) a priest not including "a part of the earnings of the parish in his
financial report to his local ordinary (diocese)."
c.) Or that, "certain parishes employ ‘window dressing’ in their
financial reports."
d.) Some Church insiders have earlier admitted to The STAR that
cases of corruption have hounded the Catholic Church. One Church
source explained there is commonly no check and balance in parishes
as it is common practice to have just one person control the issuance
of receipts when donations are made.
e.) It is also unheard of for Filipinos to ask for receipts when doling
out money to the Church, especially when it is given directly to priests,
the source said.

Religious organizations have committed abuses over time and across

cultures. Public revelations, press exposés, and the admittance of abuse by
church leaders have, hopefully, in the past decade, restrained them. The
Vatican, the holy land, is no exception as they have been heavily involved
with scandals throughout the years. One example is during the 1980s, the
archbishop got involved in some shady dealings, first with a Mafia-linked
Sicilian banker called Michele Sindona, and then with an Italian financier
called Roberto Calvi, president of the Banco Ambrosiano, which eventually
collapsed with huge debts involving losses of at least $250m (£165m) to the
IOR (Institute for the Works of Religion, commonly known as the Vatican
Bank) one of the Banco's shareholders. Pope Benedict XVI attempted in 2010
to bring the IOR back on course by creating a financial information authority to
monitor its performance - but promises of greater financial transparency
clearly failed to materialize.

The financial activities of the Church are truly doubtful, as the Catholic Church
had not been transparent. They have not been upfront, forthright, nor really
ever truthful.
FINANCIAL TRANSPARENCY

A recent study conducted by the Canon Law Society of the Philippines

recommended a regular audit by the internal auditor of each member of the
Parish Finance Council, among other measures, to safeguard against
corruption committed by those handling Church money.

But according to the Canon Law Society, the business practice of financial
transparency could also be applied to the Church "in accordance with the
provision of the Code of Canon Law." The Canon Law is the body of rules
governing the Catholic Church.
a. Apart from the regular parish internal audit, the study also
recommended an annual audit of the financial records of parishes by
the Diocesan Finance Council.
b. "During the audit process, the audit group can make
suggestions or proposals for updating and improving the present
financial structure and the current system of accounting internal control
of the ecclesiastical entity concerned," said the Canon Law Society.
c. It said diocesan bishops may also adopt a standard procedure
like giving practical knowledge to seminarians and clerics on "basic
bookkeeping and accountancy procedures."
d. This, the organization said will also "ensure the correctness of
financial reports" submitted to the diocesan bishop.

As any entity within the Philippine jurisdiction, when the activities are highly
doubtful, the burden of proof lies with those subject to the exemption. It is the
responsibility of the Church to prove the fiscal wealth acquired should not be
taxable.

ACCOUNTABILITY

The tax exemption of religious institution is based on the principle of

separation of Church and State. The 1987 Constitution specifically stated that
the separation of Church and State shall be inviolable. Since the power to tax
is also the power to destroy, the State must stray away from taxing religion to
minimize the possibility of flexing the State’s power over religious institutions.
However, subjecting the Church to taxes is never an infringement to the
sacred right of freedom of religious expression; rather it emboldens
accountability of the Church with its transactions. Like citizens and
organizations belonging to a community, enjoying freedom and allowed
opinions, the Church is accountable to God for what is God’s, and to Man
what is Man’s. In that light, the Church must, like citizens, be allowed those
privileges and freedom by filing tax returns and paying their share of taxes.

CONCLUSION

There is no question to their exemption as expressly stated by law. However

because of recurring doubts and issues, the Church is tasked prove their exemption,
and currently it lack transparency to prove that they should not be taxed. The Church
should be treated as any other corporation operating within the jurisdiction of the
Philippines of its accountability to the public. Though, generally, they help elevate
humanity in the spiritual realm, but accountability for reality must be considered.
Taxation is a legal and social phenomenon, not biblical or theological. The Church
will still attempt to preach and live the Gospel of Christ whether taxed or not. The
Church should be accountable to what is God’s is for God and what is man’s is for
man.