Senator Ralph Recto recently defended Rep. Manny Pacquiao’s earnings from professional boxing in the US against taxation by the Philippine government.

Manny Pacquiao

Manny Pacquiao. Pic: AP.

Recto said Pacquiao’s income in the US is already subject to withholding taxes by the Internal Revenue Service (IRS), counterpart of the Philippine’s Bureau of Internal Revenue (BIR).

The Filipino boxing champion’s income tax became an issue after the BIR filed criminal charges against him for violation of Article 266 of the National Internal Revenue Code, ostensibly for failing to comply with summons.  The BIR said Pacquiao failed to present his book of accounts including copies of his fight contracts and other endorsement deals for 2010 despite formal order from the tax bureau.

The BIR purportedly found a sharp drop in Pacquiao’s income tax payments in 2010 after paying more than P100 million for the years 2008 and 2009.

But is it fair for the Philippine congressman to be exempted from paying taxes just because he earned his income in the US where all his fight purses and other incomes are automatically subject to at least 30 per cent withholding tax by the IRS?

I believe all his legitimate income in the US should be subject to Philippine tax laws but subject to certain exemptions and appropriate deductions.

Pacquiao can always deduct whatever taxes he paid in the US, including all training and incidental expenses, from his income as part of the expense column when he files his personal income tax returns in the Philippines.  Or he could demand rebate from the US government by citing taxes he is paying to the Philippine government out of his fight purses, subject to presentation of certificate of payments and receipts which I think should be another process.

Remember, Pacquiao’s fight contracts are only known to him, his promoters and the IRS and, far from what is reported in the press, purses stipulated in the fight contracts are significantly less than any announced guaranteed pay.  Somewhere, it was reported that the purse when Pacquiao fought Juan Manuel Marquez was only US$6 million.

It is when the proceeds of the pay per view (PPV) sales are counted that Pacquiao’s income shoots up, which is only known several months later after subsequent accounting.  But there is no escaping the IRS whose agents are always on the lookout in cases like Pacquiao’s.  No wonder many former world boxing champions ended up being chased by the IRS because they failed to pay the appropriate taxes of their subsequent incomes other than what is stipulated in the fight contract.

Pacquiao could always ask Floyd Mayweather Jr how difficult life is if that happens to him.   Mayweather, too, is having his share of problems with the IRS.

Senator Recto coming to the defense of Pacquiao was right.  But he may have missed some points.

The senator should instead look into how our professional boxers are being paid and made to pay taxes when they fight in foreign soil and from thence look into how their cases should be dealt with.

For Recto, it was good copy but it did ndot address the issue on whether Pacquiao or Filipino professionals who earn their living abroad should be subject to Philippine tax laws because their cases are unlike Overseas Filipino Workers (OFW).