9 Common Taxpayers’ Violations and Their Corresponding BIR Penalties [Plus Tips to Easily Avoid Them]

Taxation is the lifeblood of the government. It is from the taxes paid by the people and businesses where the government derives its funds for carrying on its civil operations, providing and maintaining public services, and building infrastructures for national development.

The Bureau of Internal Revenue (BIR), the country’s tax authority, contributes close to seventy percent (70%) of the government’s total revenue. It must then implement an efficient and effective tax collection system; otherwise, any deficiency will result in domestic and foreign borrowings. Anchored on the National Internal Revenue Code (NIRC) or Tax Code, the system also involves a strict implementation of the rules and regulations and the imposition of civil and criminal penalties on violating taxpayers. 

In lieu of criminal prosecution, compromise penalties are also offered by the BIR and paid by the taxpayers to compromise a tax violation. Although not legally imposable without the agreement and conformity of the violating taxpayers (i.e., as they may or may not pay for them), these often expedite the settlement. Not all violations of the Tax Code, however, can be compromised. 

Continue reading the article to find out nine (9) of the most common tax-related violations and their corresponding BIR penalties. As a bonus, there are also tips below for you to keep your business operations compliant with the BIR rules and regulations and further avoid paying for these penalties.    

Common Taxpayers’ Violations and BIR Penalties

The list of violations and penalties below is primarily based on the annex document in the released BIR Revenue Memorandum Order 07-2015, or The Revised Consolidated Schedule of Compromise Penalties for Violations of the National Internal Revenue Code.   

[1] Failure to Register with BIR

Non-registration with the BIR comes with a basic penalty of PHP 5,000.00 but not more than PHP 20,000.00 and imprisonment of not less than six (6) months but not more than two (2) years. Additionally, a twenty-five percent (25%) surcharge on the amount of tax due and an interest rate of twelve percent (12%) per annum may also be imposed for failure to pay the tax required on time due to non-registration. 

The compromise penalty varies depending on the RDO or location of the business establishment. For those in cities, the penalty is usually PHP 20,000.00, and PHP 2,000.00 if in third class municipalities. This is already inclusive of all other violations.   

[2] Failure to Display the BIR Certificate of Registration (COR) and Other Documents

Based on the BIR rules and regulations, business documents issued, such as the Certificate of Registration (COR), “Ask for BIR Receipt” or “Notice to Issue Receipts and Invoices (NIRI),” and other authorized stickers, must be displayed conspicuously at the place of business operations. 

If found violating, the business will be imposed a fine of not more than PHP 1,000.00 or imprisonment of not more than six (6) months, for each document or violation. The amount of compromise is also PHP 1,000.00. If violations are too severe, however, a business closure notice may also be served to the owner.

[3] Late Filing of Tax Returns

As a general rule, all Revenue District Officers, Authorized Agent Banks (AABs), Large Taxpayers Division Officers (LTDOs), and all other internal revenue officers are prohibited from accepting late filing of tax returns, as well as payment of taxes due, without the imposition of applicable penalties. 

Further late tax returns, including any attachments, will be properly tagged as “late filing” or “late filing, increments not paid” for such to be accepted by the respective BIR officers. Prior to any settlement of taxes, the respective BIR officers will compute the corresponding penalties pursuant to the tax rules. 

For example, the filing of the BIR Form 1700 – Annual Income Tax Return for Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income) must be made on or before April 15 of each year, covering income for the preceding taxable year. If the return is filed on the 16th and onwards, it is already considered late, and thus, corresponding penalties apply.   

[a] Late Filing of Tax Returns with Tax Due. Penalties for late filing of tax returns with tax due thereon include a twenty-five percent (25%)  surcharge on the tax due in the ITR and an additional penalty of twelve percent (12%) interest per annum or one percent (1%) per month. In addition to these penalties, the taxpayer, upon conviction, may also be punished by a fine of not less than PHP 10,000.00 and imprisonment of not less than one (1) year but not more than ten (10) years.

The amount of compromise penalty for violation also depends on the amount of tax unpaid. For example, if it exceeds PHP 50,000.00 but not more than PHP 100,000.00, the compromise is PHP 15,000.00. 

[b] Late Filing of Tax Returns with NO Tax Due. In cases where there is no tax liability and there are no sales, a penalty of PHP 1,000.00 is applied. If there are sales but no tax due, the penalty ranges from PHP 3,000.00 to a maximum of PHP 25,000.00. Additionally, a fine of not less than PHP 10,000.00 and imprisonment of not less than one (1) year but not more than ten (10) years constitute the criminal penalty.

[c] Late Filing of Statements/Reports with NO Tax Due. The compromise penalty will be based on the violations of other provisions under Section 275 of NIRC. Upon conviction for each act or commission, the taxpayer will be punished by a fine of not more than PHP 1,000.00 or by imprisonment of not more than six (6) months, or both. 

[4] Failure to File, Make, and Submit Information Returns

It happens when a taxpayer fails to file an information return, statement or list, or keep any record, or supply any information required by the Tax Code or by the commissioner on the date prescribed, unless the failure is due to reasonable cause and not to willful neglect. Upon notice and demand by the commissioner, the violating taxpayer must pay a penalty of PHP 1,000.00 for each failure, provided that the aggregate amount to be imposed for all such failures during a calendar year does not exceed PHP 25,000.00.

[5] Failure to Supply Correct and Accurate Information

This covers information returns, schedules, reports, sworn statements, certifications, and other documents (i.e., except quarterly SLS/P/I and the Annual Alpha List of Payees and/or the Annual Alpha List of Employees subject to withholding taxes) required by the Tax Code, as amended, or other existing rules and regulations. 

The compromise penalty is PHP 1,000.00 for each incorrect or erroneous piece of information supplied in the document. However, the aggregate amount to be imposed for such failures during a calendar year must not exceed PHP 25,000.00.

[6] Wrong Venue or Out-of-District Filing of Tax Returns

Following the tax rules, tax returns must be filed with the AABs or the Revenue District Offices (RDOs) where the taxpayer is registered. If the filing is made with a different AAB or RDO, the taxpayer violates the rules, and thus, must pay penalties. 

Exceptions cover the inadvertent or erroneous acceptance of out-of-district tax returns by the respective RDOs or AABs, which are also mandated to segregate all such returns and transmit them to the proper RDO/LTDO/LT Division within five (5) calendar days from receipt. 

Another is when there is a pronouncement through a revenue issuance or bank bulletin that a taxpayer can file a return and pay the corresponding tax due anywhere, notwithstanding the RDO/LTDO/LT Division jurisdiction. This usually happens during the annual income tax filing in April.

Like the late filing of tax returns, filing with the wrong AABs or RDOs also comes with a penalty equivalent to twenty-five percent (25%) of the amount due and an additional twelve percent (12%) interest per annum or one percent (1%) per month. 

[7] Failure to Withhold or Remit Withheld Taxes

Failure to withhold or remit withheld taxes at the time or times required by law or regulations may result in a fine of not less than PHP 10,000.00 and imprisonment of not less than one (1) year but not more than ten (10) years. 

The compromise penalty depends on the amount of tax not withheld or remitted. For instance, an amount exceeding PHP 50,000.00 but not more than PHP 500,000.00 comes with a penalty of PHP 15,000.00. Failure to refund excess taxes withheld on compensation bears the same penalties. 

[8] Failure to File and/or Pay Taxes

Failure to file and/or pay any internal revenue tax at the time or times required by law or regulations comes with a fine of not less than PHP 10,000.00 and imprisonment of not less than one (1) year, but no more than ten (10) years. The compromise penalty, on the other hand, varies depending on the amount of tax unpaid. Between PHP 50,000.00 to PHP 100,000.00, the compromise penalty is PHP 15,000.00.  

[9] Other Offenses

Other offenses, such as corporate acts or omissions, violations committed by financial officers or independent CPAs, illegal collection of foreign payments, unlawful possession of cigarette paper, unlawful use of denatured alcohol, shipment or removal of liquor or tobacco products under false names or brands, offenses relating to internal revenue stamps, failure to obey summons, and misdeclaration or misrepresentation by manufacturers of articles subject to excise tax, among others, together with the corresponding civil, criminal, and compromise penalties, are also indicated in the Annex A of the RMO.

Tips to Avoid BIR Penalties

Violating the Tax Code and other BIR regulations, depending on the severity, may come with serious civil and criminal penalties. To avoid these:     

[1] Register with BIR and secure all the necessary documents.

Whether you’re putting up a startup business or practicing your profession as self-employed, registering with the tax authority, the Bureau of Internal Revenue (BIR), is the first step to being compliant with the Tax Code. With the registration, you will be issued a BIR Certificate of Registration (COR) and other documents that serve as tangible proof of the legality.      

[2] Know your responsibilities as a taxpayer.

You should know very well the many post-registration responsibilities, such as having the certificate and other notices displayed at the place of business operations, issuing copies of official receipts to clients, recording transactions in the books of accounts, preparing and filing tax returns, declaring accurate amounts subject to taxation, and remitting the taxes due on time. Other than these, you should gain understanding of the different taxes imposed (e.g., value-added tax, percentage tax, withholding tax, income tax, etc.), especially those that apply to you and your business, as well as the prevailing tax rates and tax incentives.     

[3] Stay up-to-date with the BIR rules and regulations.

Among the government agencies, it may be the BIR that frequently issues new rules and regulations. It has also been introducing digital solutions for tax filing and payment as part of its Digital Transformation (DX) Roadmap 2020-2030. To stay updated, always visit the BIR official website for revenue regulations and other issuances or coordinate with the respective RDO.   

[4] File your tax and information returns on time.

The BIR has often emphasized, through public advisories and news media outlets, the importance of timely filing of tax returns and being abreast of the changes, i.e., in forms used and actual deadlines. Failure to file the tax returns and pay taxes on time inevitably results in penalties that may also accumulate with interest over time. Take note that the Tax Code considers it as a criminal offense which is punishable by fines and/or imprisonment.

[5] Pay your taxes with integrity.

Tax evasion, which is an attempt to reduce the tax liability by deceit or concealment, is a crime. While taxes provide revenue for the government to fund essential services and infrastructure projects, paying them with integrity is a legal obligation and entails your fair share in national development. Having the mindset of not paying the correct taxes due to the perceived corruption in the government does not help solve the existing problem, rather creates another problem.

[6] Consult tax experts, as may be necessary.

Running a business in the Philippines is already a demanding task. It takes a lot of skill, effort, and time. With these demands, you may not be able to attend to your bookkeeping and tax filing needs. Startup entrepreneurs, in particular, may just need tax preparers who can assist them in tax filing or an accounting firm for outsourcing the services. Others may also need tax consultants to help reduce or eliminate tax liabilities the legal way.     

Final Thoughts 

The Tax Code may have been written with such a high degree of technicality that ordinary taxpayers will experience a nosebleed before fully understanding all the requisites for complete tax compliance. At the same time, tax filing is considered one of the most onerous tasks taxpayers struggle with, especially during tax seasons. As a result, they end up filing returns beyond the deadline, violating BIR rules and regulations, and paying penalties. With sufficient knowledge, proper planning, and the possible assistance of tax preparers and experts, however, these may be avoided.  

 … and you might just need our assistance.

Given the demands of running a business and the technical requirements of tax filing, the assistance of an experienced and efficient tax compliance team can always guarantee that your tax and information returns are prepared, filed, and paid for within their deadlines. You can rest assured that your business is in compliance with the Tax Code and the latest rules and regulations by the BIR. 

Avoid tax-related violations and penalties. Let our team do the bookkeeping and BIR tax filing, while you focus on the core aspects of your business. Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.