The Penalties for Failing to Pay Correct Taxes in the PH

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The tax system here in the Philippines is based on “voluntary compliance.” Professional tax and accounting services in the Philippines advice not to misinterpret this line. This doesn’t mean paying your taxes is optional. However, it indicates that if you are a duly registered taxpayer to the BIR or Bureau of Internal Revenue, you are responsible for knowing what taxes you need to pay, when to file, where to do so, and how you will pay your taxes dues.

If you fail to pay the right amount of tax dues, including the filing the correct supporting documents, tax authorities will have the power to collect the taxes you are required to give based on the income you earned. Failing to pay your taxes will make you criminally liable. You could be imprisoned for violating tax rules and regulations in the Philippines.

On top of that, there are corresponding penalties and fees. These fines will compound overtime, so might as well pay the correct dues to avoid paying more. Even honest mistakes, like computation errors or failure to declare something, are subject to BIR examination and investigation. Take a look at penalties for failing to pay the correct taxes below:

Surcharge of 25% or 50% of Basic Tax

Under section 248 of the Tax Code, a penalty of 25% of the amount due will be added to the tax you need to pay. This penalty is imposed and applicable to the following cases:

  1. Not filing returns and not paying taxes on time.
  2. Filing a return with an internal revenue officer or filing out of district return 
  3. Not being able to pay the deficiency task within the time period found in the notice of assessment
  4. Failing to pay the full or part of the amount of tax due which can be seen on any return required to be filed

One-Time Payment For Failing to Pay Taxes

Every time you fail to pay your taxes, there is a one-time penalty applicable for it. According to tax and accounting services in Pasig, you may be levied this penalty for the following:

  1. If you willfully neglect to file the return on time.
  2. If you willfully make a false return.

On top of that, underdeclaration of taxable sales, receipts, or overstatements of the deductions made is evidence of a false or fraudulent return. 

12% or 20% Interest Per Year of Basic Tax

Under the TRAIN law or Republic Act No. 10963, 20% interest per year will be imposed if you fail to pay your tax from the time it was due and 12% from there and onwards will be imposed until it gets fully paid.

On top of that, tax services in Manila share that failing to pay your taxes in full amount will cause you to pay it with 20% interest starting from the time it was due. You will have to pay your unpaid tax twice as much as you should have if you are not able to pay it in five years.

Compromised Penalties

If you violate the Tax Code of the Philippines, you are criminally liable upon conviction. The purpose of this is to ensure taxpayers will comply in paying their taxes. Instead of a criminal case, a penalty that is based on a compromise could just be paid. 

Under Revenue Memorandum Order (RMO) No. 7-2015 which amends RMO No. 19-2007, the penalty for a compromised penalty is from P200 to P50,000 if you fail to file and/or pay the tax required.

The higher the basic tax you fail to pay, the higher the amount you will pay for the compromised penalty as seen below:

  • ₱1,000 – tax not more than ₱5,000
  • ₱3,000 – tax more than P5,000 but not more than ₱10,000 
  • ₱5,000 – tax more than P10,000 but not more than ₱20,000 
  • ₱10,000 – tax more than ₱20,000 but not more than ₱50,000
  • ₱15,000 – tax more than ₱50,000 but not more than ₱100,000
  • ₱20,000 – tax more than ₱100,000 but not more than ₱500,000
  • ₱30,000 – tax more than ₱500,000 but not more than ₱1,000,000
  • ₱40,000 – tax more than ₱1,000,000 but not more than ₱5,000,000
  • ₱50,000 – tax more than ₱5,000,000

To summarize, failing to pay your tax will get you a penalty of a one-time surcharge of either 25% or 50%, 20% or 12% interest annually, and a one-time compromise penalty. It is crucial for you to comply with BIR regulations and invest in learning more about filing tax so you can avoid being penalized and avoid wasting your income on penalties.

If all these are too cumbersome for you, you can hire a CPA firm that offers tax and audit services in the Philippines. Call us to ascertain tax compliance, with correct dues and supporting documents, to keep more of your income and avoid stiff penalties.