The tax system of the Philippines is on a “pay as you file” method. The taxpayer is the one who identifies where or when they would pay their taxes. The taxpayer voluntarily complies with the payment of tax, however tax authorities can hold the taxpayer liable in case he fails to pay taxes. The authorities have the right to charge them penalties or worst, civil or criminal sanctions due to their failure to pay their taxes.
The late filing and payment of taxes is subject to the amount required to be paid plus additional charges below.
1. Surcharge
a. 25% of the basic tax for failure to file or pay deficiency tax on time
According to the Section 248 of the Tax Code, there shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due on the prescribed date; or
(2) Filing a return with an internal revenue officer other than those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.
b. 50% for willful neglect to file and pay taxes, or in case of false or fraudulent return is made
"Willful neglect" happens when the BIR discovered the non-filing of taxes. Then, they send a notice to the taxpayer. Hence, the taxpayer received the notice prior his actual filing. If the taxpayer filed a return before the receipt of such notice, it is considered simple neglect subject to the 25% surcharge.
2. Interest
In case that the taxpayer paid his tax amount less than what he should have paid, he will be charged interest for the amount left unpaid. A 20% interest per year is imposed for the tax amount that is unpaid from the date that it should have been paid up to the date it is finally settled. Interest is imposed in the following cases:
1. Deficiency Interest - any deficiency in the tax amount should be subject to interest and interest should be assessed and collected from the date prescribed for its payment until the full payment thereof.
2. Interest on Extended Payment - If the taxpayer chooses to pay his tax on an installment basis, and he fails to pay his installment payment on or before the date prescribed for its payment, he shall be charged for interest for the failure of payment for the installment or part of the installment payment.
3. Delinquency Interest- In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon at the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.
In simpler terms, in case you fail to pay the full amount of tax that you should pay on the prescribed date, you shall be charged with 20% interest from the time you are supposed to pay your taxes up to the date it is fully paid.
3. Compromise Penalties
Violation of the Tax Code of the Philippines can result to penal sanction which is a criminal liability. The tax code encourages the taxpayers to comply on paying their taxes on time.
A taxpayer who willfully fails to pay taxes, make such return, keep record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the prescribed time is penalized by a fine of not less than Ten Thousand Pesos (P 10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years in addition to the other penalties mentioned earlier.
The compromise penalties in the table below can be paid instead of facing criminal sanctions.
Paying your taxes on time is important as a single failure to pay taxes can cause you these three penalties. Surcharge of either 25% or 50%, 20% annual interest and one-time compromise penalty, can cause a huge amount of wasted income. Hence, tax compliance is highly encouraged to avoid such penalties in the future.
References: https://www.bir.gov.ph/index.php/penalties.html
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