20 Tips to Avoid BIR Tax Penalties

Mar 6, 2011 by at Tax Tips, Taxation

20 Tips to Avoid BIR Tax Penalties

Taxes are burden imposed to persons and entities who earn income, engage in business, transfer personal or real properties, and other taxpayers who are required to pay taxes by the National Internal Revenue Code (NIRC) and other applicable laws. If a tax means cash outlay, penalties means additional expenses that can give you more financial, personal and entrepreneurial troubles.

Penalty includes interest, surcharge and compromise which can be imposed to taxpayers who violate certain NIRC offenses. While some violations can be compromise, others like willful acts to commit fraud, may not be compromised and may be subjected to criminal charges. To put yourself away from those charges and assure that you can have goodnight sleeps, you may want to consider the following 20 tips to avoid BIR tax penalties.

1. Register your business before starting operation. Obtain proper registration whether as a VAT registered or a non-VAT registered taxpayer. Read our articles on Value Added Tax and Percentage Taxes to know who are required to register as VAT or non-VAT taxpayers.

2. Pay and display your Annual Registration return (BIR Form 0605). Failure to do this may cause you a fine of not more than 1,000 or imprisonment of not more than 6 months (sec 275, NIRC)

3. Display your Certificate of Registration (BIR Form 2303). Failure to do this will also cause you a criminal penalty the same as with the #2.

4. Display the poster “Ask for BIR Receipt” or “Notice to the Public to demand receipts/invoice. Failure to do this will also cause you a criminal penalty the same as with the #2.

5. Attach or paste authorized sticker/DECAL authorizing the use of CRM/POS/CAS. Failure to do this will cause a compromise penalty of P1,000 per unit of the machine.

6. Present application form (BIR Form 1900 and 1905) to use registered sales books/permit to use loose leaf sales books. A P 1,000 compromise penalty is imposed upon failure to do this.

7. Do not attempt to evade or defeat any imposed tax by the National Internal Revenue Code. This violation cannot be compromised because it involves fraud (Sec 204 NIRC).

8. Pay your tax and or file your tax return on time. Late filing will cause you penalties: interest, surcharge and compromise. You should also file tax declaration on time, whether there is no tax to pay or you are exempt but is required to file the return.

9. File your tax returns with the complete and correct documentary requirements or attachments. For example, by attaching the required certificates of creditable taxes when claiming them or by attaching Monthly Alphalist of Payees (MAP) to Monthly Remittance Of Income Taxes Withheld (Expanded) – BIR Form 1601E.

10. Keep and preserve the records required by law or regulations (books, journals, etc).

11. Withhold and remit withholding taxes on compensation, expanded, final income or on business taxes (VAT or Percentage taxes), if applicable.

12. Refund excess taxes you withheld on the compensation of your employees.

13. Do not misrepresent as to actual filing of return or statement or withdrawal of return or statement already filed.

14. Do not commit any acts of omission.

15. Make correct and faithful entry in the books of accounts

16. Do not keep two or more sets of records or books of accounts

17. Keep books of accounts or records in a native language, English or Spanish or make a true and complete translation

18. Do not use fake or falsified Revenue Official Receipts, Letters of Authority, Certificates Authorizing Registration, Tax Credit Certificates, Tax Debit Memoranda and other Accountable Forms.

19. Have your books of accounts audited and have the financial statements attached to the income tax return certified by an independent CPA duly accredited by the BIR.

20. Do not refuse to issue receipts or sales or commercial invoices; do not issue receipts or invoices not truly reflecting and/or containing all information required therein or use multiple or double receipts or invoices. This violation is subject to criminal penalty of fine of not less than P1,000 but not more than P50,000 and imprisonment of not less than 2 years but not more than 4 years.

To learn more, please read the list of violations and their corresponding criminal and compromise penalties here. If you know any tax tips that should be added and included in the list, please share by making a comment below.

Victorino Abrugar is the founder and chief writer of BusinessTips.Ph. Vic is a social media enthusiast who loves to share his knowledge and insights through blogging. He provides business coaching to aspiring small business owners and entrepreneurs to help them reach their business and life's goals. Follow him on Twitter at @viclogic or interact with him on Facebook.

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20 Comments

  1. Salamat sa mga tips mo sir. Pg tatandaan ko yan lahat sa tuwing mag babayad na ako ng buwis.

  2. Squish

    hi sir vic. you make all of these numbers seems so easy! you must be very smart.

    i’m rather sad this tax season because i want to make accurate tax returns. i’m a newly grad doctor, practice was slow at the start, so while i had registered as a self-employed individual, i took up a masters degree and got a scholarship which along with savings from my years of residency training (because i am frugal), helped to pay for the cost of living. my booklets of or’s were still quite fresh months after i’d gotten them.

    then a fellow doctor said she needed my help to practice at a hospital, she wasn’t accredited there but i was. she had a doctor-partner who would refer cases to her. in return, my friend will give me around 1/3 of the professional fee (pf) from such cases.

    it seemed fair at first since i was just starting out. while she would issue the official receipts, this would also entitle her to the philhealth payments due from each patient, so the one-third she paid out to me seemed compensated by the philhealth. may i add that we shared the work equally and there were times that i was the only one attending to the patient.

    after a year it was decided that i would issue the official receipt to the patients and thus obtain the philhealth payment. however, i still received one third of the pf. i left a booklet of or’s with her partner to be issued to each patient.

    it’s not easy to submit monthly audits because sometimes the patients do not pay on time, sometimes not at all, and the philhealth reimbursements come only many months later. so i added up everything only at the end of the year and gathered up the booklets in the hospitals where i have some patients (not many). of course i have seen how seemingly big my returns are from one hospital but most of them (2/3) i have given to my friend. i asked how she managed her taxes and she said she didn’t need to pay so much cuz her mom had a friend at bir and “wala, ok na.”

    so i am sad cuz i don’t want to be a tax evader but there are these kinds of situations in which i have trouble with my taxes. i have to provide financial aid to my mom esp now that my dad died. can you give me any advice on how to avoid these kinds of pitfalls in the future? and how can i file monthly statements if payments do not come on time during the taxable period.

  3. Vic

    Hello, thanks for sharing your thoughts, and emotions. I understand your situation. Maybe you’re a true Christian to be saddened by the loss of integrity in our environment. I hope the government will help micro and small enterprises to lessen their tax burdens. I hope the government and the BIR will carefully observe the sound principles of taxation, which include the theoretical justice – “the tax system should be fair to the average taxpayer and based upon his ability to pay”. With business taxes (VAT or percentage taxes) implemented in the country, I think that principle is somehow impaired. For example, a small NonVAT registered businessman or professional who receives P60,000 gross revenues or sales in a quarter, but incurred losses, is still subject to 3% percentage tax on his gross revenues or sales. Where should we get the money for paying the monthly percentage taxes if we don’t even earn any money. We are taxed whether we gain or loss money.

    But for now let’s just obey the tax laws in the Philippines, because too much penalties are waiting for us if we don’t file the required tax return on time. I say too much penalties because if you will be late even for one day, you will be charged with 20% P.A. interest, plus 25% surcharge, plus compromise penalty. It’s way too expensive than the interest given by some banks.

    As an additional tip for saving on tax payments aside from the list above, I would suggest that you always ask receipts and account all of your expenses related to the practice of your profession. Then claim all those expenses that are allowed to lessen your taxable income, and accordingly lessen your income tax. If you always give receipt for your revenue, then always ask receipt for your expenses.

  4. Paul

    hi sir! i found your site to be very simple yet effective in informing me about tax payments. thanks!
    i’m a pediatrician by profession and i just started my private clinic last year. i dutifully pay my monthly, quarterly and annual income tax before deadline. i want to ask a few questions, because i can’t find anyone at our bir rdo to answer them.
    1. i am an accredited philhealth medical specialist health provider, and i am affiliated in some hospitals. our bookkeeper in one hospital required me to give them receipts of my professional fees receivable from philhealth. i dutifully declare my pf’s (philhealth and non-philhealth) in my monthly and quarterly ITR’s. i know the pf’s under philhealth are automatically withheld 10%. yet i have yet to receive the philhealth payments. should i issue receipts for PF’s charged under philhealth that i haven’t received yet?
    2. how often do we have to renew our book of accounts? i registered my clinic at bir on september 2010, and so was my book of accounts (columnar notebook), but i opened my clinic olny last january 2011 due to repairs. and where can i avail of a cpa who can audit them?
    3. are the premiums (3 years advance payments) i paid when i applied for philhealth accreditation different from the quarterly contributions i have to pay as a member?
    thank you and God bless!

  5. Roger

    Hi,I’d like to ask the difference between a Sales/Retail Invoice and an Official Receipt. We sell truck parts retail and wholesale and we issue Sales Invoices for every transaction. I’d like to know if we need to issue an Official Receipt or if the Sales Invoice is sufficient. I have read in RMO 3-2009 this information:
    “A.Invoicing Requirements – A VAT-registered person shall issue:
    1. A VAT invoice for every sale, barter or exchange of goods or properties; and
    2. A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.”
    My understanding is that, since we sell goods, a VAT invoice will be issued. An official receipt is only for exchange of services.
    I hope you can enlighten me on this regard.
    Thanks in advance.

  6. is there a way so income earned online can be exempted from precentage tax ir Vat?

  7. Cathy

    hi,

    I’d like to find out what to do now. We have moved from one city to another. We BIR registered in the old city and have ATP and have receipts printed there, apparantly, I had no idea since we had no sales.

    Since we moved to the new city, we have registered with BIR but they didn’t notify us to do an ATP and there have none. We have been in the new city for almost two years now and we are now anticipating sales, so I have come to ask about the sales, and I was told that I need ATP and the receipts. But since we registered with the new city, we were not told to do so, we didn’t.

    My question is, will we be fine for this? or can we just file for ATP and then issue receipt?

    I want to also issue receipt but not printed from printers, I would like to print it from just a spreadsheet or a pdf. Is that possible with the loose-leaf application on 1900? or we have to do all the books in loose-leaf? I am not quite sure about that.

    Thank you in advance for your help

  8. mary

    pano po gamitin yung three books of accounts na galing sa bir..

    yung pong journal, ledger saka yung columnar?

    saan ko po ilalagay yung sales at expenses??? eh resto pu yung business tas sole proprietor lang

    may format po ba yun???

    salamat po..sana po masagot nyo yung mga questions ko..

  9. Tess

    Hi sir,i have a property in the philippines but sense my father build that house,we don’t have yet BIR or Tax or registration.can you tell me w’re can i start this problem?pls.i want to solve this as soon as possible.thank you so much,,,

  10. Thanks for the list Vic. Very helpful in avoiding BIR penalties. Nobody would waste hard earned business income on penalties.

  11. Jackson Ang

    Sir Good Afternoon po my question po sana ako , sa pag iisue po ng sale invoice , bawal po ba na mag prepare ka ng invoice sulatan ito pero wala pang date kahit wala pang customer na bumibili? may violation po ba yun sa bir?

    • Hi. What are you trying to write in the invoice? To conform with the BIR, you have to be honest as the general rule. In other words, you have to only use invoices where there are real transactions.

  12. Juniffer Pablo

    Hi Vic,

    I am working in a PEZA Registered Corporation and we enrolled in manual bookkeeping system since we cant register for CAS because of software ownership technicalities. The software is maintained abroad by a sister company, they are basically the owners. Thus, disabling us to enroll the system here at BIR. What we are doing is we are printing the journals and pasting is to the books. Are we in violation of BIR rules? What is the penalty?

    • Joseph

      Yes you are, Hindi allow ung extract mo s excel format ung report from computerized acctg system then paste mo s manual books. u need to apply loose-leaf books of accounts.

  13. Tina Quinalayo

    Hi, Mr. Vic,

    I really need a tax advisor that could help me with my tax concerns. Do you know one? Kindly email me the email address of your recommendation. It’s about what to do if you have a new business and you have a previous business that you failed to close officially.

    Thank you and more power. Your articles are really helpful.

    Tina

    • Joseph

      It defends, kung sole proprietor un initial business nyo under your name then ung new business nyo ay sole proprietor ulit using your personal TIN, iba lang ang trade name…. you need to retire the previous company.

  14. Lauren

    Hello Sir.

    I have this problem regarding the small business that i started but turned out to be a mishap in my life. At first i was being tax mapped when i believed in a hearsay regarding the registration of the business. I have learned my lesson very well cause i paid a lot of penalties when i got it registered in Nov. and is it true that a newly opened business shouldn’t be aimed for tax mapping? To go directly to my problem, the small business was registered in a name that has enterprise on it and required me to have two different sets of receipt. The problem is that i was not able to print any receipt on time due to delays in the printing so no receipt was made and the original plan for the business didn’t push through and ended up in being a sari-sari store. I paid the 3% percentage tax monthly as well as the tax for rentals to prevent me from being penalized again. Believe me i really learned my lesson the hard way. I couldn’t wait till i finish the contract for the rentals so i can close it cause it really brought me loads of stress. I am really afraid that if i will not be able to fix this i’ll get troubled with my TIN or worse I’ll get imprisoned. I am really messed up and i do not know where to start to get this issue with receipt be resolved so i can close the business properly this coming may.

    I really need your help. Thank you

  15. Zarah Mae

    Hi Sir,

    I am currently in the process of registering a business. There were delays before I get to register to BIR since I have conflicting schedules and there were many requirements. The DTI is dated July 1 while the mayor’s permit is dated August 16. I paid BIR around Php820.00 for the registration fee, they said there’s a late penalty which they based on DTI and Mayor’s Permit date. Now, as I was claiming for the COR, they told me that I still need to pay another Php1,000.00 because it’s considered late registration. I was shocked, I thought I’ll be able to get that day the COR. Isn’t that double charging of penalty? Is there a ruling that there will be Php1,000.00 late penalty which will be based on DTI/Mayor’s Permit date?

    Thank you very much.

    • Joseph

      Once n marelease ang mayors permit nyo, proceed n kyo s pag kuha nang COR, assume nila n once may business permit k… nag ooperate k. kya dapat hinde madelay

  16. Ryan Joseph

    I have a question. Dati po akong insurance agent. Last year, I was terminated because I could not meet the company sales quota. When I was told that I was terminated, I went back to school instead. So hindi po ako nagfile ng tax returns this year since I did not earn anything for last year. Did I do it right? Kasi po sabi ng iba ok lang daw since I had no income for the past year. However some friends tell me that I should have filed “no income earned”.

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