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.