In the past year, the Tax Reform for Acceleration and Inclusion (TRAIN) Law has published a lengthened sentence and higher sanctions for businesses and individuals who are proven guilty of tax evasion. As business owners and taxpayers, one ought to remain aware of the repercussions of avoidance and tax evasion in the Philippines.
You are responsible for avoiding tax problems that might harm your earnings or place your business in trouble. Throughout the next section, we’ll explore defining the different types of taxes, evasion, avoidance, and their effects. Learn how to become better business owners as you accomplish your operational requirements better through this article.
What is Tax Evasion?
The evasion of taxes is a criminal activity that occurs whenever an individual or business disregards paying a tax obligation on purpose. Individuals and firms who are discovered dodging taxes face criminal prosecution and harsh penalties.
As a prerequisite for sanctions to be brought, it is necessary to prove the accused taxpayer purposefully avoided paying taxes. Apart from an individual or organization being held accountable for tax liabilities that remain unpaid, they may also be deemed culpable of governmental crimes and sentenced to incarceration time.
What is Tax Avoidance?
The avoidance of taxes is defined as the employment of taxation-saving techniques beyond the legal limits and where the taxpayer operates in an honest manner while remaining a distance from the government. Tax avoidance is the practice of organizing your financial affairs in such a way that allows you to receive the bare minimum of tax required.
One example of tax avoidance is operating a business and promoting activities that are regarded as “charitable” donations. This way, taxes applied to the business will be reduced due to its modest activities of charity. However legal this may seem, it is still a considerable act of tax avoidance.
Types of Taxes in the Philippines
National Taxes
These are levies collected by the Bureau of Internal Revenue (BIR) from taxpayers throughout the country. The following are some of the national taxes levied in the Philippines on various revenues and activities:
- Value-Added Tax (VAT) – This is among the most common forms of tax imposed on products and services.
- Withholding Tax – As the title suggests, this type of tax is withheld from an employee’s income to encourage compliance with tax payments.
- Income Tax – Income or profit tax with required deductions.
- Estate Tax – Imposed on heirs and beneficiaries upon transfer of properties.
- Capital Gains Tax – This is imposed on conditional sales, including dispositions of capital assets, sales, and exchanges.
Local Taxes
This type of tax requirement is imposed on the constituents of local government units (LGUs) for project operations. Local taxes are less technical than national taxes, but they still promote the same level of obligation for the parties involved.
- Local Business Tax – These are taxes imposed on businesses within the LGU’s area scope.
- Professional Tax – Lawyers, Engineers, Architects, and Doctors are some of the payers of this type of tax.
- Franchise Tax – This type of tax is imposed on business owners who acquire franchises.
- Community Tax – These are imposed on enterprises or business owners who operate within the LGU’s jurisdiction.
- Amusement Tax – Concert Halls, Theatres, Parks, and other amusement projects are imposed on this tax.
- Basic Real Property Tax – Real estate properties such as houses and buildings are among the participants of this tax responsibility.
What is the Bureau of Internal Revenue?
Under the National Internal Revenue Code of 1997, as amended by Republic Act (RA) No. 10963 (TRAIN), RA 11256, RA 11346, RA 11467, and RA 11534 (CREATE – Corporate Recovery and Tax Incentives for Enterprises), the Bureau of Internal Revenue (BIR) is the supervisory authority under the Department of Finance. Its duty involves the collection, assessment, and comprehension of national and internal revenue taxes, charges, and fees.
Additionally, it is assigned to enforce forfeitures, fines, and penalties on cases that involve tax evasion in the Philippines. The bureau is in charge of record-keeping and examining books, paper, and other data relevant to individual and business transactions across the country.
Criminal Liabilities Under the Tax Code
In adherence to the implementations of the BIR, some forms of tax evasion in the Philippines may include and are not limited to the following…
- Non-registry with the BIR
- Operating more than one book of accounts
- Using a fake account form
- Claiming personal expenses as operational expenses in business
- Not remitting withholding taxes
- Providing false entries in financial books and records
- Money laundering or transferring income from business to personal accounts
- Hiding business profits
- Under-declaring income
- Over-declaring deductions and expenses
- Not filing the applicable tax returns
- Non-payment of taxes
Tax Evasion Penalties in the Philippines
Neglecting the duty you have as a citizen, business owner, or employee of this country is tantamount to evading taxes. Most generally understand that taxes are used to better lives, from investing in educational institutions, highways, and other innovations to giving health care services to underserved regions. Let’s go ahead and go over the major penalties for tax evasion penalty in the Philippines.
Oplan Kandado (Tax-Delinquency)
This program is one of the greatest arsenals in the tax implementation inventory, as well as being the most easily applied and hence feared by the majority of taxpayers, regardless of size. Oplan Kandado is a Bureau of Internal Revenue (BIR) implementation initiative wherein the BIR may apply monetary penalties such as the shutdown and temporary business closure for noncompliance with tax rules.
Legal Attributions
It authorizes the Commissioner or his designated representative to order the suspension or cease operations of any of the individual’s business for a number of infractions…
- Inability to issue receipts or invoices
- Failure to file a value-added tax return
- Understatement of sales or receipts by at least 30%
- Non-registry of business
- Operating with incomplete business records and permits
Exorbitant Fines and Imprisonment
If proven guilty, those who evade taxes will face sanctions of not less than PHP 500,000 but not in excess of PHP 10 million, as well as incarceration for a minimum of six years, yet no more than ten years in situations where there is an attempt to dodge tax payments.
Legal Attributions
Some of the grounds that result in exorbitant fines and imprisonment due to tax evasion in the Philippines include the following…
- Reproducing receipts and invoices
- Issuing receipts and invoices without numbers and identifying information
- Issuing unauthorized receipts
Comprise Penalty Fees
The penalty fee is determined by the amount of delinquent taxes. It would normally vary between PHP 200 and PHP 50,000. The bigger your delinquent taxes, the larger the compromise penalty charge you must pay.
Annual Net Income Penalties
When you fail to provide your sales statistics, you can expect to be fined 1% of your yearly net income. It will be calculated based on your yearly net income, pursuant to tax and auditing services in the Philippines. Keep in mind the aforementioned penalty will not be imposed if the inability to fulfill the obligation to report sales is due to uncontrollable and unforeseen situations.
Surcharge Penalties
This penalty is a once-only cost for each occurrence of tax evasion in the Philippines. Individuals and organizations who don’t file or settle the tax due on time (by the April 15 deadline) and those who file their ITR with the false revenue district office (RDO) face a 25% penalty under the Tax Code. In situations of intentional refusal to complete a tax return or deliberate fabrication of tax returns, a greater surcharge of 50% of the tax owed occurs.
As a business owner, you ought to prevent the negative consequences of tax evasion at all costs. Not doing so will lower your earnings and negatively reflect on your brand reputation. You can ensure certainty that you’re doing all necessary to continue operating on the right path if you understand what taxes and fines are. If you prevent tax evasion penalties, be sure you pay the correct taxes on time, in full, and to the correct office. With all of this in mind, you can ensure that your firm runs smoothly from the inside out.
