Penalties for Failure to Pay Taxes to the BIR

The Philippine tax systems honor taxpayers’ voluntary compliance. This means that you pay your taxes as you file them, and you determine what type of taxes you pay by listing your appropriate occupation and correct income. Hence, you must be abreast with your accounting and bookkeeping if you’re self-employed or earn a mixed income so you can correctly compute the right tax dues and file the proper returns with supporting documents.  


After all, the burden of responsibility when it comes to meeting deadlines and filing for tax credits falls on the shoulder of the taxpayer. While taxpayers do have the choice to comply, non-compliance without due reason, like temporary business closure or temporary unemployment, does not exempt them from being questioned and investigated by the Bureau of Internal Revenue (BIR), the tax-collecting body of the Philippines. 


If you are not looking to find yourself behind bars, not filing taxes or failing to pay on time is not going to help your case. In fact, failure to pay, or not filing despite earning an income is grounds for the BIR to penalize you. This may not only land you a few nights in jail but hefty penalty fees and interest arrears which may cost you much more than your original tax expense would.


The following are just a few of the penalties that you may incur for not being able to pay your taxes.

1. Interest payment of 12% or 20% for each year of basic tax

In this case, think of tax payment as a loan. Subjected to payment terms, the longer your payment terms, the longer you pay interest. For tax amounts unpaid before the TRAIN law, a 20% interest applies and a 12% interest is imposed on amounts of tax still not paid after TRAIN law and from the time it was due. This interest payment may be imposed under these certain circumstances:


– Deficiency interest: Interest is paid based on a deficiency in taxes. This deficiency is observed during tax examinations or BIR audits and interest will be assessed and collected depending on the amount unpaid and will be imposed from the date it is prescribed. Deficiency interest will continue to be applied until deficiencies are settled. Hence, it is vital to do the correct accounting and bookkeeping to prevent errors in computations of tax dues and avoid these deficiencies. 


– Interest on extended payment: This interest is imposed on those who fail to pay tax in instances where installment payments are allowed. This is applicable until the tax and interest payments are fully settled and paid for. So you must avoid further delay to lessen your burdens. 


– Delinquency interest: delinquency interest is what is charged in instances where the taxpayer fails to pay entirely. An example of this may be influencers, online sellers, or freelance workers who fail to register their business and fail their taxes. 


In summary, not being able to pay your taxes in full means that you will continuously pay a 20% interest rate from the day you are supposed to pay until you fully pay it. Failure to pay in five years means paying twice as much as you should have initially.

2. Surcharge of 25% or 50% of the basic tax

Surcharges are one-time penalties that apply for each instance. They do not compound.


The Tax Code of the Philippines states that penalties of 25% of the amount due will be imposed on individuals who:


– Fail to file and pay taxes in a timely manner

– File a return outside the RDO where they are registered

– Inability to pay deficiency payments and tax within the prescribed time

– Inability to pay the partial or full amount of tax that is stipulated on any tax return


Additionally, surcharges may reach 50% if:


– The taxpayer willfully neglects to file a return and pay taxes on time

– The taxpayer intentionally falsifies or commits fraud on any tax return files


3. Compromise Penalties


In addition to the additional payments and fees mentioned above, Tax violations are punishable by law and can be sanctioned by the revised penal code. However, since the Philippine justice system has its inefficiencies and may protract these cases, a compromise penalty may be filed. 


The Revenue Memorandum Order No. 7-2015 states that this penalty will be given at a range from 200 pesos to 50,000 pesos, depending on the amount of tax. The higher the amount of basic tax you fail to comply with, the higher is your penalty.


If you want to avoid these issues, make sure you’re tax compliant. For those who don’t feel confident about completing their returns or making computations, call us for guidance. Our team of CPAs can help with BIR problems and solutions for smooth sailing transactions.