Every business owner or manager would know that taxes are a necessary expense. Thus, minimizing taxes you pay quarterly and annually is one thing many business owners and managers seek to do in order to maximize their income and mitigate their expenses. While there are legal means to do just that, also called tax avoidance, evading taxes intentionally is a crime punishable by law.
The difference is tax avoidance seeks to use lawful means like taking advantage of legal loopholes, claiming all tax deductibles, or lessening tax payable by making donations and logging all expenses in your accounting books. Tax evasion, on the other hand, is unlawful. It includes not paying your taxes or making fraudulent claims, like understating revenues or income and overstating expenses with the purpose of cheating the government and paying less taxes.
Though tax evasion may lead to paying less taxes or maybe even paying none at all, doing so is legally punishable. This means that if you are caught engaging in tax evasion, including honest computation mistakes, you could find yourself paying hefty penalties, serving time in jail, or dealing with business closure. The following are the consequences of evading taxes in detail:
1. Surcharges of 25% or 50% of the Tax Amount Due
This form of penalty is a one-time fee for each instance of tax non-payment. The Philippine Tax Code imposes payment of 25% of the tax due to those who fail to file and pay their taxes due on time, meaning within the April 15 deadline, or who file and pay at the wrong Revenue District Office (RDO).
Thus, it’s always good practice to stay on top of your accounting and bookkeeping to make sure you don’t miss the deadlines. Moreover, a surcharge of 50% of the tax due is imposed in instances where there is a deliberate failure to file tax returns or tax returns are intentionally falsified.
2. Imprisonment and Exorbitant Fine
Under certain conditions, tax evaders are penalized with a fine of not less than 500,000 pesos and not exceeding 10 million pesos if proven guilty. Offenders who falsify documents and own millions to the BIR could also face imprisonment of no less than six years but not exceeding ten years.
These grounds for imprisonment and these fines are for printing the following:
– Double or multiple sets of invoices and/or receipts
– Receipts, sales, or commercial invoices without BIR authorization
– Receipts and invoices without business names, numbers, and other requisite identifying information of the business
Giving these illegal documents are a sign of bad faith. So be sure to register your business correctly with the BIR, issue official receipts and proper invoices to avoid any problems in the future. Seek help from a reputable accounting firm who offers business registration services.
3. Annual Interest amounting to 20% of Unpaid Taxes
For taxes not paid in full, a penalty with a 20% interest per year on the unpaid tax amount will be required. For example, you do not pay your taxes in full for five years. You will end up paying more than twice as much as the original tax amount due to the 20% interest on unpaid tax plus the unpaid tax that still needs to be paid off. Thus, it’s better to just pay the correct taxes on time to prevent wasting more money on interest arrears.
4. Penalties of 1/10 of 1% of the Annual net Income or P 10,000 whichever is higher
Failure to transmit sales data warrants a penalty or 1/10 of 1% of annual net income is imposed, or a 10,000 peso penalty, whichever is higher. This penalty is not applicable if the failure to report sales is due to force majeure or other unforeseeable events.
5. Compromise penalties amounting up to P 50,000
In some instances, the BIR would rather impose a compromise penalty instead of filing criminal charges for failure to pay taxes. Compromised penalties for unsettling tax payments range from 200 pesos, not exceeding 50,000 pesos, depending on how much tax is unpaid.
6. Business Closure
The BIR also ensures it collects from businesses. That said, tax-delinquent businesses can be chased down by the BIR with their Oplan Kandado Program. The BIR has the authority to shut down or suspend business operations until taxes are paid.
The following are grounds for temporary business closure:
– Failure to file a value-added tax (VAT) return
– Failure to issue receipts or invoices
– Failure to register the said business with the BIR
– Under-declaring taxable revenue by 30% or more
Avoid these consequences by seeking expert help from a trustworthy accounting firm. Our team can help you prepare the correct documents and file proper tax dues on time, so you can avoid having issues with the BIR, which are not only expensive but stressful.
