Penalty for Non-compliance with the BIR

A lot of people keep on asking how much the penalty is for not being able to adhere to the rules and regulations set by the Bureau of Internal Revenue (BIR).

One simple answer to this question is,

We don’t know. It depends.

Seriously.

The BIR makes these assessments and computations. These rates are not published, and even if they are, the respective Revenue District Offices (RDOs) do not follow them. In this Schedule of Compromise Penalties found at the BIR website, they list all the penalties involved. The “violation” and the corresponding amount.

Some penalties became the “standard” only because that is what the BIR keeps on imposing. One good example is this scenario that a lot of startups encounter:

Company was incorporated June 2013. The whole process was finished within the month as well. They did not make any sale only until October 2013. That is when the company started filing tax returns. For technical purposes, the taxes that are applicable to the company are Income Tax, Withholding Tax on Compensation, Withholding Tax (Expanded) and Value-Added Tax (VAT).

Now, before reading the next couple of paragraphs, stop and think for a while. Do you think there is something wrong in this situation?

Most startup companies go through this situation or something relatively similar. They do not worry about taxes and other administrative functions because they are too busy growing the company. Now, there is nothing wrong with that. Personally, if I am in that situation, I will probably focus on clients, vendors and partnerships first and place the least priority on administrative functions.

So, going back to the example above, the company only started filing for the month of October, so that is on November 10 and 20 (for withholding tax and VAT, respectively). Going by my unofficial count, there are already 14 open cases of the company with the BIR. That means, even if there are “no operations” the company failed to file tax returns. A single missed tax return, by practice, is already a whopping one thousand pesos (PhP 1,000).

Now, what do we do with this information? Share it! Let your friends and colleagues know this information. That way, we all avoid being penalized for something we “do not know.”

 

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