Better pay than never (or advice to delinquent tax payers)

Q.Due to financial problems, our small company was unable to meet its tax deadlines. What are some of the things that we should take note of in availing of a payment scheme to make up for our delinquent payments?

A.Got a credit card? Ever tried paying late? Well, just in case you haven’t, you will normally see in your statement of account the amount for your actual purchases plus a finance charge or interest plus a late charge. Except for the reward points and free insurance, this is similar to late payment of taxes.

When you miss out on tax payments, you have to pay interest and other penalties in addition to the full amount of the basic tax due. Interest on your late tax payments will generally be imposed at the rate of 20% per annum of the tax due, computed from the date your company should have paid taxes until the time full payment is made.

Aside from interest, the tax authorities may, likewise, impose certain penalties for non-compliance with existing laws, rules and regulations. For instance, a civil penalty of 25% of the tax that should have been paid may be imposed when the company fails to file the required returns and pay the taxes due. For graver violations such as willful neglect to file the return or the willful filing of a false fraudulent return, a civil penalty of 50% of the tax due may be imposed.

Furthermore, where a violation constitutes a criminal offense, the Bureau of Internal Revenue generally prescribes a compromise penalty, the amount of which depends on the violation committed. It is a penalty to avoid criminal prosecution. The imposition of the compromise penalty against a taxpayer presupposes consent on the part of both parties, that is, the taxpayer agrees to pay the compromise penalty and the BIR agrees not to pursue the criminal action. In the absence of an agreement, the compromise penalty cannot be enforced but the criminal prosecution may prosper.

The adverse effect for the later payment of taxes may be summarized as follows: Basic tax + interest (20%) + civil penalty (25%/50%) +compromise penalty or criminal prosecution. These liabilities may be paid voluntarily or may be enforced by the BIR through various remedies such as the seizure of company property as well as the filing of civil and criminal cases in court.

Unlike your credit card balances, a taxpayer may compromise its tax liabilities by offering to pay at least 10% of the basic tax liability for reasons of financial incapacity or at least 40% of the basic tax liability if there is reasonable doubt on the taxpayer’s liability for taxes. Moreover, interest and penalties may also be abated under certain equitable circumstances.

In this regard, your financial problems may be a good ground to apply for a compromise. This , of course, is subject to BIR approval.

(Raymund S. Gallardo is tax partner of Laya Mananghaya & Co./KPMG. Questions and comments are welcome. Messages to the author can be sent by e-mail at [email protected]).