Bookkeeper with Reasonable Service/Retainer's Fee?

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Philippines Taxes for Businesses

The Philippine government imposes income tax, VAT (value added tax), estate and donor's tax, excise taxes, documentary stamp tax, and percentage taxes in the Philippines. Local governments impose local business taxes and real property taxes as well.

Foreign and local businesses in the Philippines that qualify and are registered for tax incentives can avail of income tax holidays and this may be followed by a special tax rate of 5% in lieu of any and all taxes if the business is located in a Philippine Special Economic Zone (PEZA).

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Tax Compliance 101

In starting a business, it is important to know what and how to comply with several government requirements. Registration of a company is just a start. Certainly, everyone wants to comply to avoid any future disputes and penalties specifically with the Bureau of Internal Revenue (BIR). Here is the list of the things that you may consider before starting with your business operations and during actual operations to be compliant with the requirements of the BIR:

1. Register your business establishment and all branch offices and facilities.

2. Register your books of accounts.

3. Request for permits from the BIR such as Authority to print/issue receipts and invoices, Permit to use cash register and POS machines and Permit to use loose-leaf books of accounts or computerized accounting system.

4. Pay annual registration fee of P500 for every separate or distinct establishment or place of business on or before January 31.

5. Display the BIR Certificate of Registration, the Registration Fee for the current year and the “Notice to the Public/Ask for Receipt” orange signage in a conspicuous area within your office premises.

6. Issue registered invoices and receipts for sale of goods and services as required.

7. Register and maintain books of accounts in the business premises at all times.

8. Preserve all books of accounts for tax examination by the BIR within 3 years.

9. Withhold taxes as required by law and remit the correct taxes withheld.

10. File the necessary tax returns and pay the corresponding correct taxes at the times required by law.

If you have complicated tax issues, you may want to ask for assistance such as tax compliances, tax review, tax study and tax planning to help you comply with the requirements of the tax authority.

By: Atty. Marissa Yambao CPA

From: Tax Compliance 101 | Tripleiconsulting

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Of Withholding Taxes and Penalties
by: Lina P. Figueroa

People are generally averse to paying penalties. Aside from the additional financial burden, many people are reluctant to admit that they are guilty of non-compliance for a number of reasons. In many cases, the offender feels that the rule or requirement is, in the first place, unfair or oppressive. There are also instances when the rule or the requirement is really difficult to comply with. This observation is also true in the case of taxes.

A penalty is a punishment imposed or incurred for a violation of law or rule, or for nonfulfillment of some obligations. Such penalty is usually fixed by law or agreements and is imposed for several reasons: to discourage violations of the law through a threat of punishment; to punish the offender; or, in certain cases, to compensate for the damage done to the offended party.

In the case of taxes, a penalty is charged in place of an interest, or the forebearance of money, that is charged when money owned by one person is lent to another. Hence, a penalty is the interest charged to a taxpayer because of his failure to pay his taxes on time.

However, we often hear taxpayers question the justification for the penalties. From my own experience with taxpayers, this question is most frequently raised in the case of withholding taxes.

Indeed, in the case of withholding taxes, penalties for non-compliance are stiff. In the first place, the withholding of tax is a prerequisite to the deductibility of expense or asset acquisition. Therefore, the tax that was not withheld or remitted has to be paid. In addition to the payment of the tax that was not withheld or remitted to the Bureau of Internal Revenue (BIR), there is an interest of 20 percent per year and, in certain cases, a surcharge ranging from 25 percent to 50 percent of the basic tax due. There is also a compromise penalty ranging from P200 to P25,000 if unpaid tax exceeds P1 million, graduated based on the amount not withheld or remitted. Actually, payment of the compromise penalty is not mandatory – the taxpayer does not always need to pay it. However, this is paid as a compromise so that the BIR will not file a criminal charge in court for the taxpayer’s violation. While the BIR will not file a criminal case for all offenses, it is generally advisable to pay the compromise penalty to be on the safe side.

Hence, taxpayers should not be surprised to find their deficiency taxes almost doubled or more when assessed because of the interest and the penalties. If the taxpayer is unable to settle his deficiencies administratively, the BIR may file a criminal case in court. If found guilty of failure to withhold or remit the tax, there is a possibility of imprisonment from one to ten years and an additional fine of P10,000. The penalties are higher in case the failure is alleged to be willful. The offense will be deemed an attempt to evade or defeat the tax. In this case, imprisonment will be longer at two to four years and the fine is higher at P30,000 to P100,000. Compromise at the administrative level is only on a case to case basis subject to approval of the Commissioner of Internal Revenue.

Withholding agents often lament that they are just helping the government to collect the taxes from other taxpayers. It is really the government’s duty to collect such taxes. However, this is costing them effort, time and resources while they don’t even get rewarded for this. Instead, they get penalized when they fail to fullfill 100% of their withholding obligations even in cases where the rules are not clear or where withholding is far from possible and beyond the withholding agent’s control. I’ve heard taxpayers note that this is in complete contrast to policies that incentivize or even reward the private sector when they help or when they perform certain functions that are supposedly part of the government’s duties.

In the case of withholding taxes, the tax that was not withheld is still collected from the withholding agent even if, in all probability, such tax has already been paid by the income recipient when he reported that corresponding income in his quarterly or annual tax, in the case of the income tax. This policy was mirrored in Section 2.58.5 of the withholding tax regulations (Revenue Regulations No. 2-98, as amended) where it was provided that the salaries expense will only be allowed as deduction if the employer/withholding agent pays the tax, including interest and surcharge, even if the employee/payee already reported the compensation income and paid the tax due thereon. Along the same vein, interest is computed from the due date of withholding to the date when the deficiency withholding is paid. This is regardless of any probability that the subject income payment was properly reported by the income recipient and the tax correctly paid. Along that line of reasoning, interest should only be computed up to the time the return that will capture said income in the hands of the income recipient is due.

Perhaps paying the tax not withheld would feel less repulsive for taxpayers if they look at it as a penalty and not as a double payment of taxes to government. This was how one BIR official we invited in one of our seminars explained these penalties. The official explained that in the case of withholding taxes, when the BIR, during assessments, collects the basic tax, it is not really the tax that it is charging but a penalty for the violation commited which is pegged at an amount equivalent to the tax not withheld. The interest just covers the time value of the money.

Taxpayers may also take consolation in the fact that the government may allow penalties to be waived in certain cases – among them, when the assessment is brought about or the result of taxpayer's non-compliance with the law due to a difficult interpretation of said law or for late payment under meritorious circumstances.

From: Punongbayan & Araullo - Of withholding taxes and penalties

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100 tax evasion cases by: Olivier D. Aznar

You may have read in news reports that as of June 2012, since the start of the Aquino administration, the Bureau of Internal Revenue (BIR) has filed with the Department of Justice (DoJ) a total of more than 100 tax evasion cases worth almost P40 billion. A number of these cases have already been prosecuted by the DoJ at the Court of Tax Appeals (CTA) and some have already been decided.

It appears that the BIR is trying to send a strong message to the public: that the government will consider all available courses of action to take what it believes has been unlawfully withheld from it by taxpayers. Indeed, the filing of more than 100 tax evasion cases with the Justice Department is not trivial.

A tax evasion case is not a plain tax collection suit against the taxpayers. It is a case, criminal in nature, against a taxpayer who pays a reduced amount of tax or no tax at all through fraudulent means. In a tax evasion case, the state of mind of the taxpayer is being tagged by the BIR as "evil", or in "bad faith", or "willful".

Thus, once the case is prosecuted at the CTA, it requires proof beyond reasonable doubt before the CTA convicts the taxpayer to pay a fine and to serve jail time.

So, who goes to jail?

In the case of issues on individual tax returns, the individual himself will be locked up once found guilty.

In one CTA case in 2011, a doctor was found to be at fault beyond reasonable doubt for substantially under-declaring his income, and was sentenced to one year to two years of imprisonment plus fine.

In another CTA case, a business agent was sentenced to jail due to what the CTA termed as "willful blindness" on obligation to file income tax returns.

On the other hand, for corporate tax returns, the BIR targets the authorized officers of the corporation for incarceration.

Just recently, the BIR filed a criminal complaint with the Justice Department against the president and treasurer of a corporation-supermarket for willful attempt to evade or defeat tax, willful failure to file income tax return and to pay tax thereon, and deliberate failure to supply correct and accurate information in its value-added tax return, in violation of Sections 254 and 255 of the 1997 Tax Code, as amended.

In another case, the BIR is pursuing criminal charges against the president and treasurer of a corporation engaged in the business of emission testing for the alleged substantial under declaration of sales of their corporation. Thus, in these examples, the president and treasurer of the corporation, once convicted, would be confined in jail.

Hence, in a tax evasion case, the probability of jail time cannot be disregarded.

The predicament on the part of the taxpayers, however, is on how the BIR determines whether there is indeed a case for tax evasion. Remember that in a tax evasion case, the mind of the taxpayer must be evil or fraudulent.

If there is an error but there is no intention to defraud the government, then there should be no tax evasion case.

The problem is that the BIR obviously cannot read the minds of the taxpayers, and thus, the tax case just depends on the circumstances that are visible to the eyes of the BIR examiners, which could be affected by the magnitude of the alleged tax deficiency or inputs from third party information.

Then, what should a taxpayer do?

First, acquire sufficient tax knowledge. Remember that in the Philippines, we have the general rule that "ignorance of the law excuses no one". So, try to read the relevant provisions of the Tax Code, be aware of the specific tax rules and regulations, attend tax seminars, and regularly coordinate with tax consultants.

Then, apply the tax knowledge to actual practice. For individuals, be sure to thoroughly review the tax returns before filing. For corporations, hire competent tax personnel, have a regular tax compliance review on corporate tax practices -- on its own or through a tax adviser, and have an effective review process before tax returns are filed with the BIR. The above actions are just the basic ones that taxpayers may consider. These are preventive measures to avoid possible disputes with the BIR. Note that the BIR’s sources of information are too wide to prosecute and to convict a taxpayer; but there is nothing to be anxious about if the taxpayer knows that he/it is in fact compliant with the tax rules. The number of tax evasion cases is rapidly increasing. Definitely, taxpayers are hoping that these are not being pursued by the BIR as a means to harass them, and that these are the result of an intelligent, thorough, and valid tax assessment.

More than 100 tax evasion cases have been filed with the DoJ since the start of the Aquino administration; and certainly, no taxpayer would want to add to that count.

Punongbayan & Araullo - 100 tax evasion cases

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