What are the Penalties for Tax Evasion?

August 22, 2020

What are the Penalties for Tax Evasion?

What are the penalties for tax evasion in the Philippines?

  1. 50% Surcharge
  2. 20% Annual Interest on Unpaid Tax
  3. Criminal Case and Imprisonment
  4. Temporary Closure of Business

Most, if not all transactions that you make in the Philippines will likely have some amount of tax imposed on them. This is even more so evident when you’re an earning employee, or an independent business owner. Ideally, paying our taxes allows the government to do its job of providing us with basic necessities, and a range of other benefits and services. However, there are many cases of people failing to pay their taxes, whether this be intentional or not. They may be subject to penalties for tax evasion depending on the severity of the situation. Keeping this in mind, you should be aware of these penalties in order to avoid run-ins with the law. Read on to learn more. 

50% Surcharge

A man looking at his surcharge

A surcharge is simply defined as an extra tax or fee that is imposed on top of an already-determined value. Unlike some of the other penalties that you may encounter on this list, the 50% surcharge is a one-time payment that is done on every occasion of non-compliance with the tax requirement. 

On a lesser degree, a 25% surcharge is also imposed to those who have failed to file their ITRs, or income tax returns on the usual deadline of April 15 in the Philippines. If you’re an employed citizen, then your HR department usually gets this done for you, provided that you have allowed them to secure information such as your TIN, or Tax Identification Number, for example. 

On the other hand, businesses who have issued an erroneous tax for a particular merchandise or service may also be liable to a 50% surcharge. The higher value is determined, depending on whether the act was found to have been deliberate or willful. 

20% Annual Interest on Unpaid Tax

Visual of annual interest on unpaid taxes

As the name suggests, a 20% annual interest is imposed when a tax has not been paid in full. According to the list of penalties for non-compliance in taxes, as set by the Bureau of Internal Revenue, this 20% interest takes effect “from the date prescribed for payment until the amount is fully paid.” 

Let’s say for example that you fail to pay and manage your taxes for two years. Whether this be caused by sheer negligence or of something more deliberate, you’ll still be imposed a 20% for every year that you have failed to pay it. This amounts to a total of 40% interest, taking consideration of the two years of failure to pay.

Criminal Case and Imprisonment

Judge hammer in the court room

When the BIR has found you to be consistently evading your taxes, then don’t expect nothing less than finding yourself being the subject of a criminal case. This government authority can actually file a civil case against you, before a court which has jurisdiction over such cases.

When you’ve been found guilty, then you may be imprisoned for up to 10 years in jail, depending on your case. As said before, there are many ways for you to avoid paying taxes. Even something as simple as failing to supplant the correct and accurate information, or even failing to remit your taxes may be grounds for imprisonment. On top of this, you’ll also be obligated to pay an amount of not less than Php 10,000 — once again, depending on the findings of the BIR. 

Temporary Closure of Business

Closed sign on the door of a business

Under the government-imposed Oplan Kandado, your business, if it has been found to commit several tax-evading crimes, will be subject to a temporary closure until such time it has been determined that you may resume operations again. 

If you have a high-profile business, then you’ll easily be the subject of public scrutiny when it comes to tax evasion. Even if your business may reopen in the future, you may find it difficult to get back up and attract investors. 

You can totally eliminate this situation from taking place by — and this cannot be stressed enough — responsibly filing taxes and complying with every requirement or document that is asked from you by the law. Always make it a point to issue accurate receipts to your clients and make sure that your business is properly registered.

Key Takeaway

Just some of the penalties for tax evasion that you should be aware of include the following: criminal case and imprisonment, 20% annual interest, 50% surcharge, and temporary closure of business. When it comes to taxes, meticulousness is required — it’s all about being a responsible taxpayer and understanding your duties as a citizen being subject to the laws in the country.

Whether you’re finding new employment or planning to set up a new business, the best piece of advice when it comes to paying your taxes is to always secure all the necessary tax-related requirements beforehand. Whatever illegal tax loopholes that you may find, it’s just simply not worth a trip to the jail cell.