The Adverse Consequences of Evading Taxes in the Ph
As a business owner, you have other responsibilities apart from running your business. You have to be responsible for your tax dues because this is your social obligation for the betterment of the country. After all, the government funds projects and programs with your tax dues. Admittedly, it’s tempting to disregard filing and paying your taxes since it is not easy to part away with the money you worked so hard for.
You might also be unsure of whether the government will make good use of the taxes you pay. However, you must remember that though filing and paying your taxes here in the Philippines is stressful and daunting, it is nothing compared to the problems you will encounter when you don’t pay you’re the correct taxes.
Avoid the adverse repercussions of tax evasion at all costs because these will reduce your profits. These are penalties you would not want to deal with. According to tax services in Manila, as a taxpayer, you need to be aware of the consequences because this will hurt your finances and your reputation. And with knowledge comes power because you can learn to avoid these common tax issues.
Remember, when you get convicted for evading taxes, you would be spending more money than you would if you took your tax obligations seriously. It’s even cheaper to ask for help from accounting services in the Philippines than pay interest arrears. Here are some of the consequences you will encounter when you disregard your responsibility as a taxpayer.
1. Imprisonment and Heavy Fines
If you are proven guilty of evading tax, you will have to pay a fine worth less than 500,000 PHP but not more than 10 million PHP. You could also get imprisoned for more than 10 years but less than six years if you attempt to defeat or evade tax.
The grounds for this penalty are the following:
- Sales, receipts, or commercial invoices without BIR’s authority
- Having Multiple Sets or Double invoices and receipts
- Having receipts and invoices with no business names, numbers, and other business-identifying information
2. Temporary Closure of Business
Your business could be suspended or shut down until the payment of the taxes dues and corresponding penalties are settled. The BIR conducts this under its program called ‘Oplan Kandado’ which runs after businesses that don’t pay the right taxes.
The grounds for this penalty are the following:
- Failed in issuing invoices or receipts
- Failed in filing a value-added tax return (VAT)
- Purposely under-declaring taxable sales by 30% or more
- Failed to register the business with the BIR
3. 20% Annual Interest on Unpaid Taxes
If you are unable to fully pay your taxes, your remaining unpaid taxes will come with an annual interest of 20% until the full amount due is totally paid. For example, If you fail to pay your tax in full for 5 years, you will have to pay twice as much as the original tax amount. Delaying payments will compound your tax dues.
4. 25% or 50% Surcharge of the Tax Due
If you fail to file and pay your tax due, the Tax Code will impose a 25% penalty on you. This penalty also applies if you fail to file your ITR with the wrong RDO. If you deliberately failed to file your tax returns and if you falsified your tax returns, you will be penalized a surcharge of 50%.
5. 1/10 of 1% of Annual Net Income Penalty
If you fail to transmit your sales data, a 1/10 of 1% of your annual net income penalty will be imposed. According to tax and audit services in the Philippines, it will be based on your annual net income and can be seen in your audited financial statements for the second year just before the taxable year. Do take note that this penalty will not be applied if the failure to pay the report sales is because of uncontrollable and unpredictable events.
6. Compromise Penalties Ranging from ₱200 to ₱50,000
Sometimes, BIR will not file a criminal charge or tax evasion case against you. Instead, they will impose a compromise penalty fee for the amount of unpaid taxes that you have. The penalty fee will depend on how much unpaid taxes you have incurred. It would usually range from ₱200 to ₱50,000. The higher unpaid taxes you have, the higher the compromise penalty fee you have to pay.
If you fail to pay your tax, you will have to face the consequence. You could either be subject to audits, hefty fines, or even get imprisoned. Be a responsible taxpayer. Ensure that your taxes are up-to-date so you will not fall behind on your taxes.If you need assistance with tax compliance, call our accounting services in Pasig, Metro Manila. We have a free 30-minute consultation to help you sort out your books, so you can be on your way to proper tax filing and compliance.
FAQs
Imprisonment and Heavy Fines
What is the penalty for tax avoidance in the Philippines? ›
If proven guilty of tax evasion, fines can range from Php 500,000 to Php 10,000,000. On top of that, you can also be imprisoned for no less than six (6) years but no more than ten (10) years. Grounds for fines and imprisonment are as follows. Issuing receipts and invoices not accredited by the BIR.
What are the consequences for not paying taxes? ›
The failure to pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won't exceed 25% of your unpaid taxes.
Why is tax evasion harmful? ›
People who evade taxes are not just cheating the government, they are also stealing from their neighbors who are following tax laws and regulations.
How does the government know if you don't pay taxes? ›
In order to convict you of a tax crime, the IRS does not have to prove the exact amount you owe. But such charges most often come after the agency conducts an audit of your income and financial situation. Sometimes they're filed after a tax collector detects evasion or fraud.
Can you go to jail for tax evasion in Philippines? ›
In cases where there is an attempt to evade tax, you can get imprisoned for not less than six (6) years but not more than ten (10) years. The following are the grounds for fines and imprisonment: Issuing receipts, sales, commercial invoices (even without the BIR authority)
What happens if you don t file taxes for 5 years in Philippines? ›
3. 20% Annual Interest on Unpaid Taxes. If you are unable to fully pay your taxes, your remaining unpaid taxes will come with an annual interest of 20% until the full amount due is totally paid. For example, If you fail to pay your tax in full for 5 years, you will have to pay twice as much as the original tax amount.
How many years can you go without filing taxes? ›
Additionally, you have to consider the state you live in. For example, if you live in California, they have a legal right to collect state taxes up to 20 years after the date of the assessment!
What happens if you don't pay taxes for 3 years? ›
You risk losing your refund if you don't file your return. If you are due a refund for withholding or estimated taxes, you must file your return to claim it within 3 years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.
Can you get in trouble for not filing taxes? ›
We calculate the Failure to File penalty in this way: The Failure to File penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won't exceed 25% of your unpaid taxes.
Moral of the Story: The IRS Saves Criminal Prosecution for Exceptional Cases. While the IRS does not pursue criminal tax evasion cases for many people, the penalty for those who are caught is harsh. They must repay the taxes with an expensive fraud penalty and possibly face jail time of up to five years.
What is the most common tax evasion? ›
[a] Evasion of assessment. The most common attempt to evade or defeat a tax is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is not entitled.
What is the harshest penalty for tax evasion? ›
What is the longest sentence for tax evasion? The maximum sentence for tax evasion is five years. It is provided in section 7201 of the US Internal Revenue Code. You may also be liable to pay financial penalties in addition to serving time.
Can IRS see your bank account? ›
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
How does the IRS catch tax evaders? ›
Various investigative techniques are used to obtain evidence, including interviews of third party witnesses, conducting surveillance, executing search warrants, forensically examining evidence, subpoenaing bank records, and reviewing financial data.
What happens if you don't file taxes for 5 years? ›
If you don't file taxes for five years, you will forfeit all refunds that are more than three years old. You also put yourself at risk of the IRS assessing interest and penalties against you. Don't get stressed out and give up, however — it is possible to get caught up.
Can you get in trouble for tax avoidance? ›
Tax avoidance is not a criminal or civil violation of the U.S. tax code. Additionally, making an honest mistake on your tax return will not land you in prison.
What is the difference between tax evasion and tax avoidance in the Philippines? ›
Legality: Tax evasion is illegal and involves deliberate misrepresentation to deceive tax authorities, while tax avoidance operates within the legal frameworks, using permissible methods to reduce tax liability.
What is the penalty for failure to file income tax returns in the Philippines? ›
Penalties
| TAX CODE SEC | NATURE OF VIOLATION | CRIMINAL PENALTY IMPOSED |
|---|
| 255 | Failure to make/file/submit any return or supply correct information at the time or times required by law or regulation | Fine of not less than P10,000 and imprisonment of not less than one (1) year but not more than ten (10) years |
8 more rowsUnder article 253(d) of the National Internal Revenue Code (NIRC), when an association, partnership or corporation commits an act or omission that violates the Tax Code, the penalty "shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible ...
