Why are penalties imposed by the BIR?

At present, doing business is a bit an inch of perfection, if not a mastery of craft, in order to maximize the use of its finances for success. Many promising undertakings could be made on the funds wasted on penalties. Sometimes, no matter how and what measures are employed not to overlook some reportorial requirements, that they simply occurs unnoticed. This may prove that, sometimes, simple errors are big headaches in business. The question is why these penalties have to be imposed, even on honest mistakes and simple inadvertence?

Taxes are the lifeblood of the government, without which, it cannot subsist. This dictates that taxes owing to the government shall come in due time and in exact amounts so as not to cause any untoward delay and interruption in its performance of its duties and responsibilities to the citizenry. Impliedly, excuses in the delay of payment, no matter how reasonable, may not defeat the need for the government to exist. Thus, to be fair to the BIR and the government, it maybe a good start to know the rationale on the imposition of these penalties– 25%/50% surcharge, 20% interest, and compromise penalties.

Surcharge is a one-time imposition upon failure to pay the tax due in full in due time. The rate 25%, in general, except if fraudulent in character where 50% is used. It is intended to hasten tax payments or to punish evasion or neglect of duty in respect thereof.

On the other hand, the imposition of 20% interest annually from the time a basic tax due is bound to be paid until such time that it becomes fully paid, is but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands. The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory for the time value of money in the government’s hands.

Finally, compromise penalty is imposed in lieu of prosecution in court. Instead of taxpayer being sued in court for the particular violation, the taxpayer and the BIR will simply agree upon the payment of compromise in order to do away with the time, effort and money that the litigation process may take.

Suggested readings:

a. Jamora vs. Meer, 74 Phil. 22
b. Castro vs. Collector of Internal Revenue, G.R. L-12174. Dec. 28, 1962
c. Aguinaldo VS. CIR, G.R. No. L-29790. February 25, 1982

"Taxes affect lives, care for taxes and save lives"

Posted in: BIR penalties,compromise,interest,surcharge