TOPIC: THE DIFFERENT KINDS OF PENALTIES UNDER THE NIRC AND WHEN ARE THEY IMPOSABLE.

EXECUTIVE SUMMARY INTRODUCTION Pursuant to the lifeblood theory, the Government, through the Bureau of Internal Revenue (BIR), is tasked to provide means which shall put both the State and the taxpayer in a win-win situation. Therefore, as the revenue increases, the services being rendered to the public increases as well, hence certain benefits redound to both. If taxes are the lifeblood of this nation, I now ask these questions: What if taxes are not paid? What if a taxpayer fails to file his return? What if the taxpayer fails to declare his correct taxes? What if the taxpayer is guilty of fraud? Or what if there is failure of remittance of a withholding agent? Does it mean that if a taxpayer is guilty of the above-mentioned acts, the Government has no other recourse against the taxpayer? Certainly not, the BIR, being the tax collecting arm of the Government, has been granted certain powers that enable them to enforce tax laws. Furthermore, it is an established principle that the Government, in order to ensure tax collection, may adopt and prescribe coercive measures, one of which is the imposition of penalties as additions to tax. This paper therefore aims to illustrate the penalties being referred to under the NIRC of 1997, particularly those penalties under Title X, section 247-282 and to substantiate the topic through eminent CTA Rulings since most of the recently disclosed cases are still appealed to the CTA from Municipal Trial Courts. UNDERSTANDING ADDITIONS TO TAX Generally, these penalties which are commonly referred to as additions to tax, mean that these are increments to the basic tax due from a taxpayer by reason of non-compliance with the legal requirements or violations of provisions found in the NIRC. Additions to tax are composed of the following: (1) Civil penalties known as surcharges, (2) Interest, either for deficiency tax or a delinquency as to payment; and (3) other civil penalties or administrative fines and (4) compromise penalties. These so- called additions to tax apply to all taxes, fees and charges, which mean that the amounts added to tax shall be collected at the same time, in the same manner and as part of the tax which is to be collected from the taxpayer (Sec.247, NIRC) We must therefore briefly understand how much are added to all basic tax due if and when a taxpayer does not comply with the requisites provided by law. On the first kind of addition to tax, the payment civil penalty or the surcharge is mandatory in nature and the Commissioner of Internal Revenue is not vested with any authority to dispense with imposition and collection thereof. The civil penalty or surcharge which may be imposed is either 25% or 50% depending on the tax offense committed by the taxpayer. Aside from the civil penalties, the BIR imposes interests as increments to any amount of unpaid taxes which is assessed at the rate of 20% per annum, or such higher rate as may be prescribed by the rules and regulations, whether it be a delinquency interest, deficiency interest or interest on extended payment, all of which must be collected from the date prescribed for payment until the amount is fully paid (sec. 249 [A], NIRC). The mandatory character of the civil penalties and interests being imposed by the BIR has been explained by the Supreme Court in the case of Philippine Refining Company vs. CA, The Supreme Court stated that the intention of the law is to discourage delay in the payment of taxes due of the Government and in this sense, the penalty and interest should not be considered as penal in nature but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them.

In addition to the civil penalties or surcharges and interests mentioned above, the BIR also imposes administrative penalties for particular tax offenses, such as the failure to file certain information returns, statements, list or any record required by the NIRC or requested by the Commissioner of Internal Revenue, which penalty shall be P1000 upon notice and demand by the Commissioner provided that the penalty shall not exceed P25,000. Moreover, In line with the payment of taxes and civil penalties, and administrative fines, the Tax Code also imposes penalties which include imprisonment to crimes defined under Title X of the NIRC. Section 253 of the Tax Code provides the general principles governing the crimes, other offenses and forfeitures provided in NIRC. It specifically provides that any person convicted of a crime penalized therein, in addition to being liable for the payment of the tax, shall be subject to the penalties imposed for the crime committed, and the payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of the Tax Code. TAX PRINCIPLES COUPLED WITH REALITY. In the Philippines today, the most eminent form of violation of the Tax Code is tax evasion. Most of the recent cases which are decided by the BIR, CTA, CA and SC are mostly with regard to tax evasion. Tax evasion has long been acknowledged as a key factor in the countrys poor revenue performance. There have been many forms of tax evasion, and a lot has been able to get away with payment of taxes, and this is the main factor why BIR promulgated programs to at least minimize evasion. The BIR has to enforce the duties entrusted to them and must enforce tax laws with strict implementation, especially the imposition of tax penalties. The BIR has been exercising its three key functionsassessment, collection, and enforcement, only with varying emphases and techniques to achieve its annual revenue targets. Depending on the policy and strategy adopted by its leadership, it has given priority to different approaches over the years, such as enhancing collection through voluntary compliance like registration, filing of returns, and payment of taxes, conducting assessment programs, or taking enforcement action whether civil or criminal, against a taxpayer. There are two types of tax evasion or fraud, civil or criminal, depending on the amount of evidence available to prove fraud. A case for criminal tax fraud results when all elements of fraud can be proven beyond reasonable doubt. Upon conviction, the respondent taxpayer is liable to both criminal sanctions, including imprisonment or fines and civil penalties in addition to deficiency taxes. On the other hand, a civil tax fraud case results when all elements of fraud cannot be proven beyond a reasonable doubt, but only by clear and convincing evidence amounting to more than a mere preponderance, and cannot be justified by mere speculation.89 In such a case, the respondent taxpayer is liable for deficiency taxes and civil penalties.90 There are several violations of the National Internal Revenue Code (NIRC) that are considered tax evasion, most of which are premised on two key penal provisions, section 254 (Attempt to Evade or Defeat Tax)91 and section 255 (Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation The above-mentioned offenses have become rampant through the years, hence the BIR enacted program which would tend to minimize or eradicate fraud cases piling up1 known as Run After the Tax Evaders Program, promulgated in 2005. At the RATE Programs inception, the following criteria were established for the development and filing of RATE cases: The case involves simple offenses, such as nonfiling of tax returns, substantial under declaration of income, or overstatement of deductions, the deficiency tax consequence of the case is at least P1 million in basic taxes, the case has a high impact on public perception and that the taxpayer is known in the sector or industry to which he or she belongs.
1

DOF. 2005. DOF and BIR File Tax Evasion and Estafa Complaints vs PT&T, Weaving Firm. News release. 31 March. http://www.iro.ph/downloads/pressrelease/03105-RATE%20PR.pdf

Most of the cases that are filed by the BIR against tax evaders have already been decided by the Municipal Trial Courts, and have been already appealed to the CTA for decision. There have been recent jurisprudence by the Supreme Court which would serve as a stern warning to taxpayers who would violate the requisites provided by the tax Code. Through these cases, it is illustrated that BIR is serious enough to enforce laws and penalties upon violators of the law. The prosecution of tax evasion cases by the BIR involves four major stages: detection of possible tax evasion, investigation and case development, preliminary investigation (and an appeal stage, if a motion for reconsideration or petition for review is filed), and prosecution. In a consolidated case known as the Kintanar case which was decided by the Court of Tax, in this case, the charges against the accused, Gloria Kintanar, were based on her alleged failure to make or file a return for two consecutive taxable years on her supposed taxable income. Under the NIRC, Section 255 of the Tax Code covers four different situations, each of which constitutes a failure to perform, in a timely manner, an obligation imposed under the Tax Code, namely: (1) to pay an estimated tax or taxes; (2) to make (file) a return; (3) to keep records, and (4) to supply correct and accurate information. The identical charges against the accused in the Kintanar Cases were based on her alleged failure to make or file a return for two consecutive taxable years on her supposed taxable income2. Thus, the court held that the accused utter lack of participation in preparing and filing her income tax returns is a clear indication of deliberate lack of concern on her part to learn how she is to perform her tax obligations under the Tax Code, thereby meeting the requirement of willfulness of the omission under Section 255. Hence, the Court found the accused guilty beyond reasonable doubt on both information filed against her. Gloria Kintanar was sentenced to suffer an indeterminate penalty of one year to two years and a fine in the amount of P10,000 for each charge, in addition to the payment of her basic income tax deficiencies with penalties, surcharges and interests. Moreover, in another CTA ruling, Parole and Probation Administration - NCR v. CIR3, Government entities who are obligated to withhold and remit taxes shall be liable for penalties and surcharges even though they are government entities. With these cases being provided, and more cases being filed in the DOJ, BIR and CTA with regard to failure to comply with requisites of the law. The BIR come up with more and more strategies as to how to run after these tax delinquents, although imposition of surcharges, interests upon deloinquent taxpayers may be burdensome, it is through imposition of fines and penalties which seeks to ensure that no one shall be prejudiced by non payment of taxes and non compliance with legal requirements under the NIRC. The enactment of the RATE program has become effective so far, based a recent disclodure made by Commissioner Cabantac, that with the aid of this program, in addition to the previously filed 26 cases at the DOJ, the RATE program filed four new RATE cases at the Justice department, including a P95-million tax evasion case against Quezon City-based Techpoint Computer Corporation, and a P126million case against Cebu Engineering and Development Company, Inc., all of which is expected to be liable for surcharges and interests in addition to the basic tax due from them, and in addition to criminal prosecution. However, even though the NIRC provides for all these penalties, the BIR and the Government is not barred to take other measures which would ensure tax collection, imposing penalties is only one form. These penalties serve as a reminder every taxpayer not to take lightly his tax obligations, particularly, to ensure compliance therewith, either personally or through an agent. After all, the Tax Code provides not only civil but also criminal sanctions, which are personal to the taxpayer upon which the legal obligation falls.

CTA Criminal Case No. 0-033 promulgated August 26, 2009 CTA Case No. 7153 dated July 2, 2008.