P&A's Let's Talk Tax column appears in The Economy section of BusinessWorld every
Tuesday.
Please find below the September 18, 2007 article on “Compromise penalties”. For comments
and inquiries, please e-mail the author at Marietta.B.Saludaga@pna.ph or call 886-5511.
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LET’S TALK TAX
MARIETTA B. SALUDAGA
Compromise penalties
The Bureau of Internal Revenue (BIR) has been continuously introducing new measures or
improving those in place in its attempt to reduce if not eradicate tax evasion. One of the
more recent measures issued to realize this objective and ensure uniform application of the
penalties is Revenue Memorandum Order (RMO) No. 19-2007 which implements changes
on compromise penalties that a taxpayer may pay in cases of criminal violations under the
National Internal Revenue Code (NIRC).
But what is compromise penalty and why is it imposed?
Compromise penalty is a certain amount of money which the taxpayer pays to compromise a
tax violation. This is paid in lieu of criminal prosecution.
However, it must be emphasized that the essence of compromise penalty is mutuality and its
unilateral imposition is without legal basis. As such, compromise penalties cannot be
imposed or collected without the agreement and conformity of the taxpayer. In the event
that a taxpayer refuses to pay the suggested compromise penalty, a criminal action may be
filed against him for tax violation. This is clear from the provisions of the said RMO. Thus,
to expedite the settlement of tax violations and for peace of mind, taxpayers normally agree
to pay the suggested compromise penalties especially in assessment cases.
Some of the violations which can now be subject of compromise penalty under RMO 192007 are:
• failure to register with the BIR;
• failure to pay and display the annual registration fee;
• no certificate of registration displayed, failure to display the poster “ Ask for BIR
Receipt” or “Notice to the Public to demand receipts/invoice”;
• failure to attach or paste authorized sticker/DECAL authorizing the use of
CRM/POS/CAS;
•
•
failure to present application form (BIR Form 1900 and 1905) to use registered sales
books/permit to use loose leaf sales books; and
failure to refund excess taxes withheld on compensation.
These violations were previously not in the list of violations that can be compromised under
the old schedule of compromise penalties.
Interestingly, the failure to obey summons; to testify; or to appear and produce books of
accounts, records, etc. or to furnish information required under the NIRC is likewise now
allowed to be compromised up to the second offense. Previously, this violation is not allowed
to be compromised. Under the revised rules, the violator is required to pay as compromise
penalty an amount of P10,000 for the first offense and P 20,000 for second offense.
The inclusion of this violation in RMO 19-2007 may provide positive relief to those
taxpayers who failed to produce their accounting records during tax investigation, have
received subpoena duces tecum for presentation of documents and are in danger of being
criminally prosecuted. It is not clear, however, up to what stage a compromise penalty be
allowed for this violation to avoid criminal prosecution. Should it be allowed before the
filing of the complaint with the prosecutor’s office or even after such filing? What is clear
though is that the agreement of the taxpayer to pay the suggested compromise penalty may
not liberate him from complying with the summons.
On other violations which were already subject of compromise penalty, the change is only
on the amount of compromise which has increased significantly from the original rates.
Among the revised rates is the compromise penalty in case of failure to file and/or pay any
internal revenue tax at the required time if the unpaid tax exceeds P5 Million, it increased
from P25,000 to P50,000. In certain instances, specific amounts are now provided where
previously, the same may be compromised only at the discretion of the Commissioner and on a case
to case basis.
Although the tax authorities has prescribed a schedule of compromise penalties for different
violations of NIRC, these are merely suggested amounts in lieu of criminal prosecution that
may not be imposed upon the taxpayer without his consent. Accordingly, a taxpayer may
offer a compromise penalty lower than the prescribed amount but which may only be
accepted under the said RMO upon approval by the Commissioner of Internal Revenue or
his duly authorized representative. In the same way, such schedule of compromise penalties
shall not prevent these BIR officers from accepting a compromise amount higher than what
is prescribed.
With the expansion on the coverage of compromise penalty, taxpayer has more room to
settle right away the criminal liability for tax violations. Though payment of the compromise
penalty involves cash outlay, availment of this facility should be encouraged among
taxpayers. Any program which provides relief on the taxpayer’s burden should be seriously
considered.
(The author is a senior tax manager at Punongbayan & Araullo, member of Grant Thornton
International. For comments and inquiries, please e-mail the author at Marietta.B.Saludaga@pna.ph or
call 886-5511.)