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TAXATION

FAR EASTERN UNIVERSITY – MANILA


ADDITIONS TO TAX (2601)

1. Definition of Terms

Delinquency is the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice
or letter of demand.

Deficiency is the amount still due and collectible from a taxpayer upon audit or investigation.

Surcharge is a civil penalty imposed by law as addition to the main tax required to be paid.

There is willful neglect if the taxpayer knowingly delays the filing of the tax return.

There shall constitute prima facie evidence of a false or fraudulent return


1. Substantial under declaration of taxable sales, receipts or income (eg failure to report sales, receipts or income in an amount
exceeding 30% of that declared per return).
2. Substantial overstatement of deductions (eg a claim of deduction in an amount exceeding 30% of actual deductions).
3. Recurrence of understatement of income or overstatement of deductions for more than one taxable year.

2. Additions to Tax

a. Civil Penalties or surcharges

1. Twenty five percent (25%) surcharge - There shall be imposed, in addition to the basic tax required to be paid, a penalty
equivalent to twenty-five percent (25%) thereof, in any of the following cases:
a. Failure to file any return and pay the tax due thereon as required under the provisions of the Tax Code or rules and
regulations on the date prescribed or
b. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with
whom the return is required to be filed
c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment
d. Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the
Tax Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the
date prescribed for its payment

2. Fifty percent (50%) surcharge


a. In case of willful neglect to file the return within the period prescribed by the code or
b. In case a false or fraudulent return is willfully made

Note: In case the taxpayer, without notice from the Commissioner or his duly authorized representative, voluntarily files a return, only 25%
surcharge shall be imposed for late filing and late payment of the tax in lieu of the 50% surcharge

c. In case a person who is not VAT registered issues an invoice or receipt showing his TIN, followed by the word “VAT”
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b. Interest

1. General – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of double the legal
interest rate per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.

2. Deficiency interest – Any deficiency in the tax due, as the term is defined in the Tax Code, shall be subject to the double
the legal interest rate per annum, or such higher rate as may be prescribed by rules and regulations, which interest shall be
assessed and collected from the date prescribed for its payment until the full payment thereof.

3. Delinquency interest – In case of failure to pay:


a. The amount of the tax due on any return required to be filed or
b. The amount of the tax for which no return is required or
c. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the
Commissioner, there shall be assessed and collected on the unpaid amount, interest at double the legal interest rate per
annum, or such higher rate as may be prescribed by rules and regulations until the amount is fully paid.

4. Interest on extended payment – if any person required to pay the tax is qualified and elects to pay the tax in installments
under the provisions of the tax code, but fails to pay the tax or any installment hereof, or any part of such amount or
installment on or before the date prescribed for its payments or where the Commissioner has authorized an
extension of time within which to pay a tax or deficiency tax or any part thereof, there shall be assessed and collected
interest at double the legal interest rate per annum, or such higher rate as may be prescribed by rules and regulations on
the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid

C. Compromise Penalty

1. The extrajudicial settlement of the taxpayer’s criminal liability and the amount of the suggested compromise penalty shall
conform with the schedule of compromise penalties provided under Revenue Memorandum Order No. 1-90 or has hereafter
been revised
2. In general, the taxpayer’s criminal liability arising from his violation of the pertinent provision of the Code may be settled
extra-judicially instead of BIR instituting against the taxpayer a criminal action in court
3. A compromise in extrajudicial settlement of the taxpayer’s criminal liability for his violation is consensual in character,
hence, may not be imposed on the taxpayer without his consent
4. The BIR may only suggest settlement of the taxpayer’s liability through a compromise

D. Format of Computation (With Additions to Tax)


Tax payable Pxxx
Add: Surcharge xxx
Interest xxx
Compromise penalty xxx xxx
Total amount payable Pxxx

PROBLEMS

Answers the following problem, assume the legal interest rate is 10%

Problem 1: Total Surcharge

Miss Maria Palma reported her income tax return for 200A only on June 30, 200B voluntarily without any notice from the
BIR. The tax due per return amounts to P10,000. What would be the total surcharge to be added to the basic tax?
a. P10,000 b. P 2,500 c. P 5,000 d. P - 0 -

Problem 2: Interest on Unpaid Tax

If the basic tax is P10,000 and the surcharge is P2,500, how much is interest charge if the 200A ITR is only filed on June 30,
200B?
a. P625.00 b. P416.67 c. P520.83 d. P - 0 –

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Problem 3: Wrong RDO

A certain taxpayer has a basic tax due amounting to P10,000 pertaining to his 200A ITR but was filed only on June 30, 200B
to wrong Revenue District Office. How much would be the total amount due by the taxpayer inclusive of surcharge and
interest?
a. P12,500 b. P15,417 c. P15,000 d. P17,417

Problem 4: Additions to Tax with BIR Notification


The taxpayer did not file his income tax return for the calendar year 200A which was due for filing on April 15, 200B. He was
notified by the BIR about his failure to file the tax return, for which reason he filed his tax return and paid the tax only after
the said notice on June 30, 200C. The tax due per return is P100,000. How much would be the total amount due, exclusive of
compromise penalty?
a. P124,167 b. P154,167 c. P150,000 d. P174,167

Problem 5: Late Payment of Tax


The taxpayer's income tax return for the calendar year 200A was due for filing on April 15, 200B but the taxpayer voluntarily
filed his return, without assessment notice from the BIR only on June 30, 200B. The tax due per return amounts to P100,000.
How much would be the total amount due inclusive of penalties and interest, excluding compromise penalty?
a. P125,000 b. P130,208 c. P129,167 d. P100,000

Problem 6: Installment Tax Payment


Due to financial incapacity, XYZ Corporation requested BIR that it be allowed to pay its income tax liability per ITR for
calendar year 200A, in the amount of P1,000,000, in four (4) equal monthly installments, starting April 15, 200B.

Its request has been duly approved pursuant to Sec. 23 of the Tax Code. XYZ complied with its monthly installment payment.

1. The total amount due on April 15, 200B and May 15, 200B would be
April 15, 200B May 15, 200B
a. P1,000,000 P762,500
b. P1,000,000 P750,000
c. P 750,000 P508,333
d. P 250,000 P262,500

2. The 3rd installment and 4th installment would be


3rd installment 4th installment
a. P300,000 P350,000
b. P262,500 P258,333
c. P258,333 P254,166
d. P250,000 P250,000

Problem 7: Tax Assessment


As a BIR Examiner, you found the following material findings on the income tax discrepancies of ABC Company for taxable
year 200A:

Taxable income per 200A ITR P1,000,000


200A income tax paid per return on April 15, 200B 300,000
Discrepancies per investigations during 200C:
Undeclared rental income 450,000
Nondeductible interest expense 300,000
Nondeductible bad debt expense 200,000
Undocumented representation expenses 150,000

Required:
a. How much is the total amount due assessed payable as of April 15, 200C?
b. Assume the total amount due assessed and payable as of April 15, 200C was not disputed by ABC Company, but ABC
paid only on June 15, 200C, how much is the total amount due (excluding compromise penalty for late payment)?

3. BIR Registration- FREQUENTLY ASKED QUESTIONS

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1) Who are required to register with the BIR?

Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer:

1. Within ten (10) days from the date of employment, or


2. On or before the commencement of business, or
3. Before payment of any tax due, or
4. Upon filing of a return, statement or declaration as required in the NIRC.
5. Death of individual;
6. Full settlement of the tax liabilities of the estate;
7. Discovery of a taxpayer having multiple TINs; and
8. Dissolution, merger or consolidation of juridical person.

2) Are non-resident aliens and non-resident foreign corporations receiving income from sources within the
Philippines required to register with the BIR?

Yes, Non-Resident Aliens Not Engaged in Trade or Business (NRANETB) or Non-Resident Foreign Corporations (NRFC)
shall be issued TINs for purposes of withholding taxes on their income from sources within the Philippines. The withholding
agent shall apply for the TIN in behalf of the NRANETB or NRFC prior to or at the time of the filing of their monthly
withholding tax return as applicant under EO 98, series of 1998 (Sec.4.1v of RR 7-2012).

3) If the taxpayer is engaged in VATable activity, but the gross sales or receipts from business or practice of
profession is P 3,000,000.00 or below, is he required to register?

Yes, he is required to register as a Non-VAT taxpayer. However, if his gross sales or receipts is more than P 100,000.00 but
does not exceed P 3,000,000.00, he has the option to register as VAT taxpayer. In the case of marginal income earners with
gross sales or receipts of P 100,000 and below, they have no other option but to register as non-VAT taxpayer.

4) Are taxpayers required to register their business annually?

No, taxpayers are required to register only once before commencing their business. However, they are required to pay the
registration fee of P 500.00 annually.

5) When is the taxpayer required to apply for registration and pay the registration fee?

New taxpayers shall apply for registration and pay the registration fee before commencing their business. Thereafter, taxpayers
should pay the annual registration fee not later than January 31 every year.

6) Where should a taxpayer register?

All taxpayers are required to register with the RDO having jurisdiction over the head office, branch office, place of production
or storage place where inventory of goods for sale or use in business are kept.

7) Are branches, storage places and places of production also required to pay the Annual Registration Fee (ARF) of
P 500.00?

Each branch is required to pay the ARF of P 500.00. However, storage and production places are liable to the ARF only when
sales operations are conducted thereat.

8) Who are required to register without paying the ARF?

a) Cooperatives duly registered with the CDA;

b) Individual residents earning purely compensation income

c) OCWs/OFWs;

d) Marginal Income Earners;

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e) GAIs, in the discharge of their governmental functions;

f) LGUs, in the discharge of their governmental functions;

g) Tax exempt corporations such as those enumerated under Section 30 of the Code, as amended, in pursuance of tax-
exempt activities;

h) Non-stock/non-profit organizations not engaged in business;

i) Persons subject to tax under one-time transactions;

j) Persons registered under EO 98, series of 1998; and

k) Facility/ies where no sales transactions occur.

9) Are taxpayers transferring business address within the year either within the same district or to another district
required to pay another registration fee of P 500.00?

No, since the ARF is payable annually, they are no longer required to pay the registration fee to the new district office,
provided the P 500.00 was already paid.

10) After complying with all the requirements for registration, what document will be issued to the taxpayer as proof
of registration?

Certificate of Registration (BIR Form 2303) for newly registered taxpayer and validated Payment Form (BIR Form 0605) for
every renewal.

However, Employees, ONETT taxpayers, and/or persons who have secured a TIN under EO 98, series of 1998 with the BIR
shall not be issued a COR.

11) When will the Certificate of Registration (COR) be issued to the taxpayer?

The COR (BIR Form 2303) shall be issued within the period/time prescribed under the existing “BIR Citizens Charter”
together with the approved Authority to Print and Registered books of accounts.

12) Who will issue the COR?

The RDO having jurisdiction of the head office or branch shall issue the COR.

13) How many COR (BIR Form 2303) shall be issued by the Revenue District Office?

For every Application for Registration, there shall be a corresponding COR to be issued to the head office and each branch
being registered.

14) What will the taxpayer do with the COR and the Proof of Payment of ARF?

The original copy of COR and the duly validated BIR Form 0605 as proof of payment of ARF are required to be displayed in
any conspicuous place in the head office and branch office.

15) What are the instances when a taxpayer can apply for cancellation of his registration?

The TIN/Registration cancellation shall take place upon:

All taxpayers who filed for cancellation of registration due to closure/cessation or termination of business, except for
branches, shall be subjected to immediate investigation by the BIR office concerned to determine the taxpayer’s tax liabilities.

16) Is there a particular form prescribed for Application for Cancellation of Registration?

Yes, BIR Form 1905 (Application for Registration Information Update).


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17) Where shall the Application for Registration Information Update be filed?

It shall be filed with the RDO who issued the COR. For VAT taxpayer, he shall further notify the RDO where the Home
Office is registered.

18) If a taxpayer is in doubt of his status as VAT taxpayer, what is he supposed to do?

Go to the RDO who has jurisdiction over his place of business and seek assistance.

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