Fortune favors the taxpayer … who files on time

The list of successful candidates for the 2020/2021 times examination was released last Tuesday. I am one of those who made it. Truth be told, luck was on my side, as I and my fellow bar examinees struggled to study and prepare for the bar exams despite the many challenges posed by the COVID-19 epidemic, typhoon, and suspension. Just like a taxpayer who is struggling to meet the April 18, 2022, annual income tax return (AITR) deadline to avoid late filing and fines for payment.

The tax code provides that a penalty equivalent to 25% of the tax arrears will be levied for the taxpayer’s failure to file a tax return and pay the arrears on time. On top of that, 12% interest per annum is also charged as penalty.

Fortunately for the taxpayers who submitted their AITR on time yesterday, the BIR had earlier disclosed relevant issues – Revenue Memorandum Circular (RMC) 42-2022 and RMC 43-2022.

RMC 42- 2022
In RMC 42-2022, BIR clarifies that AITR may be amended on or before May 16, 2022, without imposing interest, surcharge and penalty. Provided, however, that a taxpayer who, as a result of the revised return, will have to pay extra tax, may choose to bear the tax arrears against the tax arrears for the same tax type in the next period or file for refund.

This is a welcome development for taxpayers who were able to file AITR on April 18, 2022, as they can later amend their AITR on or before May 16, 2022 without interest, surcharge and penalty.

RMC 43- 2022
In addition to the above RMC, BIR also issued RMC 43-2022 which put an end to the misleading provisions of RMC 54-2018 and RMC 46-99.

RMC 54-2018 provides that when additional tax is due on a revised return, a 25% surcharge is applicable to the applicable additional tax. On the other hand, RMC 46-99 states that no 25% surcharge may be levied on computing for assessment of deficit tax as a result of tax audit.

RMC 43-2022 explicitly states that based on the two RMCs, it appears that a taxpayer is unnecessarily fined for correcting a tax return in order to pay the due tax arrears but is inadvertently rewarded if the unpaid tax or the correct tax is only tax. Audit time is given, which therefore discourages taxpayers from voluntarily correcting their tax arrears from amending their tax returns.

Thus, RMC 43-2022 adjusted these conflicting rules without imposing a 25% surcharge on an amendment to the tax return if the taxpayer was able to file the initial tax return on or before the due date. On the other hand, a 25% surcharge will be levied on the tax deficit found during the audit if it is proved that the specified tax return was filed during the audit period or after the due date.

For example, if the taxpayer files an AITR for the taxable year 2021 on April 18, 2022, but later amends the return on December 8, 2022, the surcharge will not be levied because the initial tax return (filed on April 18, 2022) Was filed on the due date of his filing.

However, if the taxpayer files an AITR for the taxable year 2021 on June 10, 2022 and the taxpayer is audited by the BIR on October 31, 2022, if the investigation finds an income tax deficit, a 25% surcharge will be levied because the audited The specified tax return was filed after the due date or due date.

According to the recent RMC, taxpayers will be encouraged to immediately revise their AITR to reflect accurate figures as required without fear of a 25% surcharge.

As a reminder, according to the 1997 Tax Code, amended within three years from the date of filing of tax return, it may be changed, modified or amended, unless notice is given to audit or investigate such return. Has already been actually served on the taxpayer.

Thus, if the taxpayer chooses to amend the initial AITR for the calendar year 2021 on or before May 16, 2022, according to RMC 42-2022, no interest, surcharge and penalty will be levied. On the other hand, if the taxpayer subsequently amends the AITR after the May 16, 2022 cut-off, the taxpayer can do so without the risk of 25% surcharge as per RMC 43-2022, but interest and compromise penalty may be levied on BIR. Therefore, it is advisable for the taxpayers to review the AITRs they have submitted and make necessary corrections, if any.

Considering the challenges of AITR preparation, due to holidays and various other limitations and we are still in epidemic, the recently published issues of BIR are good news for the taxpayers. In fact, luck is on the side of the taxpayer who files on time.

Let’s Talk Tax is a weekly newspaper column by P&A Grant Thornton aimed at informing the public about various tax developments. This article is not intended to be an alternative to appropriate professional advice.

Lorenzo V. Matibag is a Philippine member of Grant Thornton International Limited, a senior subsidiary of P&A Grant Thornton’s Tax Advisory and Compliance Division.

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