[Ask the Tax Whiz] Can I avoid a BIR audit? | Part 2

Read Part 1 here.

What is RATE? What are the common violations or grounds for tax evasion cases?

Run After Tax Evaders (RATE) is an enforcement program of the Bureau of Internal Revenue (BIR) which aims to generate a maximum deterrent effect on the taxpaying public by highlighting that tax evasion is a crime and violators will be caught and punished.

Here are the common violations or grounds for tax evasion cases:

1. Offenses related to income

• Failure to file tax return/s
• Failure to pay taxes
• Underdeclaration of income by more than 30%
• Hiding or transferring of assets or income
• Non-remittance of withholding taxes

2. Offenses relating to deductions

• Overstatement of expenses by more than 30%
• Claiming personal expenses as business expenses
• Claiming false deductions

3. Others

• Use of fake certificate of authorizing registration, tax clearance certificate, or other accountable forms
• Failure to register with the BIR
• Keeping more than one set of books of accounts
• Making false entries in books and records

Where does the BIR get information regarding fraud or tax evasion cases?  What are the penalties imposed under the tax code?

Information may come from various sources. Here are some of the possible sources of information:

• Routine audit examination of tax return/s by the BIR
• Confidential information filed by informers under Section 282 of the National Internal Revenue Code (NIRC) of 1997
• Information obtained by the BIR from third parties as authorized by Section 5(B) of the NIRC
• Referrals from other government agencies 
• Newspaper reports and online sources

The following are the penalties:

• Civil penalties resulting in the imposition of a 50% surcharge
• Criminal penalties resulting in imprisonment and/or a fine upon conviction by a court

Note that the power of the BIR to assess and collect tax is extended to 10 years from the date of discovery of the fraud case.

Fraud cases cannot be the subject of a compromise as mandated by Section 204 of the NIRC.

Is it possible for the BIR to conduct an audit of my VAT liabilities only? What is the purpose of this since they regularly issue an eLA or LOA for all tax types? Is this not a form of harassment since I have been receiving regular eLAs for all tax types and now for just VAT, while some of the companies I know have not faced a VAT audit?

The VAT Audit is an enforcement program which aims to increase revenue collection and enhance voluntary compliance by focusing on risk-based audit of VAT liabilities, and to broaden the tax base by identifying buyers and sellers of goods and services subject to VAT.

If you have been issued a VAT audit, the regular eLA will cover all tax types other than VAT. Also, the VAT Audit is being implemented initially for the Large Taxpayers Service (LTS) and six Metro Manila Revenue Regions – RR No. 5 Caloocan City, RR No. 6 Manila, RR No. 7A Quezon City, RR No. 7B East NCR, RR No. 8A Makati City, and RR No. 8B South NCR.

If we cannot get rid of the BIR audit, is there a way to reduce our tax assessment? What is an annual tax health check? How do we avail of it?

There are many ways to reduce your tax assessment, such as a monthly or quarterly tax compliance review, annual tax review before or after filing an annual income tax return, and an annual tax health check (ATHC).

An ATHC helps companies assess their tax compliance and possible deficiencies to avoid unnecessary penalties and compromises during a BIR audit and investigation. It also provides initial findings and recommendations which will result in updated registration, invoicing, bookkeeping, and other tax compliance requirements. 

To avail of the ATHC, join the Elite Taxpayer Circle for free. Just scan the QR code in the image below to be a member and enjoy privileges including ETC Exclusive webinars and free consultation to help you manage your taxes and avoid or reduce your tax assessment from the BIR.

– Rappler.com

Mon Abrea, CPA, MBA, is the co-chair of the Paying Taxes-EODB Task Force. With the TaxWhizPH mobile app as his brainchild, he was recognized as one of the Outstanding Young Persons of the World, an Asia CEO Young Leader, and one of the Ten Outstanding Young Men of the Philippines because of his tax advocacy and expertise. Currently, he is the chairman and CEO of the Asian Consulting Group and trustee of the Center for Strategic Reforms of the Philippines – the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business and tax reform. Visit www.acg.ph for more information or email him at mon@acg.ph and download the TaxWhizPH app for free if you have tax questions.