Given how laborious and tedious filing taxes in the Philippines, especially for small and medium-sized enterprises and independent contractors/freelancers, most of whom do not have the resources to hire accounting services Philippines, it can be quite tricky to distinguish what is lawful fraud from just plain negligence when it comes to paying taxes.
Tax fraud is the willful attempt to evade tax laws. This means one intentionally fails to file an income tax return, willfully fails to pay due taxes, intentionally fails to report correct income earned, makes false claims or files a false return. Everything is made with intent to deceive. Negligence, however, happens with careless errors or honest mistakes when it comes to filing taxes.
We need to stress, though, that even if businesses cite negligence due to error or misrepresentation by their accountant, the Bureau of Internal Revenue (BIR) reserves the right to file tax fraud or impose penalties. Either way, business owners and independent contractors stand to lose.
Who should be held liable?
The bottom line here is business owners and self-employed individuals (freelancers or independent contractors) should bear in mind that Philippine taxation has always been a tedious process. Our tax system is outdated and badly needs reform, on top of individuals within the system who take advantage of clueless business owners, imposing penalties and outrageous tax computations. We need to be vigilant as corruption is an unfortunately reality in our government and even if you can sue, this will be costly and time-consuming.
The best way to avoid being caught up with fraudulent charges and penalties from tax payments is to be vigilant. Apply these best practices in your business to avoid costly settlements:
1. Create a tax calendar.
Mark filing dates for tax returns and tax payments ahead of time in your calendar. It would be best if you plot tax-related tasks on your calendar as well, such as bookkeeping, invoice filing, reconciling of statements, etc. especially if you are running a small team and multi-task with different aspects of the business. It is easy to let accounting-related tasks slide – this should be one of the things you always need to be on top of.
2. Pay attention to procedure details when complying with tax requirements.
Filing taxes in the country is very laborious. You would have to fill out numerous forms, file them in different sections of the agency, often with different requirements for each form. Make sure you get everything right the first time by carefully reading details on the BIR website and by asking and reconfirming with a BIR employee. You can also consult with a registered accountant or tax lawyer.
Remember that tax filing procedures and requirements regularly go improvements and change from time to time. Make sure to be updated with the latest tax procedures before filing your annual income tax.
3. Hire a reputable accounting firm if you don’t have the time.
As mentioned previously, tax filing procedure and requirements change from time to time, so do tax laws. It can be difficult to keep up with the details, more so when it comes to new computations. Hiring an accounting firm that can take care of your tax matters can greatly alleviate your tax-related stress woes. Reputable firms can even take care of your HR services such as employee payroll and filing employees’ income tax returns.
If you hire an independent contractor (accountant), don’t pay his salary until a receipt is produced. This is one way to verify if he is offering registered services. Always check for the serial number of the actual receipt and compare with the scanned copy.
4. Be organized.
Most businesses in the country still do their bookkeeping manually, as they still keep ledgers and do their reconciling manually. It is essential that you keep everything organized and updated, as it is very easy to lose an invoice or incorrectly file an outdated receipt. It is advisable to also have someone audit whoever is updating your financial books to double check for errors and incorrect entries.
5. Don’t do everything at the last minute.
This is why keeping a tax calendar is important. It is overwhelming to rush a year’s worth of income and compute for taxes at the last minute. You are exposing yourself to errors that might be grounds for negligence or fraud.
It is so easy to commit mistakes when it comes to preparing, computing and filing taxes. This is why staying vigilant by consistently updating your financial books, checking tax requirements and being updated with tax laws is important. While the business owner or an in-house team can do this, there will be times when it can be overwhelming and despite your best intentions, you are still clueless on what to do. Hiring an accounting firm will not only ease the burden off your shoulders, they can also advise you on how to save money from taxes by orienting you about tax-saving strategies you can apply to your business. In the end, you not only save time and effort by hiring someone qualified to do your taxes, you save money too!
via Danella Yaptinchay
Danella Yaptinchay is the managing director of Full Suite, a service company providing back end support to small businesses. She is also a cofounder of Co.lab, a coworking space, and of the media company Homegrown. In constant pursuit of balance and self-development, she tries to apply the practices of yoga to her daily life.