April 15, 2008, Tuesday, is the last day for filing and payment of income-tax liabilities. Although taxpayers still have a few more days left, it is prudent to file income-tax returns well before the deadline to avoid incurring penalties and other inconveniences.

Aside from avoiding the rush on the last day of filing, a taxpayer must also avoid the common mistakes committed in the preparation of the tax return to prevent unnecessary errors that may lead to tax assessments issued against the taxpayer.

In order to rule out these common mistakes, here are last-minute reminders which the taxpayer must bear in mind in preparing and filing the income-tax return (ITR):

First, use the right BIR form. The annual corporate income-tax return for domestic and resident foreign corporations is BIR Form 1702 (latest is September 2005 version). Tax-exempt entities such as exempt non-stock, nonprofit organizations and representative offices are required to file an information return (BIR Form 1700) instead of the regular income-tax return.

For individuals engaged in business or those who are self-employed, the form to be used is BIR Form 1701. For individuals earning purely compensation income, BIR Form 1700 is the form applicable. Note, however, that for individuals earning purely compensation income with only one employer during the year, where the full amount of income tax was withheld by the employer, there is no longer a need for the individual to file an income-tax return since the BIR Form 1604-CF filed by the employer qualifies as a substitute return.

Taxpayers may use photocopied or computer-generated BIR Forms in lieu of the officially printed BIR tax returns. However, these forms must be originally filled out and the computer-generated forms should be of laser quality and printed in a white 8 ¼ x 13 or 8 ¼ x 11 (56SM) paper stock using black ink. Most important, tax returns must be properly filled out by the taxpayer and must provide correct information.

Second, taxpayers must file their income-tax returns with the proper BIR office. For manual filers, in case there is no tax payable, the return must be filed with the Revenue District Office (RDO) where the taxpayer is registered. Returns with payment, on the other hand, should be filed and paid with any authorized agent bank (AAB) within the RDO where the taxpayer is registered. It is then incumbent upon the AAB to ensure that forms are machine-validated and the details of payments clearly imprinted on all the copies.

Out-of-district tax returns are accepted without the imposition of penalties for filing in the wrong venue, provided that the AAB shall indicate its RDO number in the LBDES field required therefor, and not the RDO number of the taxpayer and that the words “Out of District” is stamped on the return.

For EFPS filers, taxpayers should file the return and pay the tax due electronically. Otherwise, manual filing shall be considered filing in the wrong venue. The returns should be e-filed and e-paid on or before 10 p.m. on April 15, after which the taxpayer shall receive the filing reference number and confirmation number as proof of filing and payment.

There are several modes in which payment can be made by the taxpayer, specifically:

§          Over-the-counter payments in cash not exceeding P10,000 may be made with an AAB.

§          Pay through check. In the space “Pay to the order of,” indicate the name of the bank and the branch where the payment is to be coursed, and beneath it the phrase “FAO Bureau of Internal Revenue.” Indicate the taxpayer identification number (TIN) under the “Account name.” This procedure applies even if the check is drawn from and presented to the same bank.

§          Pay through bank-debit advice. Through debit advice, the taxpayer authorizes the withdrawal of the amount due from his/its existing bank accounts for payment to the BIR. The existing bank account should be with an AAB within the jurisdiction of the RDO where the taxpayer is registered.

§          Pay through tax-debit memo (TDM). A valid tax-credit certificate can be used to pay income tax. Accordingly, an application for a TDM must be filed with the BIR which shall be used in paying the amount of tax due.

Finally, taxpayers should aim to file and pay their taxes before the deadline. Failing to file the income-tax return within the prescribed period is subject to a 25-percent surcharge, in addition to the basic tax, plus interest at the rate of 20 percent per annum on the unpaid amount of tax from the date prescribed for payment until the amount is fully paid, and compromise penalty depending on the amount of gross revenues.

In observing the aforementioned reminders and guidelines, common mistakes are precluded or minimized. Taxpayers must remember that almost all tax-return errors or mistakes can be avoided through careful preparation, thorough review and proper filing of the tax returns. 

The author is an associate of BDB Law. If you have any comments or questions concerning the article, you can e-mail the author at pamela.p.palad@bdblaw.com.ph or call 856-2952.

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