Cases Where Imposition of Surcharge is Mandatory

August 17, 1999 BIR RULING NO. 124-99 Sec. 148 (A); 204-000-00-124-99 Mr. Emelino T. Maestro, CPA President, Tax Accountant Society, Inc. 2120 Sma. Trinidad, Balik-balik Sampaloc, Manila 1008 S i r : This refers to your letter dated March 4, 1999 addressed to the Secretary of Finance and duly indorsed to this Office on April 5, 1999, inquiring whether the mandatory imposition of surcharge is still valid. You specifically cited the Court's Decision on the matter, thus "The imposition of surcharge is mandatory. The Commissioner of Internal Revenue has no authority to waive or dispense with the collection thereof. Even the good faith of the taxpayer in failing to pay the tax upon advice of the counsel is not sufficient justification for seeking exemption from the payment of surcharges. ( Comm . Vs . Royal Interocean Lines & CTA, L-20506, July 30, 1970 ) In reply, please be informed that pursuant to Section 248(A) of the 1997 Tax Code, in addition to the tax required to be paid, the imposition of penalty equivalent to twenty five percent (25%) of the amount due, is mandatory in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules or regulations on the date prescribed; or "(2) 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; or "(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or "(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax for which no return is required to be filed, on or before the date prescribed for its payment. True enough, good faith alone may not be sufficient to avoid the 25% surcharge which is designated to ensure timely compliance with the law. (see Lim vs . Posadas , 47 Phil. 460) As to whether the Commissioner of Internal Revenue is authorized to waive or dispense with the collection of surcharges, please be informed that under Section 204 of the same Tax Code, the Commissioner is authorized, among others, to compromise and/or abate taxes, thus "(A) Compromise the payment of any internal revenue tax, when: "(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or "(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. "The compromise settlement of any tax liability shall be subject to the following minimum amounts: "For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and "For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. "Where the basic tax involved exceeds One million pesos (P1,000,000.00) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. "(B) Abate or cancel tax liability, when: "(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or "(2) The administration and collection costs involved do not justify the collection of the amount due. "All criminal violations may be compromised except (a) those already filed in court, or (b) those involving fraud. Conversely, if the Commissioner may compromise and/or abate the basic tax then there is no reason why the 25% surcharge may not be abated. LLpr Finally, in the exercise of discretion by the Commissioner, the waiver of penalties may be allowed only under the foregoing circumstances enumerated in Section 204 of the 1997 Tax Code. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue