Increased penalties for tax evasion

Legal basis and relationship to statutes

The regulations are promulgated pursuant to Section 245 of the National Internal Revenue Code (NIRC), as amended, in relation to Section 14 of Republic Act No. 7642 (Section 1).
Fine and imprisonment standards in these regulations implement increased penalties for offenses under the NIRC, especially Title X, Chapter II (Section 2).
Stated clarificatory coverage preserves penalties for offenses not covered by these regulations under the unamended penal provisions of Title X, NIRC (Section 10).

Policy, purpose, and implementation focus

The regulations set penalty standards for criminal acts constituting tax evasion-related violations under the NIRC, implementing Republic Act No. 7642.
The regulations establish increased penalty ranges for specified tax-evasion acts by individuals, corporations, accountants, government enforcement officers, and persons involved in excise, stamps, and documentary offenses (Sections 3 to 9).
The regulations prescribe a rule that fines for NIRC criminal liability are determined by regular courts and are subject to a minimum based on the applicable fines and tax-related amounts (Section 2).

Court-imposed fines and general penalty rule

The penalty of fine for acts constituting criminal liability of persons who violated the NIRC under Title X, Chapter II is imposed only by regular courts (Section 2).
Court-imposed fines for such NIRC violations must be not lower than either (a) the amount of the fines imposed in these regulations, or (b) twice the amount of taxes, interests, and surcharges due, whichever is higher (Section 2).

Penalties for corporations and responsible persons

Any corporation, association, or general co-partnership liable for NIRC acts or omissions penalized under the NIRC is fined upon conviction for each act or omission in addition to penalties imposed on responsible corporate persons (Section 3).
For each act or omission, the corporate/association partnership fine is not less than fifty thousand pesos and not more than one hundred thousand pesos (Section 3).
In associations/partnerships/corporations, the penalty is imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge, and employees responsible for the violation (Section 3).

Penalties for specified offenses by persons

Any person who commits the listed offenses is liable, upon conviction, to the corresponding increased penalties specified for each offense (Section 4).
Willfully attempting to evade or defeat payment of any tax under the NIRC carries: fine of not less than thirty thousand pesos to not more than one hundred thousand pesos, and imprisonment of not less than two years to not more than four years (Section 4(a)).
Willfully attempting to make it appear that a return or statement was filed (or actually filing then withdrawing after obtaining the official receiving seal/stamp of receipt from an internal revenue office where it was actually filed) carries: fine of not less than Ten thousand pesos to not more than Twenty thousand pesos, and imprisonment of not less than one year to not more than three years (Section 4(b)).
Unlawful pursuit of business means carrying on business for which a privilege tax is imposed but without paying it as required by law; for each act or omission, it carries: fine of not less than five thousand pesos to not more than twenty thousand pesos, and imprisonment of not less than six months to not more than two years (Section 4(c)).
For unlawful pursuit of business involving a person engaged in distilling, rectifying, repacking, compounding, or manufacturing any article subject to excise tax, for each act or omission it carries: fine of not less than thirty thousand pesos to not more than fifty thousand pesos, and imprisonment of not less than two years to not more than four years (Section 4(c)).
Illegal collection of foreign payments is punished per act or omission by: fine of not less than twenty thousand pesos to not more than fifty thousand pesos, and imprisonment of not less than one year to not more than two years where a person knowingly undertakes collection without a license or without complying with implementing regulations under Section 60 of the NIRC (Section 4(d)).
Persons including corporations, duly registered general co-partnerships (compania colectivas) undertaking for profit or otherwise the collection of foreign payments of interests or dividends by means of coupons, checks, or bills of exchange must obtain a license from the Commissioner of Internal Revenue and comply with regulations enabling government information needs under Title II, NIRC, as the Secretary of Finance prescribes; knowing collection without license or without complying with such regulations is subject to the increased penalty described above (Section 4(d)).
Failure or refusal to issue receipts or sales or commercial invoices where required under Section 238 of the NIRC (including issuing receipts/invoices that do not truly reflect and/or do not contain all required information, or using multiple/double receipts/invoices) carries, for each act or omission: fine of not less than one thousand pesos to not more than fifty thousand pesos, and imprisonment of not less than two years to not more than four years (Section 4(e)).
Failure to obey summons where a person duly summoned to appear to testify or to appear and produce books of accounts/records/memoranda or other papers or to furnish information neglects to appear or produce the required items/information carries, for each act or omission: fine of not less than five thousand pesos to not more than ten thousand pesos, and imprisonment of not less than one year to not more than two years (Section 4(f)).

Definitions and special penalty interpretations

For purposes of these regulations, “willfully” means an act done with evil intent or legal malice and without justifiable excuse (Section 4).
In statutory offenses requiring notice of demand, “willfully” includes deliberate or stubborn refusal to pay the tax after a notice of demand (Section 4).
Because privilege fixed taxes were abolished with the introduction of the Value-Added Tax (VAT) into the tax system, for purposes of imposing penalties under Section 257 of the NIRC and Section 4(c) of these regulations, unlawful pursuit of business is committed by carrying on any business without having previously registered as a VAT or NON-VAT taxpayer, as the case may be (Section 4).

Accountants’ false entries and certifications

Independent Certified Public Accountants engaged to examine and audit books of accounts of taxpayers under Section 232(A) of the NIRC, and/or any person under their direction, are punished upon conviction for each act or omission by: increased penalty of fine of not less than thirty thousand pesos to not more than fifty thousand pesos, and imprisonment of not less than two years to not more than six years (Section 5).
Liability applies where the independent CPA willfully falsifies any report or statement bearing on an examination or audit or renders a report (including exhibits, statements, schedules, or other accountancy work) not verified personally by the CPA or under supervision in accordance with sound auditing practice (Section 5(a)).
Liability applies where the independent CPA certifies financial statements containing an essential misstatement of facts or an omission regarding transactions, taxable income, deductions, and exemptions of the client (Section 5(b)).
For purposes of these regulations, “Independent Certified Public Accountant” refers to one engaged in the practice of public accounting if the CPA (i) holds himself out to the public as skilled and qualified to render certified public accountant services; or (2) offers and/or renders services as the audit of verification of financial transactions and accounting records to more than one client on a fee basis or otherwise, including signing/certification of reports and schedules used for publication, credit purposes, filing with court/government, or other purposes, installation/revision of accounting systems, preparation of income tax returns when related to accounting procedures, or representation of clients before governmental agencies on tax matters to accounting procedures and presentation of financial facts/data (Section 5).
These standards expressly connect the independent CPA definition to Section 24, Article IV of the Accountancy Act of 1967, now found in Section 3 of P.D. No. 692 (Section 5).

Non-certified accountants’ related offenses

Any person who is not an independent certified public accountant is punished upon conviction for each act or omission by: increased penalty of fine of not less than thirty thousand pesos to not more than fifty thousand pesos, and imprisonment of not less than two years to not more than six years (Section 6).
Liability applies to non-independent persons who: (a) examine and audit books of accounts of taxpayers; (b) offer to sign and certify financial statements without audit; (c) offer accounting bookkeeping records for internal revenue purposes not in conformity with the NIRC or regulations; (d) knowingly make false entries or enter a false or fictitious name; (e) keep two or more sets of such records/books; (f) commit any act or omission violating Section 256 of the NIRC; or (g) fail to keep the required books/records in a native language, English, or Spanish, or fail to make a true and complete translation as required in Section 234 of the NIRC, or keep books/records in a way that materially varies with other-language books/records (Section 6(a)-(g)).

Penalties for government enforcement officers

Every official, agent, or employee of the Bureau of Internal Revenue or any other government agency charged with enforcement of the NIRC who commits specified offenses is punished upon conviction for each act or omission by:
- a fine of not less than fifty thousand pesos to not more than one hundred thousand pesos, and
- imprisonment of not less than ten years to not more than fifteen years, and
- perpetual disqualification to hold public office, vote, and participate in any public election (Section 7).
The specified offenses include extortion and willful oppression through use of office (Section 7(a)).
The specified offenses include knowingly demanding other or greater sums than authorized by law, or receiving fees/compensation/reward except as prescribed by law for performance of any duty (Section 7(b)).
The specified offenses include willfully neglecting to give receipts as required by law for sums collected in the performance of duty, or willfully neglecting to perform any other duty enjoined by law (Section 7(c)).
The specified offenses include conspiring or colluding to defraud the revenues or otherwise violate the NIRC (Section 7(d)).
The specified offenses include neglect or design permitting violation by another (Section 7(e)).
The specified offenses include making or signing false entries or signing false certificates or returns (Section 7(f)).
The specified offenses include allowing or conspiring to allow unauthorized retrieval, withdrawal, or recall of any return, statement, or declaration after it has been officially received by the Bureau of Internal Revenue (Section 7(g)).
The specified offenses include failing to report knowledge or information of NIRC violations or fraud on revenues collectible by the Bureau of Internal Revenue to a superior officer or as otherwise required by law (Section 7(h)).
The specified offenses include demanding, accepting, or attempting to collect any sum of money or other thing of value without lawful authority for compromise/adjustment/settlement of any charge or complaint for any violation or alleged violation of the NIRC (Section 7(i)).

Excise tax articles: unlawful possession/removal

Any person who owns and/or is found in possession of imported articles subject to excise tax where the excise tax has not been paid as required by law is punished, with penalties determined by the appraised value (as determined in the manner prescribed in the Tariff and Customs Code, including duties and taxes) (Section 8).
For imported excise-tax articles where appraised value does not exceed One thousand pesos, punishment is fine of not less than One thousand pesos to not more than Two thousand pesos and imprisonment of not less than sixty days to not more than one hundred days (Section 8(a)).
For imported excise-tax articles where appraised value exceed One thousand pesos but does not exceed fifty thousand pesos, punishment is fine of not less than Ten thousand pesos to not more than twenty thousand pesos and imprisonment of not less than two years to not more than four years (Section 8(b)).
For imported excise-tax articles where appraised value exceeds fifty thousand pesos but does not exceed One hundred fifty thousand pesos, punishment is fine of not less than Thirty thousand pesos to not more than Sixty thousand pesos and imprisonment of not less than four years to not more than six years (Section 8(c)).
For imported excise-tax articles where appraised value exceeds One hundred fifty thousand pesos, punishment is fine of not less than fifty thousand pesos to not more than one hundred thousand pesos and imprisonment of not less than ten years to not more than twelve years (Section 8(d)).
Similar penalties apply to persons found in possession of imported tax exempt articles other than those to whom they are legally issued (Section 8).
A manufacturer, owner, or person in charge of any excise-tax article who removes or causes unlawful removal of excise-tax articles from the place of production or bonded warehouse where the excise tax has not been paid at the time and in the manner required, and any person who knowingly aids/abets the removal or conceals the articles after illegal removal, is punished for the first offense by:
- fine of not less than ten times the amount of excise tax due on the articles but not less than One thousand pesos, and
- imprisonment of not less than one year to not more than two years (Section 8).
Mere unexplained possession of excise-tax articles where the excise tax has not been paid as required is punished under Section 262 of the NIRC (Section 8).

Stamps and related document offenses

Any person who commits the enumerated stamp-related acts is punished upon conviction by an increased penalty of:
- fine of not less than Twenty thousand pesos to not more than Fifty thousand pesos, and
- imprisonment of not less than four years to not more than eight years (Section 9).
Stamp-related acts include making, importing, selling, using, or possessing without express authority from the Commissioner any die for printing or making stamps, labels, tags, or playing cards (Section 9(a)).
Stamp-related acts include erasing cancellation marks of previously used stamps or altering written figures/letters or cancellation marks on internal revenue stamps (Section 9(b)).
Stamp-related acts include possessing false, counterfeit, restored, or altered stamps/labels/tags, or causing another to commit such offenses (Section 9(c)).
Stamp-related acts include selling or offering for sale any box or package containing excise-tax articles with false/spurious/counterfeit stamps or labels, or calling from such fraudulent box/package/container (Section 9(d)).
Stamp-related acts include giving away or accepting containers on which the stamps are not completely destroyed, or selling/buying/using such containers (Section 9(e)).

Clarifications, repeals, and offense coverage

Penalties for offenses or violations not covered by these regulations remain governed by the unamended penal provisions of Title X, NIRC (Section 10).
All existing rules, regulations, issuances, or parts inconsistent with these regulations are amended or revoked accordingly (Section 11).