Last Tuesday, the 2020/2021 Bar examinations list of successful examinees was released. I am one of those who made it. Truly, fortune favors the bold, as I and my fellow bar examinees struggled to study and prepare for the Bar exams despite the many challenges brought about by the Covid-19 pandemic, typhoons, and postponements. Just like a taxpayer who is trying so hard to meet the April 18, 2022, Annual Income Tax Return (AITR) deadline to avoid penalties for late filing and payment.

The Tax Code provides that a penalty equivalent to 25% of the tax due shall be imposed due to the taxpayer’s failure to file a tax return and pay the tax due on time. On top of that, an interest of 12% per annum is also imposed as a penalty.

Fortunately for the taxpayers who filed their AITRs on time yesterday, the BIR had previously released relevant issuances – Revenue Memorandum Circulars (RMC) 42- 2022 and RMC 43-2022.

RMC 42- 2022

In RMC 42-2022, the BIR clarified that the AITR may be amended on or before May 16, 2022, without imposition of interest, surcharge, and penalties. Provided that, a taxpayer whose amended returns will result in overpayment of taxes paid can opt to carry over the overpaid tax as credit against the tax due for the same tax type in the succeeding period or file for refund.

This is a welcome development for taxpayers who were able to file the AITR on April 18, 2022, as they may subsequently amend their AITR on or before May 16, 2022 without interest, surcharge, and penalties.

RMC 43- 2022

In addition to the above RMC, the BIR has also issued RMC 43-2022 which put an end to the confusing provisions of RMC 54-2018 and RMC 46-99.

RMC 54-2018 provides that when an additional tax is due per amended return, the 25% surcharge shall be imposed based on the additional tax to be paid. On the other hand, in RMC 46-99, it is stated that no 25% surcharge shall be imposed in computing for the deficiency tax assessment because of tax audit.

RMC 43-2022 noted clearly that based on the two RMCs, it appears that a taxpayer is unduly penalized for amending tax returns to pay the correct tax due but is unintentionally rewarded if unremitted taxes or correct tax due is paid only during tax audit, which therefore discourages taxpayers to amend their tax returns to voluntarily pay the correct tax due.

Thus, RMC 43-2022 reconciled these conflicting rules by not imposing the 25% surcharge to an amendment of a tax return if the taxpayer was able to file the initial tax return on or before the prescribed due date of its filing. On the other hand, the 25% surcharge shall be imposed on a tax deficiency found during audit if the particular tax return being audited was found to have been filed beyond the prescribed period or due date.

For example, if the taxpayer filed the AITR for taxable year 2021 on April 18, 2022, but subsequently amended the return on December 8, 2022, surcharge will not be imposed because the initial tax return (filed on April 18, 2022) was filed on the prescribed due date of its filing.

If, however, the taxpayer filed the AITR for taxable year 2021 on June 10, 2022, and on October 31, 2022, the taxpayer gets audited by the BIR, if the investigation resulted to deficiency income tax, the 25% surcharge shall be imposed because the particular tax return being audited was found to have been filed beyond the prescribed period or due date.

By the above recent RMCs, taxpayers will be encouraged to immediately amend their AITR to reflect the correct figures, as may be necessary, without fear of imposition of the 25% surcharge.

As a reminder, per the 1997 Tax Code, as amended, within three years from the date of the filing of the tax return, the same may be modified, changed, or amended, as long as no notice for audit or investigation for such return has in the meantime been actually served upon the taxpayer.

Thus, if the taxpayer chose to amend the initial AITR for calendar year 2021 on or before May 16, 2022, per RMC 42-2022, no interest, surcharge, and penalties will be imposed. On the other hand, if the taxpayer subsequently amends the AITR beyond the May 16, 2022 cut-off, the taxpayer may do so without risk of imposition of 25% surcharge as per RMC 43-2022, but the interest and compromise penalties may be imposed by the BIR. It is advisable, therefore, for the taxpayers to review the AITRs that they have filed and make the necessary amendments, if any.

Considering the challenges of the AITR preparation, by reason of the holidays and various limitations, and the fact that we are still in a state of pandemic, the BIR’s recently released issuances are good news for the taxpayers. Indeed, fortune favors the taxpayer, who files on time.

Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


As published in BusinessWorld, dated 18 April 2022