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The 25% surcharge for amended tax returns

Recently, the Bureau of Internal Revenue issued Revenue Memorandum Circular (RMC) No. 21-2018. It circularizes the imposition of 25% surcharge, in addition to the 20% interest (now 12% under the TRAIN Law) and compromise penalty, on amended returns when additional taxes are payable.

The BIR noted that there are Revenue District Offices (RDOs) that impose the 25% surcharge on amended returns, while other RDOs do not impose such surcharge. The inconsistencies in the practices of RDOs are causing confusion among the taxpayers.

In resolving the confusion, the BIR ruled that amendments to returns involving additional tax payments shall be subject to the 25% surcharge in addition to the 20% interest and compromise penalties.

BIR anchored the RMC on Section 248 of the National Internal Revenue Code (NIRC) which imposes civil penalties. According to the BIR, it is clear that the interest of 20% and penalty equivalent to 25% of the amount due shall be imposed in case of failure to file any return and pay the tax due thereon on the date prescribed; or failure to pay the full or part of the amount of tax shown on any return as required under the provisions of the NIRC or rules and regulations.

Thus, in an amendment of return where an additional tax is due per amended return, 20% interest and 25% penalty shall be imposed based on the additional tax to be paid per amended return.

There may be various reasons where a taxpayer may be constrained to file an amended return. One of the valid reasons would be adjusting and/or correcting entries in the books made after filing of the tax return or discovered after the annual statutory audit of the financial statements. These represent additional information which call for legitimate and valid changes in the books to reflect the correct tax reporting for the transactions.

The taxpayer should consider the impact of these adjustments particularly if there is a need to amend a return. The intention of the taxpayer is primarily to correct the amount reflected in the previous return to tally with the amount per books and remit the correct tax due to the government.

In this instance, the failure to report the correct tax payable in the original tax return was not done with the intention of manipulating the tax payable. However, it will be an expensive experience if the tax return will require an additional tax payable.

Given the strict imposition of the 25% surcharge by the BIR, the taxpayer must be careful in preparing his tax returns and ensure that all information is correct before filing. Hence, the taxpayer must perform extra diligence to ensure that the amounts being reported in the tax returns are accurate. Otherwise, they will be subject to the unnecessary cost of 25% surcharge.

The BIR’s imposition of the 25% surcharge on every amended tax returns which would require additional tax payment may discourage taxpayers from correcting their tax returns.

Due to the significant surcharge, there is a possibility that the taxpayer will take the risk and wait for the additional taxes to be discovered during BIR audits.

In view of the expensive repercussions of amending a tax return, the taxpayer need to be careful and prudent in preparing his tax returns. Any mistake is definitely costly, requiring the payment of interest, compromise penalty and 25% surcharge.


Richard R. I barra is a manager of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.


As published in BusinessWorld, dated 24 April 2018