Keep track of your taxes, or you may become BIR’s RATE program’s next target

With just a few months before audit season ends, it might be a good time for corporate taxpayers to polish their filing of annual income tax returns and make sure that financial statements are squeaky clean. No one wants to be accused of tax evasion, or face the consequences of even the smallest tax compliance errors that will later on come back as a massive problem.

In an article written by Ryan E. Cabello for Philstar.com, the most common error of a corporate taxpayer is the belief that financial audits and tax compliance reviews are synonymous when in fact, they have their own respective objectives. Not all financial statements that have been audited by their independent external auditors can automatically be considered “tax compliant”. Cabello writes,

“A financial audit enables the independent external auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with Philippine Financial Reporting Standards. On the other hand, a tax compliance review aims to evaluate the level of company’s observance and conformity with the Philippine Tax Code provisions and its implementing rules and regulations. More importantly, through a tax compliance review, a taxpayer is able to identify possible tax exposures in case of non-compliance with pertinent tax laws, rules and regulations. Thus, the taxpayer is able to correct mistakes and plan its options even before a BIR audit is conducted.”

With that said, it is safe to say that that tax compliance is a logical consequence of an independent financial audit, and not a reciprocally synonymous. To confuse the two as otherwise might make one a target of the Bureau of Internal Revenue’s (BIR) Run After Tax Evaders (RATE) Program. This program, which began in 2005, has been intensified, aiming to reach the goal of initiated by the Department of Finance (DOF) and BIR to investigate and prosecute criminal violations of the National Internal Revenue Code (NIRC) of 2007.

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