The Manila Times : Failure to file tax returns when taxes are already withheld is not a crime involving moral turpitude

5 March 2022

By Antonio Contreras | The Manila Times

UNTIL now, there are still many people who argue that failure to file tax returns is a crime that involves moral turpitude. There are many ways to evaluate the correctness of this claim, but what I have done is to apply a very simple method that we use in qualitative textual analysis, which is genealogical/discursive. The focus is not just the text itself, but its beginnings and development, as well as the inherent logic that drove its transformation.

The Tax Code of the Philippines is not a single piece of legislation, but is actually a progression from its parent material, Commonwealth Act 466, or the "Tax Code of 1939." In Section 73 thereof, non-payment of tax and non-filing of tax returns were already punished by a fine of not more than P2,000 or imprisonment of no more than six months, or both.

This provision was reiterated in Section 254 of PD 1158, which is the "Tax Code of 1977," which stated that: "Sec. 254. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation. – Any person required under this Code or by regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or regulations shall, in addition to other penalties provided by law, upon conviction thereof, be fined not more than two thousand pesos (P2,000) or imprisonment of not more than six (6) months or both."

In 1981, Section 12 of Batas Pambansa 135 made an exemption, stated as follows: "Provided, however, That an individual with compensation income taxable under Section 21 (a) of this Code and where the tax withheld from such compensation income is final shall be exempt from the penalty for failure to pay the tax on such compensation income and to file a return thereon at the designated period."

Section 254 of PD 1158, as amended, became Section 288 of PD 1994 or the "Tax Code of 1985." The title of the section was changed to "Failure to file return, supply information, pay tax, withhold and remit tax." It also changed the penalties to a fine of not less than P5,000 nor more than P50,000, or imprisonment for not less than six months and one day but not more than five years, or both. Take note, however that since Section 73 as amended by BP 135 was not touched, that the exemption from penalties given to those with compensation income remained.

In 1987, Executive Order 273 renumbered Section 288 to become Section 254 once again.

In 1992, RA 7497 amended Section 73 of the Tax Code and removed the exemption provided by BP 135.

When the Tax Code of 1997, RA 8424, was passed, it adopted Section 254 and renumbered it as Section 255. The new title of the Section now reads, "Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation." In addition, the punishment has been amended now with a fine of not less than P10,000 and imprisonment of not less than one year but not more than 10 years. This is now what is in operation at present.

An examination of Section 255, from its original phrasing as Section 254 in PD 1158 in 1977, to when it became Section 288 in PD 1994 in 1985, to when it was renumbered to Section 254 in EO 273 in 1987, and finally to Section 255 of RA 8424 in 1997, implies that this provision would apply more to employers of persons who are on compensation income where taxes are already withheld. In this context, the actual payment of tax now comes in the form of these being withheld by the employer, and the act of filing a return is also a responsibility of the employer. All the punishable acts — failure to pay tax, failure to make a return, failure to keep any record, failure to supply correct and accurate information, failure to withhold and remit taxes withheld — are responsibilities of the employer.

This is why BP 135 in 1981 actually made sense when it exempted people with compensation income where taxes are withheld already from any penalty for not paying their taxes and filing their tax returns. This is also why even if such exemption was removed in RA 7497 in 1992, the exemption was de facto written in the spirit of the very provision itself, when juxtaposed with the practice of employers withholding taxes from their employees and filing the returns for them.

In fact, RA 8424 provided for substituted filing by employers, as defined in Section 51 (A)(2)(b).

Eventually, the Train Law, RA 10963, series of 2017, in Section 14 of the law which amended Section 51-A of RA 8424, further clarified substituted filing, and has re-articulated again the exemption of those under compensation income with taxes withheld if there is only one source of employment from the payment of tax and the filing of tax returns.

It is therefore clear from the nature and spirit of the law as worded, and from the intent of the legislature through the years, that there is an intent to provide legal breathing space for compensation income earners whose taxes were already withheld. This simply affirms the fact that failure to file tax returns by this cohort of taxpayers is not an abominable, immoral act that rises to the level of a crime involving moral turpitude, which many until now would insist on just to satisfy their partisan predispositions.