Tax Audit by BIR District Offices in the Philippines

By: Tax and Accounting Center Philippines

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order No. 4-2013 dated 8 March 2013  (RMO No. 4-2013) and entitled “Audit of Tax Returns by Revenue District Offices” with the following objectives:

  • To prescribe uniform criteria in the continuing audit tax returns by the Revenue District Offices (RDOs), and,
  • To enhance taxpayer’s voluntary compliance by encouraging payment of correct amount of internal revenue taxes through the exercise of he enforcement function of the Bureau.
Under RMO No. 4-2013, certain policies and guidelines are required to be observed in the continuing audit of tax returns by Revenue District Offices. ALL TAXPAYERS are considered as possible candidates for audit, while the following taxpayers are under PRIORITY for tax examination:
Professionals and sole proprietorship’s
Professionals (e.g. doctors, lawyers, accountants, engineers, architects, etc.)   and sole proprietorships in the Philippines under PRIORITY examination are those whose:
  1. income tax due is less than P200,000 per annum;
  2. gross revenue is less than forty percent (40%) compared to previous year’s reported gross revenue;
  3. tax payment in each tax type is less than thirty-five percent (35%) as compared to previous year’s tax payment;
Those engaged in the following industries
Those taxpayers engaged in the following industries are likewise under priority for tax examination:
  1. Importers/manufacturers/wholesalers/retailers of wrist watches and jewelry;
  2. Petroleum/gasoline dealers;
  3. Hotels/motels/pension houses/lodging houses/inns, dormitories/boarding houses;
  4. Real estate industry;
  5. schools particularly for foreigners (e.g. English Schools for Koreans), review centers;
  6. Contractors of NGAs, LGUs and government owned and controlled corporations;
  7. Retailers/ wholesalers;
  8.  Restaurants, fast food chains, catering services, bars, coffee shops;
  9. Hospitals, clinics, medical/dental laboratories;
  10. Establishment/clinics for beauty enhancements;
  11. Manufacturers/ dealers of beauty and health supplement;
  12. Amusement/ entertainment/ event caterers;
  13. Advertising agencies;
  14. Business process outsourcing companies;
  15. E-commerce industries
  16. Manpower and other recruitment service agencies;
  17. Other industries peculiar to the area of jurisdiction of the district office
Those who fall below the established benchmarks of tax compliance
Under Revenue Memorandum Order No. 5-2012 amending Revenue Memorandum Order No. 4-2006 was issued on benchmarking in the Philippines. Benchmark is a point of reference for measurement or a set of standard to be used to measure the performance or compliance of taxpayers in a particular industry.
Taxpayers with ending inventory of of 100% or more of sales.

Finally, those who maintained an ending inventory with value of 100% or more of its gross sales is likewise under priority for tax audit by the Revenue District offices.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@ta************.org.

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