Generally, mistakes are common in everyone’s everyday dealings. Unlike any other error, a tax mistake or error may result in one to unintentionally under-declare and pay less tax.
Conversely, tax mistakes may result in a taxpayer to remit more than what ought to be paid to the taxman. It is therefore crucial that the taxpayers are equipped with the fundamentals of the tax laws that regulates the same instances.
So, whether a mistake results in additional tax or a reduced liability it is key that such mistakes are correctly rectified as soon as possible to ascertain the exact obligation. In this regard, it is imperative to note that a tax mistake made by a taxpayer can only be rectified within one year after submission of the respective income tax return. In this article, words importing the masculine shall be deemed to include the feminine.
The error
As alluded to above, a mistake may actually result in taxpayers inadvertently submitting tax returns that inflate the tax payable or understate a tax loss. Basically, most common mistakes or errors may emerge from unintended omission of key information that may result in applying a different tax treatment to a certain transaction. In the same vein, some tax errors may result from erroneously trans-positioning figures such as revenue or expenses which result in a higher or lower tax.
As an example, Tiro may wrongly declare revenue as P96 million instead of P69 million. Consequently, the error results in a significantly higher tax liability than what would be due. Such errors may be discovered through reconciliation of past financial records or even through an audit. It is therefore key to ensure that the same is rectified within the timeframe stipulated by the law to avoid unnecessary penalties or additional taxes. Let us now have a look at what the law says.
The law
The Income Tax Act takes cognisance of the fact that no one is perfect and generally every taxpayer is prone to make a mistake or error at some point in their tax life. Accordingly, the Act permits a taxpayer to go back in time and amend a tax return submitted in error within one year after date of issuance of the respective notice of assessment.
The said law states that where any person ’notifies the Commissioner General in writing within one year after the date of the notice of assessment that by reason of some error or mistake of fact in such return the assessment was excessive, the Commissioner General, after taking into account all relevant circumstances, may reduce the assessment to provide such relief as is fair and reasonable.’ This provision only applies to instances where a taxpayer overstates tax and they later intend to reduce the tax burden. In other words, a taxpayer may state their tax liability as P1.5 million instead of P1 million. Alternatively, this may also apply where a tax loss is understated such as P2 million instead of P2.5 million.
Request and correct
As prescribed by the law above, it is imperative to note that after an assessment has been made by BURS, a taxpayer may seek recourse in writing to correct any errors or mistakes that resulted in additional tax. In other words, the taxpayer should write to BURS within one year after the date of notice of assessment from BURS. Technically, this implies that if the tax is discovered after the lapse of the one-year prescription period, any taxes incorrectly declared are final, including the overstated taxes. Therefore, BURS is legally compelled to collect the same tax. Essentially, the one-year time frame applies to a situation where the taxpayer unintentionally made the error or mistake and later discovers it.
On the other hand, it is key to note that the taxman is not immune to making misstates. Accordingly, the law prescribes that where an additionally tax is emanating from an error or mistake made by BURS the same can be rectified within 4 years after receipt of the respective assessment.
Conclusion
Taxpayers must therefore correct any overstated income tax liability or understated tax losses within 1 year or the assessment is regarded as final.
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