Negotiating Penalties for Partial Remittance Payments to Government Agencies

I. Nature of the Obligation to Remit and the Consequence of Delay or Shortfall

In the Philippines, employers and certain persons act as withholding agents of the government for taxes (income tax, expanded withholding tax, withholding tax on compensation, VAT withholding) and mandatory contributions (SSS, PhilHealth, Pag-IBIG). The obligation to remit is absolute and personal to the withholding agent. Failure to remit the full amount on time gives rise to the following automatic liabilities under existing laws and regulations:

Liability	Legal Basis	Rate / Amount
Surcharge	Sec. 248, NIRC (as amended)	25% (deficiency) or 50% (willful neglect/fraud) on the amount not remitted
Interest	Sec. 249, NIRC	12% per annum (double interest rate effective 21 Jan 2018 under TRAIN Law)
Compromise Penalty	Sec. 6, RR 13-2018 & RR 7-2018 (BIR)	Fixed schedule depending on the violation (e.g., P25,000–P50,000 per violation)
SSS Late Payment Penalty	Sec. 22(a), Republic Act 11199 (Social Security Act of 2018)	2% per month from due date until fully paid
PhilHealth Penalty	PhilHealth Circular 2019-0009	2% simple interest per month
Pag-IBIG Penalty	Pag-IBIG guidelines	1/10 of 1% per day (approximately 3% per month)

These penalties run from the original due date until the date of full payment (not assessment or demand).

II. Is Negotiation of Penalties Allowed at All?

A. Bureau of Internal Revenue (BIR)

1. Surcharge

   • 25%/50% surcharge is mandatory and non-waivable once the fact of non-remittance or late remittance is established (CIR v. CA, G.R. No. 124043, 1998).
   • The only exception is when the BIR itself commits a mistake in the assessment that leads to the late payment (e.g., erroneous notice of discrepancy).

2. Interest

   • 12% interest is likewise mandatory and runs until full payment.
   • It is not negotiable and cannot be waived except in extremely rare cases of fortuitous events recognized by the BIR Commissioner (almost never granted).

3. Compromise Penalty

   • This is the only truly negotiable portion in BIR cases.
   • Under Sec. 204, NIRC and RR 7-2018 (as amended by RR 13-2018), the BIR is authorized to compromise civil liabilities (including compromise penalties) for “reasonable cause” such as:
     • Financial incapacity (must be proven with audited financial statements, SEC/BIR financial incapacity certification)
     • Doubtful validity of the assessment
     • When the cost of collection exceeds the amount recoverable
   • Minimum compromise rates are prescribed (e.g., non-filing of return = 100% of basic tax; late remittance = P25,000–P50,000 per month depending on the tax type).
   • The taxpayer may offer lower than the minimum if financial incapacity is extreme and well-documented.
   • Approval level:
     • Up to P500,000 – Regional Evaluation Board
     • Above P500,000 up to P1M – National Evaluation and Approval Committee (NEAC)
     • Above P1M – Commissioner of Internal Revenue personally

4. Partial Payment Agreements / Installment Payment of Delinquent Accounts

   • Allowed under RR 7-2018 and reinforced by RMO 52-2020 and RMO 45-2022 (pandemic-era relief).
   • The taxpayer may request to pay the basic tax in installments while penalties continue to run until the basic tax is fully paid.
   • Upon full payment of basic tax, the taxpayer may immediately file an application for compromise or abatement.
   • In practice, many Revenue District Officers accept partial payments and “hold in abeyance” collection enforcement while the compromise application is pending.

5. Abatement Program (historical precedents)

   • From time to time, the BIR issues one-time abatement programs (e.g., RMO 56-2019, RMO 24-2021 during the pandemic) that allow waiver of all penalties and part of interest upon full payment of basic tax within a prescribed period. These are not permanent and are issued only through specific Revenue Memorandum Orders.

B. Social Security System (SSS)

• Sec. 22(a), RA 11199 expressly allows the Social Security Commission to waive or reduce the 2% per month penalty for “meritorious reasons.”
• SSS Circular No. 2020-010-b (pandemic relief) and subsequent circulars allow installment payment of contributions and condonation of penalties upon full payment of principal contributions.
• In practice, SSS is the most flexible government agency in allowing penalty condonation or restructuring, especially for financially distressed employers.

C. PhilHealth

• PhilHealth Circular No. 2020-0014 (Payment Holiday and Penalty Condonation Program) and subsequent circulars allow penalty condonation upon full payment of principal contributions within a prescribed period or under an installment agreement.
• Negotiation is possible through the PhilHealth Regional Office or the Penalty Condonation Committee.

D. Pag-IBIG Fund

• Historically the least flexible. The 1/10 of 1% per day penalty is strictly imposed.
• However, during the pandemic, Pag-IBIG Circular 428 (Penalty Condonation Program) allowed 100% condonation upon full payment of principal within the availment period.
• Outside of declared condonation periods, negotiation is extremely difficult.

III. Practical Strategies for Negotiating Penalties When Making Partial Payments

1. Immediate Partial Payment + Letter-Request to “Hold in Abeyance” Collection
   Pay whatever amount you can immediately and attach a formal letter requesting suspension of enforcement action while a compromise or installment agreement is being processed.

2. File Application for Installment Payment (BIR Form 0620 or SSS e-PA form)
   This stops the running of further interest/penalty in some cases (especially SSS and PhilHealth) or at least prevents distraint/warrant of garnishment.

3. Simultaneous Application for Compromise (BIR) or Penalty Condonation (SSS/PhilHealth)
   File the compromise application even before the basic tax is fully paid. Many RDOs entertain the application and use it as basis to defer collection.

4. Proof of Financial Incapacity
   The strongest ground for reduction below the minimum compromise rates. Required documents:

   • Secretary’s Certificate authorizing compromise
   • Latest audited financial statements showing negative equity or insolvency
   • BIR Certification of Financial Incapacity (some regions require this)
   • Affidavit of financial condition

5. Invoke “Equity and Humanitarian Considerations”
   Especially effective with SSS and PhilHealth. Cite massive retrenchment, force majeure (typhoon, pandemic), or closure of business.

6. Engage Directly with the Account Officer / Collection Division
   In practice, the Revenue District Officer (RDO) or SSS Branch Manager has wide latitude to recommend favorable terms. Personal appearance and sincere explanation often yield better results than pure correspondence.

IV. Risks of Partial Payment Without Agreement

• Penalties and interest continue to run on the unpaid balance.
• The BIR may still issue a Preliminary Assessment Notice/Final Assessment Notice and proceed to collection via distraint or civil action.
• Criminal cases for failure to remit withholding taxes (Sec. 255, NIRC) are not suspended by partial payment.

V. Conclusion

In the Philippine setting, interest and surcharge imposed by the BIR are virtually non-negotiable. The only realistic area for negotiation is the compromise penalty and, in extraordinary cases, installment arrangements that effectively defer or reduce the total liability. The SSS and PhilHealth remain significantly more flexible than the BIR and Pag-IBIG. Taxpayers facing huge delinquency penalties are well-advised to pay whatever principal they can immediately, file the appropriate compromise/condonation application, and document financial incapacity rigorously. Early engagement with the concerned government agency, rather than avoidance, almost always yields the most favorable outcome.