In the Philippine entrepreneurial landscape, the excitement of launching a venture often overshadows the rigorous bureaucratic requirements imposed by the law. However, operating a business without a Mayor’s Permit (Business Permit) and Bureau of Internal Revenue (BIR) Registration is not merely an administrative oversight; it is a violation of local and national laws that carries severe financial and criminal liabilities.
I. The Necessity of Business Registration
Under Philippine law, the right to engage in business is a privilege regulated by the state. Two primary pillars of this regulation are:
- Local Government Code of 1991 (RA 7160): Grants LGUs the power to create their own sources of revenue and levy taxes, fees, and charges. This is the basis for the Mayor’s Permit.
- National Internal Revenue Code (Tax Code): Mandates that every person or entity subject to any internal revenue tax must register with the BIR.
II. Consequences of Operating Without a Mayor’s Permit
A Mayor’s Permit signifies that a business has complied with local zoning, health, sanitary, and fire safety standards. Operating without one triggers several enforcement actions:
1. Summary Closure and Cease and Desist Orders
Local Government Units (LGUs) have the "police power" to summarily close any establishment operating without a valid permit. This often results in the physical padlocking of the premises and the posting of a Notice of Closure.
2. Administrative Fines and Penalties
Most municipal or city ordinances impose daily or monthly fines for as long as the business remains unregistered. These vary by locality but typically include:
- Surcharges: Often 25% of the assessed permit fees.
- Interest: Usually 2% per month on the unpaid fees.
3. Criminal Prosecution
Continued operation despite a closure order can lead to criminal charges filed by the LGU against the business owner or the board of directors (for corporations), potentially resulting in imprisonment as dictated by the specific local revenue code.
III. Penalties for Non-Registration with the BIR
The BIR is the primary tax-collecting arm of the government. Failure to register is viewed as a serious breach of the Tax Code.
1. Administrative Penalties
- Compromise Penalties: For "Failure to Register," the BIR imposes a fine based on the location of the business (e.g., ₱20,000 for establishments in cities and ₱10,000 in municipalities).
- Surcharges and Interest: If the business has been earning income without registration, the BIR will assess back taxes. A 25% surcharge (or 50% in cases of willful neglect/fraud) and a 12% annual interest will be applied to the basic tax due.
2. Criminal Liability (Tax Evasion)
Under Section 258 of the Tax Code, any person who fails to register with the BIR shall, upon conviction, be punished by a fine of not less than ₱5,000 but not more than ₱20,000 and suffer imprisonment of not less than six months but not more than two years.
3. Oplan Kandado
The BIR’s "Oplan Kandado" program allows the bureau to suspend or temporarily close a business for at least five days if the taxpayer fails to register, issue receipts, or file returns. The closure remains in effect until the violations are rectified.
IV. Collateral Legal and Operational Risks
Beyond direct fines, an unregistered status creates a "domino effect" of legal vulnerabilities:
- Inability to Issue Official Receipts (ORs): Without BIR registration, a business cannot issue valid ORs. This prevents corporate clients from transacting with the business, as they cannot claim expenses for tax deduction.
- Lack of Legal Standing: Unregistered businesses may face challenges in court when trying to enforce contracts or collect debts from third parties.
- Labor Disputes: If an unregistered business has employees, it likely lacks SSS, PhilHealth, and Pag-IBIG registrations, leading to further penalties from these agencies.
Summary Table of Liabilities
| Requirement | Primary Penalty | Financial Impact | Maximum Sanction |
|---|---|---|---|
| Mayor's Permit | Closure of Business | Surcharges + Monthly Interest | Imprisonment (Local Code) |
| BIR Registration | Oplan Kandado | 25-50% Surcharge + 12% Interest | Imprisonment (Tax Code) |
| Official Receipts | Seizure of Records | Penalties per unissued receipt | Tax Evasion charges |
Legal Note: Compliance is not retroactive in a way that waives past liabilities. Even when a business eventually registers, the government may still audit the period of "informal" operation and demand payment for back taxes and accumulated penalties.