Fairness is basic to a successful and equitable tax system. The proposed tax-reform bill seeks to address many of the inequities in our Tax Code. However, there is a basic inequity that is so oppressive to taxpayers which is not yet incorporated in any proposed bill—the simultaneous or overlap in the imposition of the 20-percent deficiency interest and 20-percent delinquency interest, or a total interest of 40-percent per annum.
The basic source of the inequity is Section 249 of our Tax Code, which has been interpreted to allow both interests to run simultaneously until full payment of the tax and amounts demanded, although they start to run at different points—deficiency interest starts from the due date of the tax, while delinquency interest starts from the deadline for payment stated in the commissioner’s demand.
Deficiency interest is supposed to be due on deficiency tax or the amount short of the full tax due payable to the government. Delinquency interest, on the other hand, is due when the tax becomes delinquent, i.e., when it has finally become due demandable, and presupposes the failure of the taxpayer to pay the tax due on the date indicated in the Bureau of Internal Revenue (BIR)’s letter of demand.
Prior to 2013, our BIR did not impose both interests simultaneously—they imposed deficiency and delinquency interests one after the other.
However, Revenue Regulations 18-2013 promulgated in 2013 changed the illustrations and espoused the overlap or simultaneous running of both deficiency and delinquency interest “until full payment”.
Unfortunately, our courts have concurred with this overlap treatment. The first of such decisions was Takenaka Corp. Philippine Branch v Commissioner of Internal Revenue, CTA EB Case 745 (September 4, 2012), where the Court of Tax Appeals en banc held that, because of the different nature of these interests, there is no double taxation. The same position was upheld in several other cases.
However, interest is supposedly to be compensatory in nature; it is meant to compensate the government for the cost of money. It is not meant to be punitive. The BIR is already authorized to impose a surcharge of 25 percent or in case of willful neglect to file the return within the period prescribed by law and regulations, or in case a false or fraudulent return is willfully made, a surcharge of 50 percent. Thus, there is no reason an additional 20-percent interest should be imposed.
The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the “hen that lays the golden egg”. And, in order to maintain the general public’s trust and confidence in government, this power must be used justly and not treacherously.
The imposition of the exorbitant 40-percent interest definitely destroys; it is an unjust and unfair collection of an additional penalty, rather than a mere compensation to the State for delay in the payment of the tax. This is especially so since the government pays no interest at all to taxpayers who seek refunds from the government on taxes illegally or erroneously collected by the government.
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The author is a CPA-lawyer and the managing partner of Mata-Perez & Francisco law firm.
The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of Finex. You may e-mail Perez at euney.mata-perez@mfpcounsel.com.