Before the amendment introduced by the Tax Reform for Acceleration and Inclusion (TRAIN) law, the imposition of deficiency and delinquency interest on late payment of tax under the Tax Code had become too burdensome to taxpayers. In interpreting of the Tax Code on interest prior to its amendment, the Court of Tax Appeals issued a number of decisions where the imposition of the deficiency interest at a rate of 20 percent per annum is imposed simultaneously with the imposition of a delinquency interest, also at a rate of 20 percent per annum. So, following previous CTA decisions, the imposition of the 20-percent delinquency interest on top of the 20-percent deficiency interest created a situation where a 40-percent interest per annum was imposed.
The imposition of deficiency interest at a rate of 20 percent per annum, and simultaneous with the imposition of delinquency interest, also at 20 percent per annum, is seemingly oppressive, confiscatory and unconscionable, especially in tax investigation cases being contested in courts considering that court cases usually take years to resolve. This would create a scenario where upon final resolution of a case, a losing taxpayer litigant would end up paying interest on the taxes due much more than the total amount of taxes due at the time the assessment was issued by the Bureau of Internal Revenue (BIR).
Thus, the amendment introduced by the TRAIN law lowering the rate of interest imposed on late payment of taxes from a rate of 20 percent per annum to a rate of double the legal interest rate, is truly a relief to delinquent taxpayers willing to settle their unpaid tax liabilities.
As provided in the Revenue Regulations 21-2018, the Department of Finance clarified that effective January 1, 2018, the effectivity date of the TRAIN law, the rate of interest imposable for late payment of taxes shall now be 12 percent, which is twice the 6-percent interest rate imposed on loans or forbearance of any money per BSP Circular 799 Series of 2013. The deficiency interest shall be imposed on the basic tax due from the date prescribed for its payment until its full payment, or upon issuance of a notice and demand by the Commissioner or his authorized representative, whichever comes first.
The delinquency interest shall be imposed on the basic deficiency tax plus surcharge and interest, to be computed from the due date appearing in the notice and demand by the Commissioner until full payment. The regulations clarified that upon effectivity of the TRAIN law, the deficiency and delinquency interest shall not be imposed simultaneously.
The BIR, however, clarified that in cases where the tax liabilities became due before the effectivity of the TRAIN law and where the full payment will only be made after the effectivity of the TRAIN law, the deficiency and delinquency interest imposed shall be at a rate of 20 percent per annum for the period up to December 31, 2017 and 12 percent per annum, for the period from January 1, 2018 until full payment of the tax liabilities. The double imposition of deficiency and delinquency interest prior to the effectivity of the TRAIN law shall still apply for the period between the date prescribed for payment until December 31, 2017.
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The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at rodel.unciano@bdblaw.com.ph or call 403-2001 local 140.