In our previous article, we discussed Revenue Memorandum Circular (RMC) No. 54-2018, which circularizes the amendment on the 20 percent interest rate for deficiency and delinquency interest under Republic Act No. 10963, or the “Tax Reform for Acceleration and Inclusion” (Train) Law.

As it stands, deficiency and delinquency interest shall be double the legal interest rate for loans or forbearance of money as set by the Bangko Sentral ng Pilipinas (BSP), in accordance with BSP Memorandum No. 799 series of 2013. Thus, beginning January 1, 2018, the effectivity date of the Train Law, the interest rate for deficiency and delinquency interest shall be 12 percent per annum, until a new interest rate shall be prescribed by the BSP.

To reiterate, deficiency interest is assessed on the amount still due and collectible from a taxpayer upon BIR audit or investigation; delinquency interest is assessed due to the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand.

Recently, the Department of Finance issued Revenue Regulations (RR) No. 21, 2018, which reiterates the points raised under RMC No. 54-2018, as well as transitory provisions on the date of applicability of the 12 percent interest rate for deficiency and delinquency interest under the Train Law

Beginning January 1, 2018, the effectivity date of the Train Law, deficiency interest and delinquency interest shall not be imposed simultaneously. This is certainly a welcome development and amends how the BIR imposed deficiency and delinquency interest prior to the passage for the Train Law. This point is best understood through an illustration:

Let us assume that the BIR, after investigating Mr. X’s internal revenue taxes for taxable year 2015, has found him to be liable for income taxes in the amount of P1,000,000, exclusive of interest and penalties. The BIR proceeds to issue a Formal Assessment Notice (FAN), requiring Mr. X to pay the deficiency taxes on or before June 30, 2017. However, it was only on December 31, 2017 that Mr. X paid the tax, plus interest:

Basic tax due P1,000,000.00

25% surcharge for late payment P250,000.00

20% deficiency interest from

April 16, 2016 to June 30, 2017 P241,643.84 P491,643.84

Total amount due on June 30, 2017 P1,491,643.84

Add:

20% deficiency interest from

July 1, 2017 to December 31, 2017

(based on P1,000,000) P100,821.92

20% delinquency interest from July 1, 2017 to

December 31, 2017

(based on P1,491,643.84) P150,390.39 P251,212.31

Total amount due on

December 31, 2017 P1,742,856.15

From the above illustration, we can clearly see the simultaneous imposition of the deficiency and delinquency interest. In contrast, under the Train Law, the deficiency and delinquency interest will be imposed in the following manner:

Let us assume again that Mr. X’s deficiency income tax for taxable year 2018 is in the amount of P1,000,000, exclusive of interest and penalties. The BIR proceeds to issue a FAN, requiring Mr. X to pay the deficiency taxes on or before June 30, 2020. However, it was only on February 10, 2021 that Mr. X paid the tax, plus interest:

Basic tax due P1,000,000.00

Add:

25% surcharge for late payment P250,000.00

12% deficiency interest from

April 16, 2019 to June 30, 2020 P145,315.07 P395,315.07

Total amount due on June 30, 2020 P1,395,315.07

Add:

12% delinquency interest from

July 1, 2020 to February 10, 2021

(based on P1,395,315.07) P103,215.09

Total amount due on February 10, 2021 P1,498,530.16

From the above illustration, only the delinquency interest was imposed from the time Mr. X failed to pay the deficiency taxes on July 1, 2020. Note that one of the instances delinquency interest (as in the case of Mr. X above) is imposed is when a taxpayer fails to pay a deficiency tax or any surcharge or interest on the due date appearing in the notice and demand of the Commissioner of Internal Revenue.

Manila Times Source

ATTY. PEACHES ARANAS

Managing Partner LMA LAW