Train Law Lays to Rest Questions on the Proper Application of Deficiency and Delinquency Interest on Tax Liabilities
Varying positions, at times, have been taken by the Justices of the Court of Tax Appeals (“CTA”) with respect to the issue of whether or not deficiency and delinquency interests may be simultaneously imposed on a taxpayer’s tax liability.
Prior to the enhancements brought about by the enactment of Tax Reform for Acceleration and Inclusion Law (TRAIN),[1]the Tax Code stated:
“SEC. 249. Interest. –
(A) In General. – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. – Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. – In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.”[2]
The CTA has, in numerous occasions, interpreted the said provision to mean that where there is a deficiency in the tax paid as against that which is ought to be paid, deficiency interest of 20% per annum is imposable on such deficiency. Moreover, once the Bureau of Internal Revenue (“BIR”) serves notice and demand to the taxpayer to pay the deficiency tax within a specified period of time, and the latter fails to pay for whatever reason, the taxpayer’s deficiency tax becomes delinquent, and an additional delinquency interest becomes imposable on the tax liability, on top of, and simultaneous with, the deficiency interest.
Taxpayer-Litigants before the CTA have often flinched at this simultaneous imposition, as it is far too onerous and can be said to defeat the purpose of having administrative and judicial remedies. For instance, should a taxpayer with a deficiency assessment decide to pursue the remedies available under the law, and the taxpayer ultimately succeeds in bringing down the deficiency assessment, the taxpayer will, in most likelihood, end up paying close to, if not more than, the same amount when his case is decided several years down the road. If this happens far too often, an impression will eventually take root in taxpayers’ minds that going to court may not always the wisest thing to do when faced with a tax assessment. Simply stated, not a few taxpayers will be sure to just submit to a potentially flawed tax assessment, rather than pursue a protest administratively and judicially.
With the passage of the TRAIN Law, the conundrum on how to properly apply deficiency and delinquency interest on deficiency tax assessments has been laid to rest. The apparent ambiguity in the tax code has finally been clarified by legislative action and the original intention of the framers has now been reduced to black letter law. The TRAIN Law amended Sec. 249 of the NIRC, in relation to BSP Circular 799 s. 2013, which changed the interest rate from 20% per annum to “double the legal interest rate for loans or forbearance of any money in the absence of an express stipulation as set by the Bangko Sentral ng Pilipinas from the date prescribed from payment until the amount is fully paid[3],” which means that the new interest rate for both deficiency and delinquency rate would be 12% per annum. Of most importance, in the same amendatory provision, it was once and for all clearly stated that: “in no case shall the deficiency and delinquency interest be imposed simultaneously.[4]”
This amendment is more in accord with equity and reaches back to correct the unnecessary and oppressive burden of simultaneous imposition of deficiency and delinquency interests under the old law.
[1] R.A. 10963
[2] Underscoring supplied.
[3] Sec. 75, RA 10963
[4] Ibid.
