Of deficiency and delinquency interest
ATTY. PEACHES ARANAS
Most of us may have encountered the situation where you have to borrow money from your parents. Knowing how Filipinos tend to spoil their kids, most end up not paying for the “loan”. The more responsible ones do pay off the loan, albeit, on a staggered and interest-free basis. Still, others prefer to secure consumer loans offered by banks, and will have to contend with the payment of interest, depending on the current competitive rates that banks have to offer.
If you were to owe the Bureau of Internal Revenue (BIR) some money (in the form of unpaid taxes), how would this be settled? Would the BIR be as kind and let you pay-off the amount of the unpaid taxes interest-free? If ever, what rate of interest would the BIR be asking for the unpaid taxes?
Under the Philippine Tax Code, any unpaid amount of tax shall be assessed deficiency interest at the rate of 20 percent per annum, calculated from the date prescribed for payment until the amount is fully paid. To illustrate, if you were unfortunate enough not to have filed your Annual Income Tax Return and pay the taxes due on April 15, 2018, you will be liable for the amount of the unpaid taxes, plus 20 percent deficiency interest from April 16, 2018 until the taxes are fully paid.
In addition, the Tax Code also provides for the imposition of “delinquency interest” in case a taxpayer fails to pay:
- The amount of tax due on any return required to be filed, or
- The amount of tax due for which no return is required, or
- A deficiency tax or any surcharge or interest on the due date appearing in the notice and demand of the Commissioner of Internal Revenue.
To effectively illustrate the difference between deficiency and delinquency interest, let us assume that the BIR, after conducting an investigation of Mr. X’s internal revenue taxes for taxable year 2015, has found him to be liable for income taxes in the amount of P200,000. The BIR proceeds to issue a Formal Assessment Notice (FAN), requiring Mr. X to pay the deficiency income tax of P200,000, plus 20 percent interest on or before April 30, 2017. However, it was only on December 31, 2017 that Mr. X paid the tax, plus interest.
From the above illustration, Mr. X is liable for 20 percent deficiency interest on the P200,000 which shall be calculated from April 16, 2016 to April 30, 2017. On top of the deficiency interest, Mr. X shall also be liable for 20 percent delinquency interest based on the total amount of: the P200,000, plus 25 percent surcharge, plus the deficiency interest, which shall be calculated from May 1, 2017 to December 31, 2017.
Interestingly (pun intended), the 20 percent rate for deficiency and delinquency interest has been amended by 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). More importantly, the TRAIN Law states that the deficiency and the delinquency interest shall not be imposed simultaneously.
Recently, the above provisions of the TRAIN Law have been circularized under Revenue Memorandum Circular (RMC) No. 54-2018. The RMC provides for the legal interest rate for loans as set by the BSP, which is at 6 percent per annum (BSPCircular 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.
The post Of deficiency and delinquency interest appeared first on The Manila Times Online.