Train Law Lays to Rest Questions on the Proper Application of Deficiency and Delinquency Interest on Tax Liabilities
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.
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