TRAIN imposes ‘reasonable’ penalty on tax delinquents – DOF

The Department of Finance (DOF) said the government’s tax reform law will encourage compliance in paying the correct amount of taxes, citing the new measure also imposes “a more reasonable” interest rate on delinquents.

In a statement, Finance Undersecretary Antonette C. Tionko said that the Tax Reform for Acceleration and Inclusion (TRAIN) removed the “punitive and confiscatory interest rates” imposed on deficiency taxes.

According to Tionko, with TRAIN, charges on deficiency taxes are now based on legal interest rate for loans set by the Bangko Sentral ng Pilipinas (BSP).

Before TRAIN, Tionko said a taxpayer who pays deficiency taxes beyond the due date set by the Bureau of Internal Revenue (BIR) is charged twice.

The first is with a 20 percent annual deficiency interest that accrues from the date of the deadline for the payment of the basic tax; and second, a delinquency interest accruing from the due date of BIR's final notice and demand.

Thus, she said, under the old tax provision, a taxpayer would sometimes have to pay the interest penalty that is almost or, at times, even over the deficiency tax due.

“Under the TRAIN, the interest rate on deficiency taxes is no longer oppressive and confiscatory because rather than imposing two interest penalties, the tax reform law provides only for the taxpayer to pay double the legal interest rate for loans set by the BSP,” Tionko said.

Moreover, TRAIN provides that “in no case shall the deficiency and the delinquency interest … be imposed simultaneously,” Tionko said.

On top of substantially lowering personal income tax rates, Tionko said the TRAIN has also made interest penalties “fairer and simpler” which, she said, “would hopefully encourage more people to pay their taxes.”

As an example, a taxpayer who paid his income tax due of, say, R600,000 for the year 2013 within the deadline set by the BIR on April 15, 2014 was assessed to have incurred a deficiency tax of R100,000. The BIR then sends him a final notice and demand for the deficiency tax due, including the interest penalties on April 15, 2015. The taxpayer, however, was only able to pay on April 15, 2017.

Under pre-TRAIN provisions in the Tax Code, the taxpayer would have to pay a deficiency interest of R60,000 for the three years counting from 2014 up to the time he was able to pay in 2017.

On top of this, he must also pay the delinquency interest of R40,000 that accrued from 2015, the due date of BIR's final notice and demand to pay the deficiency tax, to 2017.

Thus, the taxpayer would have to pay overlapping interest penalties amounting to R100,000, which is equivalent to the original deficiency tax of R100,000.