Train updates deficiency and delinquency interest
With the approval of the Tax Reform for Acceleration and Inclusion (Train) Law, the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) 21-2018 to clarify the rate and type of interest in a tax assessment.
Under RR 21-2018, the interest rate prescribed for deficiency tax and delinquent tax liabilities is 12 percent, which is twice the prevailing interest rate of six percent from the Bangko Sentral ng Pilipinas. Prior to the Train Law, the interest rate was 20 percent.
There are two types of interest: deficiency interest and delinquency interest. Deficiency interest is imposed on any deficiency tax due, which will be assessed and collected from the date prescribed for payment until the full payment or upon the issuance of a notice of demand by the BIR, whichever comes first. Delinquency interest, on the other hand, is imposed on the failure to pay the amount of tax due on any return to be filed, the amount of tax due for which no return is required, or deficiency tax or any surcharge or interest appearing in the notice of demand.
RR 21-2018 clarifies that deficiency and delinquency interests cannot be imposed simultaneously, illustrated as follows: Illustration 1:
Mr. A has been assessed a deficiency income tax of P1 million, exclusive of interest and surcharge, for 2018. The tax liability has remained unpaid, despite the lapse of the June 30, 2020 deadline for payment, as stated in the notice and demand issued by the commissioner. The taxpayer paid the deficiency income tax on Feb. 10, 2021.
As a result, the applicable interest will be computed as follows: Illustration 2:
Company B has been assessed a deficiency income tax of P1 million, exclusive of interest and surcharge, for 2015. The tax liability has remained unpaid, despite the lapse of the June 30, 2017 deadline for payment, as stated in the notice and demand issued by the commissioner. The taxpayer paid the deficiency income tax only on Feb. 10, 2018. As a result, the civil penalties for late payment will be computed as follows:
If the tax liabilities or deficiencies became due before the effectivity of the Train Law on Jan. 1, 2018 and if the tax liabilities or deficiencies were fully paid after the said effectivity date, the previous 20 percent interest rate will still apply up to Dec. 31, 2017 and the new 12 percent interest rate from Jan. 1, 2018 onwards.