Deficiency Interest and Delinquency Interest on Unpaid Taxes – No More Double Imposition
By: Atty. Rio Krisel G. Bautista on May 16,2024
Section 249 of the National Internal Revenue Code, as amended (the “Tax Code”), provides for deficiency interest and delinquency interest, which may be assessed and collected on any unpaid amount of tax.
Deficiency interest is assessed and collected from the date prescribed for payment until the amount is fully paid, or upon the issuance of a notice and demand by the Commissioner of Internal Revenue (“CIR”), whichever comes earlier. On the other hand, delinquency interest is assessed and collected in case of failure to pay the following on the due date appearing in the notice and demand of the CIR: (1) the amount of the tax due on any return required to be filed; (2) the amount of the tax due for which no return is required.
Before the amendments to the Tax Code introduced by Republic Act (“R.A.”) No. 10963, the Tax Reform for Acceleration and Inclusion Law (“TRAIN Law”), beginning 2018, delinquency interest may be imposed simultaneously with deficiency interest on any unpaid deficiency tax, plus any surcharge and/or interest from its due date until the amount is fully paid.
The TRAIN Law, however, introduced substantial amendments to the Tax Code, not only by just reducing the tax rate on interests from 20% to 12%, but also clarifying the periods when deficiency and delinquency interests begin to accrue. Section 249 of the Tax Code, as amended, now specifically bars the simultaneous imposition of deficiency and delinquency interests:
“SEC. 249. Interest. –
- In General. [xxx] Provided, That in no case shall the deficiency and the delinquency interest prescribed under Subsections (B) and (C) hereof, be imposed simultaneously.”
Thus, in calculating the deficiency and delinquency interests, the provisions of the TRAIN Law shall now apply. The deficiency interest of 12% is due from the time taxes are due until the issuance of the CIR’s notice and demand, while the delinquency interest of 12% is due from due date or deadline of payment indicated or appearing in the said notice and demand (technically, the period when the taxes are considered “delinquent”) until full payment of the tax liability.
The new rules introduced by the Train Law have been applied to assessments which are currently contested.
In a separate opinion rendered by the Presiding Justice of the Court of Tax Appeals, Justice Roman Del Rosario, in the case of CIR v. Iconic Beverages, Inc., CTA Case no. 8607, July 16, 2018, he pointed out that “deficiency interest and delinquency interest on tax are based on law. When the law is amended during the pendency of a case, and there being a specific provision as to when the amendment becomes effective, there is no reason for the Court not to apply the law as amended.”
However, the TRAIN Law cannot be applied retroactively, i.e., for tax assessments covering periods prior to January 1, 2018. For this reason, a transitory provision, Section 6 of Revenue Regulations No. 21-2018, was issued by the BIR implementing Section 249 of the Tax Code to clarify that:
“In cases where the tax liability/ies or deficiency tax/es became due before the effectivity of the TRAIN Law on January 1, 2018, and where the full payment thereof will only be accomplished after the said effectivity date, the interest rates shall be applied as follows:
| Period | Applicable Interest Type and Rate |
| For the period up to December 31, 2017 | Deficiency and/or delinquency interest at 20% |
| For the period January 1, 2018 until full payment of the tax liability | Deficiency and/or delinquency interest at 12% |
For instance, in the case of Asian Transmission Corporation (ATC) v. Commissioner of Internal Revenue, G.R. Nos. 242489/247397, November 8, 2023,the Supreme Court ruled that the simultaneous imposition of deficiency interest and delinquency interest was proper. In this case, the tax liability was due on July 31, 2011. It is worth noting that, at the time ATC was adjudged liable to pay deficiency taxes, the TRAIN Law was not yet in effect. ATC was then ordered by the Court to pay deficiency interest of 20% from the date prescribed for its payment until December 31, 2017. In addition to that, a delinquency interest of 20% was also imposed on the tax deficiency and simultaneously on the 20% deficiency interest which has accrued from date of non-payment until December 31, 2017, the latter period when the taxes were considered already delinquent. Pursuant to the provisions of the TRAIN Law that lowered the rate to 12% (double the legal interest rate), a delinquency interest of 12% from January 1, 2018 until fully paid was also imposed against ATC.
As can be gleaned from the case, there was double imposition of the delinquency interest of 20% and the deficiency interest for the period between the date prescribed for payment until December 31, 2017. However, from January 1, 2018 onwards, consistent with the amendments introduced by the TRAIN Law, simultaneous imposition of these interests was no longer allowed.
Therefore, in so far as the period between the date prescribed for payment until December 31, 2017, both deficiency interest and delinquency interest were applied simultaneously from the time the taxes became delinquent until their full payment. However, commencing on January 1, 2018, no double imposition of deficiency and delinquency interests is allowed.
Rio Krisel G. Bautista is a CPA-Lawyer and an associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.
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