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How to Compute Delinquent Interest on Tax Due 2019?

Reduction of delinquent interest rate from 20% to 12% effective this year 2018. Learn how to compute delinquent during the transition year.

Recently, the Bureau of Internal Revenue(BIR) issued the Revenue Regulation no. 21-2018 to impose the new delinquent interest rate on deficiency tax due. This regulation was issued on September 14, 2018. The previous interest rate on deficiency tax due was 20% and it decreases due to the implementation of train law 2019 to 12%. Here are the details on the new interest rate on deficiency tax due for this year 2019.



New Interest Rate on Deficiency Tax Due Update

This rate is imposed on any tax deficiency due. Interest shall be assessed and collected from the due date prescribed for its payment until the date it is fully paid and upon issuance of a notice and demand by the authorized representative or Commissioner whichever comes first

This new interest rate of 12% is effective at beginning January 1, 2018. Any deficiency for the period up to December 31, 2017, shall apply the old interest rate of 20%.

Applicable Interest rate if there is a transition

If a certain taxpayer was assessed prior to the effect of this regulation, the 20% interest will be used to compute the total amount due. However, if the assessed deficiency tax is still unpaid after the amendment of this article, there will be a double imposition of both deficiency and delinquency interest will still apply up to December 31, 2017. Any remaining days or months shall use the new interest rate up to the date of full payment.

What is Double Imposition?

Double imposition takes place if there is a transition of rates. Prior to this regulation, the interest rate on tax deficiency was 20% and 12% this year.




There is a double imposition of the tax due is still unpaid up to the date of imposition of the new interest rate. For example, if taxpayer A was assessed deficiency income tax for the taxable year of 2016. The tax liability was still unpaid in December 2017 which is the deadline for payment stated in the notice and demand issued by the Commissioner. The full payment was made in March 2018.

In this case, there is a double imposition of an interest rate for 2017 and 2018. The old interest rate of 20% will be based on April 2017 to December 2017 and the rest will be 12% up the full payment of delinquent tax due.

When to imposed Delinquency Interest?

Delinquent interest is imposed in three cases:

  1. failure to pay the amount of the tax due on any return to be filed;
  2. amount of the tax due for which no return is required; lastly,
  3. a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner or his authorized representative until the amount is fully paid, which interest shall be form part of the tax.

How to compute interest on the delinquent tax due?

Here an example of how to compute delinquent interest. Assuming that you have failed to pay the amount of 10, 000 last tax return 2018? To compute the delinquent interest is to multiply the unpaid tax by the interest rate of 12%. Therefore, 10, 000*12% is equal to 1,200. So how much you should pay for the unpaid taxes this year? Your tax due at this time must include the delinquent interest and the unpaid tax.

How about if the tax due involved more than one taxable year? In the same situation above. Assuming Taxpayer A was assessed deficiency tax due for 6, 000. The delinquent tax due is partly affected by the new interest rate of 12% at the same time by 20%. Assuming that the full payment of the tax due will be in March 2018. How should the delinquent interest be computed?




How to compute delinquent Interest?
First compute the tax due for the year 2017: (6,000*8/12)*20% old interest rate. The total delinquent interest for 2017 is 800. The tax due is multiplied by eight months which starts from May 2017-December 2017 and then multiply the old interest rate. The second step is to multiply the rest by 12% or (6,000*4/12)* 12% new interest rate. For the year 2018, the total delinquent interest on unpaid tax due is 240. Therefore the total delinquent interest for the unpaid tax is 1,040 (800+240). 

In this update, the interest rate on delinquent tax due does not decrease the tax rate but it is favourable to the taxpayer because of this train law. It includes also on how to identify if you need to pay not only the unpaid tax due but also the interest on delinquent tax due. Regarding the computation of delinquent interest, make sure you know when is the deadline for the full payment of the assessment amount.

If you still have questions regarding this update, make sure to notify me by dropping your comments below. Please don’t be shy to share your thoughts. If you like this article, make sure to press the share button or subscribe for more updates.

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