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Rosben Orbeso Murillo, CPA

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Studied at Saint Paul School of Professional Studies
Work Experiences:
Taught both Accounting and Taxation for more than six (6) years.
Former Tax CPA reviewer at SPSBL CPA review center.
Rosben Orbeso Murillo, CPA
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Recently, the Bureau of Internal Revenue(BIR) issued the Revenue Regulation no. 21-2018 to impose the new 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 is 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 on beginning January 1, 2018. Any deficiency for the period up to December 31, 2017, shall apply the old interest rate of 20%.

Read more on the Latest Train Law Update 2019:

What 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 taxable year of 2016. The tax liability was still unpaid on 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 from 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 the example on 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 on March 2018. How should the delinquent interest is computed? 

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 multiply by eight months which starts from May 2017-December 2017 and then multiply the old interest rate.

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). 

Conclusions

In this update, the interest rate on delinquent tax due does not decrease the tax rate but it is favorable 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 of 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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