In the taxpayer’s best interest

TOP OF MIND - Arik Aaron C. Abu (The Philippine Star) - November 13, 2018 - 12:00am

It is almost the end of 2018, and taxpayers have been subjected to a whirlwind of changes brought about by the effectivity of the first of five proposed comprehensive tax reform packages under the Duterte administration.

In response to the amendments to the Tax Code, the Bureau of Internal Revenue (BIR) has been relentless with its flurry of advisories and issuances to ensure proper compliance and guidance, keeping the taxpayers’ best interest in mind.

Among these issuances is Revenue Regulations (RR) No. 21-2018, which was promulgated by the BIR last Sept. 14, on the regulations implementing Section 249 of the National Internal Revenue Code of 1997, as amended under Section 75 of Republic Act (RA) No. 10963 or the “Tax Reform for Acceleration and Inclusion (TRAIN Law).”

It should be noted that Section 75 of RA No. 10963 amends Section 249(A) of the Tax Code to read as follows: “There shall be assessed and collected on any unpaid amount of tax, interest at the rate of double the legal interest rate for loans or forbearance of any money in the absence of an express stipulation as set by the Bangko Sentral ng Pilipinas from the date prescribed for payment until the amount is fully paid: Provided, That in no case shall the deficiency and the delinquency interest prescribed under subsections (B) and (C) hereof, be imposed simultaneously.” Further, the definition of delinquency interest under Section 249(B) has been revised as “Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof, or upon issuance of a notice and demand by the commissioner of internal revenue, whichever comes earlier.”

Upon the enactment and the effectivity of the TRAIN Law, the revision to Section 249 has caused confusion among taxpayers and BIR officers alike. Consequently, there has been an inconsistent application of the interest rate on unpaid taxes, as well as on the computation of deficiency and delinquency interests due. Thankfully, the BIR has finally issued the regulations on interest last September to clear the air and settle the misunderstanding once and for all.

While Section 2 of the RR echoes the revision found in the TRAIN Law, i.e. that the applicable rate of interest to be assessed and collected on any unpaid tax shall be double of the effective legal interest rate for loans or forbearances of any money in the absence of an express stipulation as set by the Bangko Sentral ng Pilipinas (BSP) from the date prescribed for payment until the amount is fully paid; RR No. 21-2018 now categorically states that under Section 249 of the Tax Code, the rate of interest imposable shall be 12 percent, which is double the rate of interest per BSP Memorandum Order No. 799 series of 2013 for loans or forbearances where no express stipulation of interest have been made. Hence, for interest payments for unpaid taxes due as of Jan. 1 until the full payment of the tax liability, the interest rate shall be at 12 percent. However, it should be noted that for taxpayers with tax liabilities and/or deficiency taxes due before the effectivity of the TRAIN Law, or up until Dec. 31, 2017, the applicable interest rate will still be 20 percent.

Moreover, Section 5 of the regulation expressly states that there shall be no double or simultaneous imposition of interest, in view of the implementation of the TRAIN Law. Prior to the enactment of RA No. 10963, taxpayers have to deal with the double imposition of deficiency and delinquency interests, which becomes burdensome to those who are unable to settle their unpaid taxes on time.

The revision in the last statement of Section 249(B) on the definition of a deficiency interest from “interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof” to include a second condition “or upon issuance of a notice and demand by the commissioner or his authorized representative, whichever comes first” paved the way for the interpretation that deficiency and delinquency interests may no longer be simultaneously imposed. As illustrated in the RR, deficiency interest at 12 percent shall be imposed for unpaid taxes up until the deadline for payment stated in the notice or demand issued by the commissioner. In case a taxpayer settles the unpaid taxes after the deadline, delinquency taxes are imposed thereafter on the total amount due (i.e. basic tax, surcharge and deficiency interest).

However, taxpayers must still be wary of the transitory provision in the regulations, which states that for unpaid taxes due on or before Dec. 31, 2017, unfortunately the old rule of double imposition of both delinquency and deficiency interests remains applicable to such unpaid taxes.

RR No. 21-2018 is a welcome development in terms of the proper interpretation and implementation of the revised Section 249 of the Tax Code. This comes as an assurance that in the advent of changing Philippine taxation landscape, the BIR has the taxpayer’s best interest in mind.

Arik Aaron C. Abu is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

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