Tax deficiency and delinquency interests – punitive no more



The TRAIN, or the Tax Reform for Acceleration and Inclusion Law (Republic Act No. 10963), provided some relief or good news to us, taxpayers. It lowered the 20 percent deficiency and delinquency interests to double the legal interest for loans or forbearance of money as set by the Bangko Sentral ng Pilipinas. Since the current legal interest is 6 percent, the interest applicable was reduced to 12 percent per annum.

In the very recent case of 8199 Convenience Corporation v, CIR (CTA Case No. 8853, February 2, 2018), which involved the taxable year 2009, the CTA then adopted the lower 12 percent rate in calculating the total amount due from the taxpayer, even for periods prior to the TRAIN’s effectivity.

The TRAIN also prohibited the simultaneous imposition of the deficiency and delinquency interests by clarifying the periods within which both interests shall run. This amendment is very important because the double imposition of such interests is extremely harsh and punitive—it then resulted in a 40 percent interest after a taxpayer becomes delinquent.

Section 249 of our Tax Code, as amended, now states that deficiency interest shall run from the tax statutory deadline (the date prescribed for its payment) until the full payment thereof, or the issuance by the Commissioner of Internal Revenue (CIR) of a final notice of demand, whichever comes earlier. Before the amendment, said section allowed the deficiency interest to continue to run until full payment of the tax despite any issuance of a formal letter of demand in the interim. This resulted in an overlap with the delinquency interest, which starts to run from the time indicated in the CIR’s formal demand until full payment of the tax.

Aside from clarifying the periods within which both interests run, TRAIN added a proviso stating that in no case shall both deficiency and delinquency interests run simultaneously. This eliminated any doubt on how both interests should be calculated.

The amendments described above are just proper because there is a distinction between a deficiency tax and a delinquency tax. Deficiency tax is the amount short of the full tax due that should be paid to the government.

Delinquency, on the other hand, arises upon the failure of the taxpayer to pay the tax due as demanded by the CIR in a formal letter of demand issued after an assessment and audit. It is only upon such failure that a taxpayer is considered delinquent, and thus, should be liable for delinquency interest.

With the amendment, we are brought back to the calculation previously adopted by the BIR where both interests were imposed one after the other and not simultaneously, as illustrated in Revenue Regulations (RR) No. 12-99.However, RR No. 18-2013 passed in November 2013 amended RR No. 12-99 and allowed the simultaneous running of deficiency and delinquency interests after expiration of the period indicated in the CIR’s formal demand. Unfortunately, the overlap calculation was affirmed by our courts in several cases. (See Takenaka Corp.
Philippine Branch v. Commissioner of Internal Revenue, CTA EB Case No. 745, September 4, 2012;Liquigaz Philippines Corporation vs Commissioner of Internal Revenue, CTA EB Case Nos. 1117 and 1119, September 21, 2015).

The foregoing TRAIN amendments to Section 249 of the Tax Code are not just fair, but are also consistent with the principle that interest is compensatory and not punitive in nature. Interest is compensation to the state for the delay in the payment of tax. It is the charge for the use by the taxpayer of funds that rightfully should have been in the government coffers and utilized for its ends. It should therefore not be punitive in nature.

Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is an expert in Philippine tax and corporate law. 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 or visit MTF website at


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