TAX DEFICIENCY AND TAX DELIQUENCY

TAX DELIQUENCY
Tax Deliquency refers to the state of a person upon whom the personal
obligation to pay the tax has been fixed by lawful assessment and who thereafter
fails to pay the tax within the time limited by law (U.S. v Abejo, G.R. No. L –
12362, 29 August 1917)

TAX DEFICIENCY

Section 56 of the National Internal Revenue Code provides:

SSEC 56. Payment and Assessment of Income Tax for Individuals and
Corporation. -

(A) Payment of Tax. -

(1) In General. - The total amount of tax imposed by this Title shall be paid by the
person subject thereto at the time the return is filed. In the case of tramp vessels,
the shipping agents and/or the husbanding agents, and in their absence, the
captains thereof are required to file the return herein provided and pay the tax
due thereon before their departure. Upon failure of the said agents or captains to
file the return and pay the tax, the Bureau of Customs is hereby authorized to
hold the vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is filed to answer for the tax due.

(2) Installment of Payment - When the tax due is in excess of Two thousand
pesos (P2,000), the taxpayer other than a corporation may elect to pay the tax in
two (2) equal installments in which case, the first installment shall be paid at the
time the return is filed and the second installment, on or before July 15 following
the close of the calendar year. If any installment is not paid on or before the date
fixed for its payment, the whole amount of the tax unpaid becomes due and
payable, together with the delinquency penalties.

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(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the
Commissioner shall examine it and assess the correct amount of the tax. The tax
or deficiency income tax so discovered shall be paid upon notice and demand
from the Commissioner
As used in this Chapter, in respect of a tax imposed by this Title, the term
"deficiency" means:

(1) The amount by which the tax imposed by this Title exceeds the amount
shown as the tax by the taxpayer upon his return; but the amount so shown on
the return shall be increased by the amounts previously assessed (or collected
without assessment) as a deficiency, and decreased by the amount previously
abated, credited, returned or otherwise repaid in respect of such tax; or

(2) If no amount is shown as the tax by the taxpayer upon this return, or if no
return is made by the taxpayer, then the amount by which the tax exceeds the
amounts previously assessed (or collected without assessment) as a deficiency;
but such amounts previously assessed or collected without assessment shall first
be decreased by the amounts previously abated, credited returned or otherwise
repaid in respect of such tax.

PENALTIES TO BE PAID:

CIVIL PENALTIES

Section 248 of the National Internal Revenue Code provides:

SEC. 248. Civil Penalties. -
(A) There shall be imposed, in addition to the tax required to be
paid, a penalty equivalent to twenty-five percent (25%) of the
amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing
a return with an internal revenue officer other than those
with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown
on any return required to be filed under the provisions of
this Code or rules and regulations, or the full amount of tax
due for which no return is required to be filed, on or before
the date prescribed for its payment.

(B) In case of willful neglect to file the return within the period
prescribed by this Code or by rules and regulations, or in case a
false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent (50%) of the tax or of the deficiency
 tax, in case, any payment has been made on the basis of such return
before the discovery of the falsity or fraud: Provided, That a
substantial underdeclaration of taxable sales, receipts or income, or
a substantial overstatement of deductions, as determined by the
Commissioner pursuant to the rules and regulations to be
promulgated by the Secretary of Finance, shall constitute prima
facie evidence of a false or fraudulent return: Provided, further,
That failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared per return, and a
claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.

INTEREST

Section 249 of the National Internal Revenue Code, as amened by TRAIN law
provides:

SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of
tax, interest at the rate of double legal interest rate for loans or forbearance of any
money in thr absence of any stipulation as set by the Bangkong 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 deliquency interest
prescribed under subsections (B) and (C) hereof, be imposed simultaneously.

(B) Deficiency Interest. - 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.

(C) Delinquency Interest. - In case of failure to pay:

(1) The amount of the tax due on any return to be filed, or

(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be assessed
and collected on the unpaid amount, interest at the rate prescribed in Subsection
(A) hereof until the amount is fully paid, which interest shall form part of the tax.

(D) Interest on Extended Payment. - If any person required to pay the tax is
qualified and elects to pay the tax on installment under the provisions of this
Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of time within which to pay a tax
or a deficiency tax or any part thereof, there shall be assessed and collected
interest at the rate hereinabove prescribed on the tax or deficiency tax or any part
thereof unpaid from the date of notice and demand until it is paid.

NOTE:

 Before passage of TRAIN law, deliquency and deficiency interest may be

imposed simultaneously. However, after the effectivity of TRAIN law, in
no cases shall the deficiency and deliquency interest be simultaneously
imposed.
 Per BSP Circular No. 799, the interest rate is 6%. Hence, 12% will be the
interest.

 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.