“If you were given a chance to change one thing in your life what would it be?” This question is often asked in beauty pageants, but if you really have a way to change something in your past would you go back and rectify it? Or should you move forward in your life as it is? As for me, I would grab that opportunity and make good all the promises I have made and do all the things I hesitated doing. That way, my “now” would be a better one - No more regrets; No more what ifs.

But in reality, chances to mend glitches from the past are not served in an unlimited golden platter. Chances to remedy one’s gaffe are more likely an exemption and will never be the general rule in life. This is also true when it comes to taxation.

It is said that there are only two things certain in life: Death and Taxation. But what happens when the laws and/or rules in taxation imposed to us nearly caused the death of our means to live in this harsh world where you have to fight for your right to live a comfortable life? CHANGE. Change is the only means to fix what has long been oppressive. But this change does not always mean looking back. Sometimes it means moving forward, leaving the faulty past behind and starting anew with a better system.

CHANGE comes in the form of 5 packages of RA NO. 10963 (TRAIN Law). Prior to the TRAIN Law, the law mandates that interests be imposed on unpaid taxes in cases where the taxpayer fails or delays in the payment of its tax liabilities. The National Internal Revenue Code (NIRC), as amended, provides in Section 249 (B) that any unpaid tax due shall be subject to 20% deficiency interest per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof. Further, Section 249 (C) provides that in case of failure to pay (1) the amount of the tax due on any return required to be filed, or (2) the amount of tax due for which no return is required, or (3) a deficiency tax, or any surcharges or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected a 20% delinquency interest per annum until the amount is fully paid.

Clearly, the law imposed not only one but two types of interest which, if we look closely, can be imposed simultaneously. Even though the imposition of interest starts on different dates, the end date of the same will only be upon full payment of the tax due. The rationale is to ensure that the taxpayers would pay their tax liabilities on time as taxes are the lifeblood of the government. But is simultaneous imposition of these two types of interest commensurate to the damage to the government that may have been caused by the non-payment of tax liabilities?

The 1st package of the TRAIN Law resolved this by amending the NIRC. The deficiency and delinquency interest rates are reduced from 20% to “double the legal interest rate for loans or forbearance in absence of express stipulation as set by the Banko Sentral ng Pilipinas (BSP).” With this amendment, the rates for both types of interest are now set at 12% per annum pursuant to BSP Circular No. 799 which fixes the legal interest rate at 6% per annum. Also, the TRAIN Law prohibits the simultaneous imposition of deficiency and delinquency interests.

Though as of the moment, the Bureau of Internal Revenue (BIR) has not yet issued guidelines on how to implement the aforementioned changes, the Court of Tax Appeals (CTA), in the case of Moog Controls Corporation – Philippine Branch v. Commissioner of Internal Revenue, CTA Case No. 9077 dated 22 February 2018 (the “Moog case”) has discussed the proper implementation of the new rules on deficiency and delinquency interests.

In the Moog case, the petitioner with fiscal year ending on 31 October 2009 was ordered to pay a deficiency interest of 20% per annum based on the basic deficiency income tax from 15 February 2010 (filing deadline for annual income tax return for fiscal year ended 31 October 2009) until full payment thereof pursuant to Section 249(B) of the NIRC. A delinquency interest rate of 20% per annum was also imposed on the basic tax, surcharge and deficiency interest computed from demand on 08 June 2015 until full payment thereof in accordance with Section 249 (C) of the NIRC. The issue on proper imposition of the deficiency and delinquency interests arose in this case because of the change in the rules on the interest rate and non-simultaneous imposition of deficiency and delinquency interests. Given the amendment of the NIRC, the petitioner argues that Article 22 of the Revised Penal Code (RPC) states that penal laws shall have retroactive effect insofar as they favor the person guilty of a felony. Thus, the non-imposition of the two types of interest simultaneously should be applied retroactively. It insists that since double imposition has been prohibited, the deficiency interest shall end once the delinquency interest starts to run. However, the CTA in this case clarified that since the imposition of interest is proportionate to the period of delay of payment by the taxpayer; such imposition is compensatory in nature rather than penal, making Article 22 of the RPC not applicable in this case. Thus, the CTA held that the new rules on the imposition of interests cannot be applied to the subject assessment but will only be applied from the effectivity date of TRAIN Law which is 01 January 2018.

The CTA also reiterates that the NIRC and TRAIN Law should not be seen in conflict with each other. Both should be interpreted to produce a harmonious result by applying the provisions under NIRC on interest from the date prescribed for payment up to the time prior to the effectivity of the TRAIN Law, i.e., 01 January 2018, and apply the provisions of the TRAIN Law on interest from its effectivity on 01 January 2018 up to the complete payment of the deficiency tax. In other words, the double imposition of interest will still apply in so far as the period between the dates prescribed for tax payment until the last day prior to its amendment.

Applying the same to the Moog case, the BIR is partially correct in its assessment and its imposition of appropriate interests until prior to the effectivity of the TRAIN Law. However, from 01 January 2018, the petitioner shall only be liable to a delinquency interest at the rate of 12% on the unpaid amount (basic tax plus surcharges and deficiency and delinquency interests computed until 31 December 2017) from 01 January 2018 until its full payment pursuant to the TRAIN LAW.

In the same vein, in life we cannot just rectify or mend the things that went wrong in the past. Change regardless of whose favor it is made, cannot always be applied whenever we want them to. We need to go by the rules for the rules/laws are what keep us away from chaos. Sometimes or most of the time, we must need to move forward armed with the lessons learned from the past and hoping that this time, we do things better. Nothing is so sure in this life. Everything is always a trial and error. What is left for us to do is to have faith in the system while continuously discovering its flaws and making effort to improve it.

Ivy Joy A. Navarro 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 ph-inquiry@kpmg.com or rgmanabat@kpmg.com.