Grant of Request for Abatement of Penalties/Surcharges Imposed on the Late Remittance of Withheld Taxes

July 24, 2001 BIR RULING NO. 031-01 Kagawaran ng Kagalingang Panlipunan at Pagpapaunlad (Department of Social Welfare and Development) Batasan Pambansa Complex, Constitution Hills Quezon City Attention: Ms . Ruth F . Layug Assistant Secretary for Management Gentlemen : This refers to your letter dated February 2, 2001 addressed to Regional Director Antonio I. Ortega, reiterating your appeal for reconsideration for the waiver of penalties, interest and other surcharges on your late remittances of withholding taxes on compensation and government value-added tax for November and expanded withholding tax and value-added tax for December, both of the taxable year 1997. A perusal of the docket of the case disclosed that pursuant to Letter of Authority No. 000027811 dated June 11, 1998, an investigation of the withholding tax liabilities of the Department of Social Welfare and Development (DSWD) was conducted; that the investigation resulted in DSWD's deficiency taxes; that in a Preliminary Assessment Notice dated January 11, 2001, DSWD was notified of its tax liabilities which include the deficiency expanded withholding tax (EWT) as well as the penalties, surcharges and interest for the late filing and remittance of taxes; that thereafter, a formal letter of demand was sent to DSWD; that in view thereof, DSWD, through its Undersecretary for Management, Belinda C. Manahan, sought reconsideration for the waiver of the increments consisting of penalties, surcharges and interest anchoring its reason for late filing and payment remittance is due to the fact that, during the months of November 1997 and December 1997, " its Notice of Cash Allocation (NCA) is very limited and the funding requirements of the Agency was focused and prioritized on the food assistance and logistics for calamity victims as well as services for persons with disabilities older persons, disadvantaged women youth and children who were in difficult circumstances "; that " inasmuch as DSWD is a department fully engaged in providing services to the poorest of the poor, implementation of programs and projects designed to uplift their lives should not be hampered "; that accordingly, the failure of the DSWD to file the withholding taxes on time did not result in a deprivation of benefits or right of any entity or person ; and that the BIR, Assessment Division advised DSWD to file a Protest letter against said assessment considering that the letter for reconsideration was received only after the Final Assessment Notice has been issued. Hence, this request for reconsideration. In reply thereto, please be informed that based on your representations, your failure to remit the subject withholding tax liabilities on time was mainly due to the limited Cash Allocation during the months of November and December 1997, which amount was used to fund the necessary services required of the Agency. Considering therefore that the activities involved are basically governmental functions, and which had eaten up most of the DSWD cash budget allocation for the months mentioned, this Office hereby grants your request for abatement of the penalties/surcharges imposed on the late remittance of withheld taxes as provided for under then Section 248 of the Tax Code, as amended (also Section 248 of the Tax Code of 1997). However, you shall have to pay the corresponding interest accruing on such deficiency tax at the rate of twenty percent (20%) per annum imposed under Section 249 of the 1997 Tax Code until the amount is fully paid. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due the State and, in this sense, the interest charged is not penal but compensatory in nature. It is compensation to the State for the delay in the payment or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. (Castro vs. Col., etc. Resolution on Motion for Reconsideration, G.R. No. L-12174, Dec. 1962) aIHCSA Accordingly, you are hereby advised to present this letter to the Regional Director, Revenue Region No. 7, BIR Regional Office Building, Quezon Avenue cor. Scout Santiago St., Quezon City for recomputation of the total interest to be imposed. Please course your payment at the authorized agent bank within the Revenue District Office where you are registered using the Payment Form (BIR Form 0605). Finally, please furnish the Regional Director, Revenue Region No. 7 and the Chief, Withholding Tax Division, Room 207, National Office Building, BIR, Diliman, Quezon City with a copy of the form evidencing your payment in order that we could dispose of the case and be accordingly closed. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue