BIR Ruling No. 396-61

September 6, 1961 BIR RULING NO. 396-61 The Radio Electronic Headquarters, Inc. P. O. Box 1400, Manila Gentlemen : With reference to your letter dated March 9, 1961, I have the honor to inform you that if the amount of the income tax shown in the return filed by a taxpayer or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as part of the tax interest upon the unpaid amount at the rate of 1% a month, or 12% per annum, from the date prescribed for its payment until it is paid (Gen. Circular No. V-508, par. 8(9). Accordingly, if the tax shown in the return of a taxpayer is P500.00, payable on or before January 15, 1961 (fiscal year used by him ends September 30) but failed to pay it until January 15, 1962, an interest thereon in the amount of P60.00 shall be collected aside from the tax. The computations in the first and second examples given in your letter are, therefore, wrong but those in the third and fourth examples correct. Moreover, in the case of the fourth example, the total interest payable is P660.00 and net P560. For a better understanding of how we arrived at such a conclusion, we are reproducing said example below. "Month Amount Paid Unpaid Amount Interest Amount January 15 P1,000 P11,000 0 --- February 15 1,000 10,000 1% 100 March 15 1,000 9,000 1% 90 April 15 1,000 8,000 1% 80 May 15 1,000 7,000 1% 70 June 15 1,000 6,000 1% 60 July 15 1,000 5,000 1% 50 August 15 1,000 4,000 1% 40 September 15 1,000 3,000 1% 30 October 15 1,000 2,000 1% 20 November 15 1,000 1,000 1% 10 December 15 1,000 0 1% 10 P560" (In the example, the taxpayer uses a fiscal period ending September 30; the tax shown in the return is P12,000.00; and pays in equal installments of P1,000.00 a month.) From the example, it is apparent that the amount of P100.00, interest payable on February 15, was arrived at by using as basis for computing the 1% monthly interest the amount of P10,000.00). This is wrong, because the tax unpaid as the period from January 15 to February 15 is P11,000.00, not P10,000.00, and, therefore, P11,000.00 should be the basis for computing the interest. The same thing is true with the other periods up to and including November 15. Thus, for the periods beginning with January 15 and ending with November 15, or ten (10) months all in all, there is a deficiency in the computation or the interest of P10.00 for every month, or a total of P100.00. In this connection, it may be stated that the income tax is permitted to be paid in installments only when the amount thereof is in excess of P500.00, in which case the law allows the taxpayer to pay the same in two (2) equal installments only and not more the first on or before April 15 following the close of the calendar year or, if the return is made on the basis of a fiscal year, not later than the 15th day of the fourth month following the close of the fiscal year, while the second on or before July 15 following the close of the calendar year or on or before the 15th day day of the seventh month following the close of the fiscal year, as the case may be (See: Sec. 51(a)(1) and (2), Tax Code, as amended by R.A. No. 2546). Such being the case, when we said that your fourth example is correct, we do not necessarily sanction payment of the income tax in monthly installments; rather, in so deciding we have in mind extreme cases wherein the circumstances are such that we are compelled to allow payments in more than two installments. With respect to the maximum amount that may be collected as interest on deficiency income tax, subsection (d) and subsection (e), paragraph (2), Section 51 of the Tax Code provide that in no case shall such amount exceed that corresponding to a period of three (3) years. The interest on deficiency is 6% per annum (Sec. 51(d) and for late payment of the deficiency 18% per annum (Sec. 51(e) (2). Accordingly, the total interest on deficiency is limited to 18% per annum, while the total interest for late payment of the deficiency to 36% per annum. (See; General Circular No. V-503, par. 8(13). aisadc Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue