CREATE YOUR OWN BUNDLE OF TEMPLATES! CLICK HERE TO FIND OUT!

CM 304.2 - TP OPTION - PAYMENT ON INSTALLMENT BASIS

There may be circumstances where taxpayers with outstanding tax liabilities, while recognizing such liabilities and willing to pay the same, may not be able to settle their unpaid accounts in full due to problems in cash flow. On a case to case basis, some considerations can be accorded by the Bureau to these taxpayers by allowing them to pay unpaid taxes on installment basis.[1] However, extreme care should be exercised by the concerned office in handling these cases to ensure that approvals of taxpayers’ requests for installment payments are never abused.

In evaluating any request for installment payment of unpaid tax liabilities, the concerned office must closely take into consideration relevant factors such as the amount of the outstanding liability; the current financial position of the taxpayer; the requested number and frequency of offered installment payments (the same should neither be unrealistically low, in terms of amount, nor long, in terms of installment period); the taxpayers’ track records in settling their tax liabilities; etc.

In case the taxpayer’s request for settlement of the tax liabilities on installment basis has been granted, the interest on the deficiency tax and/or on the delinquency tax liability shall be imposed from the due date of the tax until the full payment of the last installment thereof. The interest shall be computed based on the diminishing balance of the tax inclusive of interests.

If the taxpayer requests payment on an installment basis, the Revenue Officer shall:

  1. Stamp the word “Received” and indicate the date of receipt on the taxpayer’s letter-request to pay on installment basis. The letter shall state the requested terms of payment and the reasons for such request;
  2. Attach the letter-request to the docket of the accounts receivable/delinquent account case;
  3. Evaluate the merits of the taxpayer’s request for installment payment; and
  4. Prepare a memorandum report bearing the recommendation on the taxpayer’s request, together with the terms and schedule of payments for the approval of the Regional Director/ACIR-LTS, through the RDO/LTDO/LTCED. The delinquency penalties thereon shall be adjusted/computed up to the last installment based on the approved installment schedule.

               Computation of the Applicable Delinquency Penalties in case of Authorized Installment Payments

               The 25% surcharge on extended payment shall not be imposed, provided, however, that the taxpayer’s request for extension of the period within which to pay the tax is made on or before the deadline for the payment of the tax due. Conversely, if such request is made after the deadline for payment, the taxpayer shall already be treated as late in the payment of the tax. In this case, the 25% surcharge shall be imposed, even if the payment of the delinquency tax is allowed to be made on installment basis.

Scenario No. 1: In case the application for installment payment was made on or before the due date for the payment of the tax.

Illustration: XYZ Corporation, due to financial incapacity, requested to pay in four (4) monthly installments, starting June 30, 2009, its deficiency income tax liability for the year 2007 in the amount of P304,771.67 per Final Assessment Notice issued on May 31, 2009, with due date on June 30, 2009. Its request for installment payment has been duly approved.[2]

In this case, the 25% surcharge shall not be imposed for payment of the tax since its deadline for payment has been duly extended. However, delinquency interest rate of 20% per annum shall be imposed, computed based on the “unpaid amount”,[3] The computation of the interest shall be based on the diminishing balance or unpaid amount of the tax, inclusive of the deficiency interests and surcharge.

Total deficiency income tax assessed on May 31 2009                                                   P304,771.67

Less:      1st installment on 6/30/09                                                                                          76,192.92

Balance as of 6/30/09                                                                                                              P228,578.75

Add:       20% interest per annum

               From 6/30/09 to 7/31/09

               (P228,578.75 x .0166667)                                                                                              3,809.66

Amount due on 7/31/09                                                                                                         P232,388.41

Less:      2nd installment on 7/31/09

               (P76,192.92 + P3,809.66 interest)                                                                             80,002.58

Balance as of 7/31/09                                                                                                              P152,385.83

Add:       20% interest per annum

               From 7/31/09 to 8/31/09

               (P152,385.83 x .0166667)                                                                                               2,539.77

Amount due on 8/31/09                                                                                                         P154,925.60

Less:      3rd installment on 8/31/09

               (P76, 192.92 + P2,539.77 interest)                                                                            78,732.69

Balance as of 8/31/09                                                                                                              P  76,192.91

Add:       20% interest per annum

               From 8/31/09 to 9/30/09

               (P76,192.91 x .0166667)                                                                                                 1,269,89

4th and final installment on 9/30/09                                                                                   P  77,462.80

Below is the computation of the installment payment of the above cases in table format:

Date of Installment

Equal Monthly Installment

Surcharge

Delinquency Interest[4]

Amount Payable

Balance

Amount assessed

 

 

 

 

P304,771.67

6/30/2009

P  76,192.92

0.00

P          0.00

P  76,192.92

  228,578,75

7/31/2009

    76,192.92

0.00

     3,809.66

    80,002.58

  152,385.83

8/31/2009

    76,192.92

0.00

     2,539.77

    78,732.69

    76,192.91

9/30/2009

    76,192.92

0.00

     1,269.89

    77,462.80

             0.00

 

P304,771.67

-

P   7,619.32

P312,390.99

 

 

Scenario No. 2: In case the application for installment payment was made on July 31, 2009 after the due date for the payment of the tax, June 30, 2009.

 

 

 

 

Total deficiency income tax assessed on May 31, 2009                                                  P304,771.67

Add:                      25% surcharge

                              (P304,771.67 x 25% = P76,192.92/4)                                                          19,048.23

                              20% interest per annum from

                              6/30/09 to 7/31/09

                              (P304,771.67 x .0166667)                                                                                5,079.54

Amount due on 7/31/09                                                                                                         P328,899.44

Less:                     Amount due on 7/31/09

                              1st installment (P304,771.67/4)                  P 76,192.92

                              Surcharge (P76,192.92/4)                               19,048.23

                              Interest                                                                  5,079.54                          100,320.69

Balance as of 7/31/09                                                                                                              P228,578.75

Add:                      25% surcharge

                              (P304,771.67 x 25% = P76,192.92/4)                                                         19,048.23

                              20% interest per annum from

                              7/31/09 to 8/31/09

                              (P228,578.75 x .0166667)                                                                                3,809.66

Amount due on 8/31/09                                                                                                         P251,436.64

Less:                     Amount payable on 8/31/09

                              2nd installment (P304,771.67/4)                 P 76,192.92

                              Surcharge (P76,192.92/4)                               19,048.23        

                              Interest                                                                  3,809.66                             99,050.81

Balance as of 8/31/09                                                                                                              P152,385.83

Add:                      25% surcharge

(P304,771.67 x 25% = P76,192.92/4)                                                         19,048.23

20% interest per annum from

8/31/09 to 9/30/09

(P152,385.83 x .0166667)                                                                               2,539.77

               Amount due on 9/30/09                                                                                                         P173,973.83

               Less:                     Amount payable on 9/30/09

                                             3rd installment (P304,771.67/4)                  P 76,192.92

                                             Surcharge (P76,192.92/4)                               19,048.23

                                             Interest                                                                  2,539.77                        P  97,780.92

               Balance as of 9/30/09                                                                                                              P  76,192.91

               Add:                      25% surcharge  

                                             (P304,771.67 x 25% = P76,192.92/4)                                                         19,048.23

                                             20% interest per annum from

                                             9/30/09 to 10/31/09

                                             (P76,192.91 x .0166667)                                                                                 1,269.89

               4th and final installment on 10/31/09                                                                                  P  96,511.03

Below is the computation of installment payment on the above case in table format:

 

 

 

 

Date of Installment

Equal Monthly Installment

Surcharge

Delinquency Interest[5]

Amount Payable

Balance

Amount assessed

 

 

 

 

P304,771.67

7/31/2009

P  76,192.92

P  19,048.23

P   5,079.54

P100,320.69

  228,578,75

8/31/2009

    76,192.92

19,048.23

     3,809.66

99,050.81

  152,385.83

9/30/2009

    76,192.92

19,048.23

     2,539.77

    97,780.92

    76,192.91

10/31/2009

    76,192.92

19,048.23

     1,269.89

96,511.03

             0.00

 

P304,771.67

P 76,192.92

P  12,698.86   

393,663.45

 

 

  1. Prepare a letter (Annex 300-1.20) to the taxpayer for signature of the Regional Director/ACIR-LTS informing him/her/it of the approval of the request for installment payments and the schedule of payments;
  2. Send the duly signed letter to the taxpayer and attach a copy of the letter to the docket of the case;
  3. In case of default on the payment of the tax liability on installment basis:

7.1.        Inform the taxpayer in writing that his her/its failure to pay the remaining amount due on the agreed schedule of installment plan has nullified the installment agreement;

7.2.        Enforce immediately the collection of the remaining balance (original tax liabilities less amount already paid) together with the applicable delinquency penalties;

7.3.        If the taxpayer responds to the letter and is willing to pay the tax liability in full, refer to CM 304.1-TP Option- Taxpayer Intends to Pay Tax Liability in Full; and

7.4.        If the taxpayer is not willing to pay the tax liability, refer to CM 305.1- WDL.

  1. In case the request for installment payment is denied:

8.1.        Prepare and send a letter signed by the Regional Director/ACIR-LTS informing the taxpayer of the reasons for the denial of the request. Attach a copy of the signed notification letter to the docket; and

8.2.        If the taxpayer responds to the letter and is:

8.2.1.     Willing to pay the tax liability by compromise settlement, refer to CM 304.3- Payment by Compromise; or

8.2.2.     Willing to pay the tax liability with abatement of the penalties, refer to CM 304.4- Abatement of Penalties.

The Regional Director/ACIR-LTS shall:

  1. Receive the memorandum of the RDO/LTDO/LTCED bearing on its recommendation on the taxpayer’s request fir installment payment;
  2. Evaluate and approve/disapprove the request; and
  3. Return the docket to the RDO/LTDO/LTCED for the preparation of the letter to the taxpayer informing him/her/it of the approval/disapproval of the request.

 

[1] Section 249 (D) of the NIRC of 1997, as amended.

[2] Pursuant to Section 53 of the NIRC of 1997, as amended.

[3] Pursuant to the provisions of Section 249 (D) of the NIRC of 1997, as amended. This is also consistent with the provisions of Article 1253 of the Civil Code which provides: “If the debt produces interest, payment of the principal shall not be deemed to have been made until the interest has been covered.”

[4] Refer to Interest Rate Table in Annex 300-1.17.

[5] Refer to Interest Rate Table in Annex 300-1.17.