Taxes payable are: (1) Regular tax
(2) Minimum Corporate Income Tax
REGULAR TAX
Normal Corporate Income Tax Rate: 30%of
Taxable Income (effective January 1, 2009)
Gross Income XXX
Less: Allowable Deductions XXX
Taxable Income XXX
MINIMUM CORPORATE INCOME TAX (MCIT)
(a) applies to domestic corporations and RFCs whenever such corporations have zero or negative taxable income or whenever the MCIT is greater than the normal income tax due from such corporations.
(b) Imposed upon any domestic corporation beginning the fourth taxable year in which such corporation commenced its business operations. For purposes of the MCIT, the taxable year in which business operations commenced shall be the year when the corporation registers with the BIR (not in which the corporation started commercial operations).
(c) Tax rate: 2% of the Gross Income
IMPOSITION OF MCIT
Gross Sales XXX
Less: Sales Returns
Sales Discounts & Allowances
Cost of Goods Sold
XXX XXX
XXX XXX
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Computation of Gross Income.—
The term “Gross Income” shall be equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold. “Cost of goods sold” shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. If apart from deriving income from core business activities there are other items of gross income realized or earned by the taxpayer which are subject to the normal corporate income tax, they must be included as part of gross income for computing MCIT. [Sec. 27 (E), NIRC; RR 12-
2007]
This means that the term “gross income” will also include all items of gross income enumerated under Section 32(A) of the NIRC, except: (a) income exempt from income tax, and (b) income subjected to FWT.
The computation by type of business.—
Merchandising/Manufacturing
Concerns Service Concerns
Net Sales
P xxx Gross receipts/revenue
P xxx Less: Cost of Sales
xxx Less: Direct cost of services xxx
Gross Income
P xxx Gross income P xxx “Net Sales” is gross sales less sales returns,
discounts and allowances.
“Direct cost of services” includes salaries of personnel rendering the services, expenses on the facilities directly utilized, cost of supplies, and the like. “Direct costs and expenses” shall only pertain to those costs exclusively and directly incurred in relation to the revenue realized by the sellers of services. These refer to costs which are considered indispensable to the earning of the revenue such that without such costs, no revenue can be generated.
Pointers.—
MCIT is in the nature of a tax credit, not an allowable deduction. Its purpose is to prevent corporations from escaping being taxed by including frivolous expenses in their statement of income.
Is the Minimum Corporate Income Tax (MCIT) an addition to the regular or normal income tax?
No, the MCIT is not an additional tax. The MCIT is compared with the regular income tax, which is due from a corporation. If the regular income is higher than the MCIT, then the corporation does not pay the MCIT.
Who are covered by MCIT?
The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax. The term “regular income tax”
refers to the regular income tax rates under the Tax Code. Thus, corporations which are subject
to a special corporate tax system do not fall within the coverage of the MCIT.
These special corporations are:
(a) Corporations that are subject to ten percent (10%) preferential tax rate: Proprietary educational institutions, nonprofit hospitals,
Offshore Banking Units (OBUs) on their income from foreign currency transactions which has been subjected to a final income tax at 10% of such income, and depository banks under the expanded foreign currency deposit system on their income from foreign currency transactions which has subjected to final income tax at 10%; RFCs engaged in
business as Regional Operating
Headquarters
(b) Firms under special income tax regime such
as those under the PEZA law [Rep. Act
7916], the Bases Conversion Development
Act [Rep. Act 7227] and forms enjoying Income Tax Holiday (ITH) under Exec. Order
No. 226;
(c) International carriers subject to tax at 2 ½%
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Note: For domestic corporations whose
operations or activities are partly covered by the regular income tax and partly covered under a special income tax system, the MCIT shall apply on operations covered by the regular corporate income tax system.
MCIT gross income differentiated from the normal tax gross income
The latter would include other incidental income items, such as rent income, interest, gain on sale of assets, certain tax refunds, etc.
What amount of income tax is paid by the corporation to the BIR?
Whichever is higher between the normal tax and the minimum corporate income tax
Illustration.—
E Co., a domestic trading corporation, in its fourth year of operations had a gross profit from sales of P300,000 and net taxable income of P100,000. How much was the income tax paid by the corporation for the year?
MCIT (P300,000 x 2%) P6,000
Normal income tax
(P100,000 x 30%) P30,000
Income Tax to be paid for the year
(whichever is higher) P30,000
Quarterly MCIT Computation.—
The computation and the payment of MCIT shall likewise apply at the time of filing the quarterly corporate income tax. In the computation of the tax due for the taxable quarter, if the quarterly MCIT is higher than the quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of filing the quarterly corporate income tax return shall be the MCIT.
Items allowed to be credited against quarterly MCIT due: (a) CWT, (b) Quarterly income tax payments under the normal income tax; and (c) MCIT paid in the previous taxable quarter(s). Excess MCIT from the previous taxable year/s shall not be allowed to be credited against the quarterly MCIT tax due.
Annual Income Tax Computation.—
The final comparison between the normal income tax payable and the MCIT shall be made at the end of the taxable year. The payable or excess payment in the Annual Income Tax Return shall be computed taking into consideration corporate income tax payment made at the time of filing of quarterly corporate income tax returns whether this be MCIT or normal income tax.
In the computation of annual income tax due, if the normal income tax due is higher than the computed annual MCIT, the following shall be allowed to be credited against the annual income tax: (a) quarterly MCIT payments, (b) quarterly normal income tax payments, (c) excess MCIT in the prior year/s (subject to the prescriptive period allowed for its creditability), (d) CWTs in the current year, (d) excess CWTs in the prior year.
If in the computation of annual income tax due, the computed annual MCIT due is higher than the annual normal income tax due, the following may be credited against the annual income tax: (a) quarterly MCIT payments of current taxable quarter, (b) quarterly normal income tax payments in current year, (c) CWTs in the current year, (d) excess CWTs in the prior year.
Excess MCIT from the previous taxable year/s shall not be allowed to be credited against the annual MCIT due as the same can only be applied against normal income tax.
Manner of Filing and Payment.—
The MCIT shall be paid in the same manner prescribed for the payment of the normal corporate income tax which is on a quarterly and on a yearly basis.
CARRY FORWARD OF EXCESS MINIMUM TAX
Any excess of the minimum corporate income tax over the normal income tax shall be carried forward on an annual basis. The excess can be credited against the normal income tax in the
next hree (3) succeeding taxable years. [Sec.
27(E)(2)] In the year to which carried forward, the normal tax should be higher than the MCIT.
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Illustration.—
A domestic corporation had the following data on computations of the normal tax (NT) and the minimum corporate income tax (MCIT) for five years.
Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
MCIT 80K 50K 30K 40K 35K
NT 20K 30K 40K 20K 70K
The excess MCIT over NT carry-forward is shown below:
Year 4 Year 5 Year 6 Year 7 Year 8
MCIT 80,000 50,000 30,000 40,000 35,000
NT 20,000 30,000 40,000 20,000 70,000
NT is higher n/a n/a 40,000 n/a 70,000
Less: MCIT carry-fwd (40,000)* (20,000) (20,000) From Year 4 From Year 5 From Year 7 Tax Due 80,000 50,000 - 40,000 30,000
Arrow pointing downward means that the normal tax is higher so that there can be an excess MCIT carry-forward against it.
*Cannot carry forward an amount higher than the NT, hence the excess of 60K from Year 4 was reduced to 40K. The unused P20,000 cannot be used in Year 8 because Year 8 was beyond three years from Year 4.
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RELIEF FROM THE MCIT UNDER CERTAIN CONDITIONS (SEC. 27 (E ), NIRC)
The Secretary of Finance, upon the recommendation of the Commissioner, may suspend the imposition of the MCIT upon
submission of proof by the applicant- corporation that the corporation sustained substantial losses on account of the following (LMB):
(1) Prolonged labor dispute (losses from a strike
staged by employees that lasts for more than 6 months and caused the temporary shutdown of operations), or
(2) Force majeure (acts of God and other
calamity; includes armed conflicts like war or insurgency), or
(3) Legitimate business reverses (substantial
losses due to fire, robbery, theft or other economic reasons).
Optional Gross Income Tax (OGIT).—
Section 27 (A) of the NIRC provides for an
optional gross income tax of 15% based on gross income. The President, upon the recommendation of the Secretary of Finance, may, effective January 1, 2000, allow domestic
corporations the option to be taxed at fifteen
percent (15%) of gross income as defined therein, after the following conditions have been satisfied:
Tax effort ratio 20% of GNP
Ratio of Income Tax collection
to total tax revenues 40%
VAT tax effort 4% of GNP
Ratio of Consolidated Public Sector Financial Position (CPSFP) to GNP
0.90%
Ratio of the Corporation’s Cost
of Sales to Gross Sales Does not exceed 55%
Gross Sales XXX
Less: Sales Returns SalesDiscounts& Allowances
Cost of Goods Sold
XXX XXX
XXX XXX
GI XXX
The election of the gross income tax option by the corporation shall be irrevocable for three (3)
consecutive taxable years during which the
corporation is qualified under the scheme. For purposes of gross income tax, gross income should be the same as gross income for purposes of MCIT in cases of trading, merchandising and manufacturing concern business. However, for service enterprises, gross income means gross receipts less sales returns, discounts, allowances and cost of services. Note: At present, the OGIT has not been implemented in the Philippines.
CORPORATIONS EXEMPT FROM THE MCIT: ( BIPTENG)
(1) Banks and other non-bank financial intermediaries;
(2) Insurance companies; (3) Publicly-held corporations; (4) Taxable partnerships;
(5) General professional partnerships; (6) Non- taxable joint ventures; and (7) Enterprises that are registered:
(a) with the Philippine Economic Zone Authority (PEZA) under R.A. 7916; (b) pursuant to the Bases Conversion and
Development Act of 1992 under R.A. 7227; and
(c) under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local.
Note: Words in regular letters are found in Sec.
29(B)(2) of the NIRC. Words in italics are additions made by the revenue regulation to consolidate Sec. 29 with other pertinent laws. Applicability of the MCIT where a corporation is governed both under the regular tax system and a special income tax system
For corporations whose operations or activities are partly covered by the regular income tax and partly covered under special income tax system, the MCIT shall apply on operations by the regular
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ALLOWABLE DEDUCTIONS
Itemized deductions (1) Bad debts (2) Expenses (3) Losses (4) Taxes (5) Depreciation (6) Interest(7) Depletion of oil and gas wells and mines (8) Charitable and other contributions (9) Research and development (10 Pension trusts
Optional standard deduction
(a) Before RA 9504, effective July 6, 2009, OSD only applied to individuals except non-resident aliens.
(b) But by virtue of RA 9504, it now also applies to corporations, except non-resident foreign corporation.
(c) Moreover, the rate was increased from 10% to
40%.