Minimum Corporate Income Tax (MCIT)

Introduction

• Presenter: Mr. Enrico de Tabag (EDT)
  • College professor, book author, tax and accounting practitioner.
  • Channel: EDT Talks, focused on explaining taxation.
• Purpose of Lecture: Explain MCIT and its differences from regular corporate income tax.

MCIT Overview

• Tax Code Reference:
  • Section 27, Paragraph E, Subparagraph 1: Domestic corporations.
  • Section 28, Paragraph 2: Resident foreign corporations (RFCs).
• Applicability: MCIT applies only to domestic and RFCs, not to non-resident foreign corporations.
• Tax Rate:
  • Normally 2% of gross income.
  • Reduced to 1% from July 1, 2020, to June 30, 2023, under CREATE law.
  • Reverts to 2% post-June 30, 2023.

Computation and Implementation

• When to Compute MCIT:
  • Starting the fourth taxable year after commencing business.
  • Compute MCIT alongside RCIT and apply the higher of the two.
• Gross Income Calculation for MCIT:
  • Sales minus cost of sales, plus other non-operating income.
  • Excludes operating expenses.
• Situations Requiring MCIT Computation:
  • Zero income.
  • Negative taxable income.
  • If MCIT exceeds RCIT.

Excess MCIT

• Carrying Over Excess MCIT:
  • Excess can be carried over for up to three consecutive years.
  • If MCIT remains higher, excess from the oldest year expires.

Special Considerations and Exemptions

• Exemptions from MCIT:
  • Special corporations with different tax rates.
  • Corporations exempt from income tax.
  • Firms under special tax regimes (e.g., PESA-registered entities).
• Suspension Possibility:
  • Possible during prolonged labor disputes, force majeure, or legitimate business reversals.
  • Requires Department of Finance approval.

Practical Examples

• Case Studies Illustrated:
  • Computation of income tax due for domestic corportations under various scenarios.
  • Considerations for MSMEs and transition periods with different tax rates.

Conclusion

• Summary of MCIT applications, exemptions, and computational strategies.
• Encouragement to subscribe to EDT Talks for more insights on corporate taxation.