Minimum Corporate Income Tax or MCIT. So ano to? Is this different from the regular corporate income tax or the basic income tax of an ordinary corporation under our tax code?
Please join me in discussing this topic in another episode of EDT Talk. If you are new in my channel, I'm Mr. Enrico de Tabag. Some call me EDT for short. I am a college professor, I am a book author, and I am a tax and accounting practitioner.
My channel, EDT Talks, is dedicated to make taxation. easier to understand. This is already our fourth video in our lecture series pertaining to income tax on corporations. So, katatapos lang natin in our previous video, the computation of RCIT.
Ngayon naman, let's discuss MCIT. So, we will discuss how to compute MCIT, when to compute MCIT, who are required to compute MCIT, at... who are exempt from computing MCIT. Okay, so under our tax code, as amended by CREATE law, particularly under Section 27, Paragraph E, Subparagraph 1, so this is pertaining to domestic corporations, as well as Section 28, Paragraph 2 of our tax code, so this is pertaining naman sa RFC natin. So as you can see, MCIT, therefore, is applicable only to domestic corporations and RFCs.
So, hindi ito applicable sa non-resident foreign corporation. So, sabi ng tax code natin, under these provisions, a minimum corporate income tax of 2% ng gross income as of the end of the taxable year is imposed upon domestic corporations And resident foreign corporations beginning on the fourth taxable year immediately following the taxable year in which such corporation or commence its business operations when the MCIT is greater than RCIT. So, kailangan mag-compute? ng MCIT.
Sabi ng tax code natin, magmula sa ikaapat na taon. Magmula sa ikaapat na taxable year. Immediately following the taxable year in which such corporation commends its business. Huwag kayo malito doon.
Immediately following the taxable year. in which such corporation commenced its business operation. So, halimbawa, 2021 ngayon.
So, 2021 naman talaga ngayon, sir. So, ngayon nag-operate yung company. Kailan tayo mag-start mag-compute? Next year tayo mag-start mag-compute.
So, 2022, 23, 24, 25. So, dapat yung kumpanyang yan, corporation na yan, will start computing MCIT. Sa 2025. Okay? Don't count immediately kasi the counting should be immediately following the taxable year in which such corporation commenced its business operations.
And again, this is applicable only to domestic corporations and resident foreign corporations and the rate, the rate is 2% ng gross income. So when we say gross income, that's sales, less cost of sales. Kung may other income, kung may other non-operating income, kailangan i-add yun.
So ulitin ko, that should be sales, less cost of sales, add other non-operating income or simply add non-operating income na subject sa basic income tax. Kung yan naman ay sale of service, natural, that's gross receipts. Less cost of services, you also add non-operating income.
So in short, when we say gross income for MCIT purposes, If you know how to compute net income, don't include operating expense in the computation. For MCIT purposes, don't include operating expense. Before deducting OPEX, stop there. That's what we call gross income for MCIT purposes.
Multiply it by 2%. However, because of our create law, You know, many companies are having a hard time right now. That's why Corporate Recovery and Tax Incentive.
So, for our government to help recover corporations, we are lowering the MCIT rate from 2% to 1% from July 1, 2020 to June 30, 2023. So, if you look at it, So, this is how it should be. So, now, 2021, and beginning, actually, July 1, 2020, up to June 30, 2023, that's 1%. After that period, it will return to the original rate of 2%.
And obviously, prior to create law, its original rate is 2%. So, we will introduce to you later how to compute. So, balik tayo. Eh, kailan ba dapat mag-compute?
Kailan dapat mag-impose? Okay? Kailan dapat mag-impose ng MCIT? Okay?
So, again, you compute it together with the regular corporate income tax, pero hintayin mo muna yung ika-fourth taxable year immediately following the year in which such corporation commenced its business operations. So, kung ika-fourth year na, so mag-compute ka ng RCIT, mag-compute ka din ng MCIT, we choose whichever is higher. Okay? And then, sabi ng ating tax code, i-impose yan kapag ka-zero ang income.
Kung zero, meron tayong MCIT. Gross income. Okay?
Gross income. And then, maliban kung zero ang income, dapat may MCIT, corporation has negative taxable income. So, kung negative taxable income, kailangan pa rin mag-compute. Okay?
Gross profit or gross income, siguro naman hindi magne-negative yun. Okay? And then, the third one is kapag ka, kahit pa positive yan, etc., pero mas malaki yung MCIT, so we need to choose MCIT. So, ulitin ko ha, kapag ka may zero income, kapag ka may negative taxable income, at saka kapag ka mas malaki yung MCIT over RCIT.
Okay, eto yung period. Okay, I hope hindi nyo malilimutan. Okay, next.
Paano yan, sir, kung alimbawa 2021. Okay, 2021, mas malaki ang MCIT over RCIT. Oh, may tatawagin tayo na excess MCIT. Kumbaga parang instead na ang bayaran mo lang na tax 1 million, naging 2 million tuloy.
Sobra tuloy yung binayad mo ng 1 million. Yung excess na yun ng MCIT, pwede mong i-carry over sa 2022, o kaya 2023, o kaya 2024. Hanggang dyan lang. Kasi 3 consecutive years lang. Paano sir, kung sa tatlong taon na to, puro mas malaki ang MCIT? O edi mag-e-expire na yung para sa 2021. Kasi you only have the right.
to carry over the excess MCIT over RCIT for a period of three consecutive years. Okay? Okay, we continue. Again, ito lang yung computation ng gross income. In fact, na-discuss naman na natin.
So sabi natin, sales less cost of sales. Siyempre, itong mga ito, obvious naman na tanggalin mo kasi sales discount, sales allowances. Tapos sabi natin, huwag yung kakalimutan ito.
Other income na subject sa basic tax, i-add mo yan. Okay? So, dyan ka ngayon mag-multiply ng 1% or 2%.
2% kung bago mag-July 1, 2020. 2% after or on or after July 1, 2023. Pero in between yung July 1, 2020 hanggang June 30, 2023. We will be using the revised rate under CREATE law na 1%. Okay. So, basahin mo na lang ito. Diniscuss ko na rin ito kanina.
Okay, next. Sir! Pwede bang we will be exempt from computing MCIT? Or pwede bang isuspend? Sorry, pwede bang isuspend muna ni Department of Finance yung pag-compute, pag-impose ng MCIT?
So sabi ng batas natin, pwede naman yan kung merong prolonged labor dispute, force majeure, saka legitimate business reverses kagaya ngayong pandemic, okay? Pero actually, di ko pa nababalitaan na kinancel yung MCIT. So siguro ang naging tugon na lang ng gobyerno ay gawin na lang na 1% instead na isuspend.
So if the company is experiencing any of the following, maaaring makapagsik ka ng approval from the Department of Finance na hindi ka muna impusan ng MCIT. But of course, in this case, You're the one who will request. It's the executive who will be issuing a memorandum, a guidance that MCIT will be suspended first.
We will not request that MCIT be suspended. So what does prolonged labor dispute mean? They say that prolonged labor dispute, or as our revenue issuances say, Prolonged labor dispute means losses that arise from the strike of employees that lasted more than six months within the topical period. And the strike resulted to temporary shutdown of the business. So, it should have been more than six months and it should have caused a temporary shutdown of the business.
Okay, next. What are the companies that don't need to compute MCIT? Special corps. Remember, MCIT is in lieu. It's hard to write.
In lieu. It's in lieu of RCIT. RCIT that 25% create law. 20% create law, domestic corps. RFC, 25%.
So, alam mo naman na ang special corporation, iba ang rate nito. Hindi ito 20%, hindi ito 25%. Eh, ang MCIT ay kapalit. Kapalit ng RCIT na yan, no?
So, hindi pwede ito. Okay? Exempion.
Kasi special corporation, hindi naman yan regular corporate income tax. Iba ang tax noon, mas maliit. NRFC, in-explain na natin kanina.
The subject here is domestic corp. and RFC. Corporations exempt from income tax. And lastly, firms that are taxed under special tax regime. Like those with 5% gross income tax in PESA-registered entities.
Okay, so we can now illustrate unless there are questions. I thought I was in class. Unless there are questions. Okay, by the way, I hope you like our lecture series here at EDT Talks.
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Okay, so again, I hope you learned the fourth... taxable year immediately following the year of commencement of the business. I hope maliwanag sa inyo yung mga exempt sa MCIT.
I hope maliwanag sa inyo yung relief from MCIT and so on and so forth. So we now proceed to computation. As you can see, ito rin yung problem natin doon sa RCIT. Ito rin yung laman ng problem solving natin doon.
Ang tinatanong dito, ano ba tinatanong dito? Ang tinatanong ay magkano natural ang income tax due. So same lang ito.
So magkano ang income tax due? Ba't ayaw magsulat? Assuming domestic corp.
So sabi natin, dapat Philippines and abroad yan. Kasi domestic corp siya eh. So compute natin yung net income. O eto na compute mo yung net income.
And then, tandaan mo net income too eh. MCIT is based on gross income. And again, ang in-assume natin dito ay 2021. So dahil 2021, ang rate muna ng MCIT natin ay 1%. As you can see, ang layo.
Mas mababa naman yung M kaysa regular corporate income tax. Kailangan ng gobyerno natin ng tax. Kaya bayaran mo yung mas malaki.
So ganun lang. So yung RCIT net income ang basis. Yung MCIT naman, gross income. Wag mo lang kalimutan na na...
Magmula July 1, 2020 hanggang June 30, 2023, 1% lang yan. Prior to that period, after that period, balik sa original na 2%. Okay, next.
Eh sir, paano kung MSME siya? Kung MSME, 1% pa rin naman. Tapos diba ang MSE, Domestic Corporation yan?
So within and without pa rin. However, yung RCI... compared to earlier, earlier it was 25%, because it's an ordinary domestic corp.
Then this time around, because it's clear that it's MSME, so we will be using, the bird is moving, we will be using 20%. So the 20% is still bigger than the MCIT, so it's still tax-due, it's still an ordinary tax-due income. tax due na 1,730,000. Eh sir, paano naman kung ano, kung nasa transition period?
Diba, sabi kanina, provided na magmula July 1, 2020, ang MCIT rate ay 1%. So, ang gawin natin, nasa transition period tayo, ganun ulit, divide by 2 to, diba? Tapos, times 2. transition period rate na 27.5.
Yan, 27.5, ano yan? 30%, na-explain ko na yata, plus 25% equals 55%. Divide mo ng 2. Okay? So, and then, so you will arrive at 2,378,750. Ngayon, paano naman yung MCIT?
Ganon din yung MCIT mo. Yung first 6 months, 2%. And then the other six months is 1%. So if you look at it, it will be 1.5% of gross income.
It's still small. So the tax due will still be the bigger one, which is 2,378,750 pesos. Okay, I hope it's clear. So that's our MCIT. So thank you for the first batch of our lecture series on income.
tax on corporations. I am very hopeful and I am confident that somehow there will be more to our knowledge today. Okay? So, take care everyone!
Bye!