Minimum Corporate Income Tax




A Minimum Corporate Income Tax is a tax imposed to corporations who have been on the th year of its operation and has a net loss or zero taxable income or a normal income tax that is lesser than a minimum income tax.

There are two corporations who are covered by MCIT , these are domestic corporation and resident foreign corporation. The MCIT is equivalent to 2% of the gross income of the corporation.

MCIT is imposed to ensure that corporations will make a proper contribution of tax to the government and avoid understatement of income or overstatement of deductions. It is the approximate amount which a taxpayer should pay under an efficient system.

The imposition of Minimum Corporate Income Tax can be suspended by the Secretary of Finance, upon the recommendation of the Commissioner, upon submission of proof by the applicant-corporation that the corporation has sustained substantial losses on account of:

  • A prolonged labor dispute

For example, the company has obtained substantial losses from a strike staged by the employees which lasted for more than six (6) months within a taxable period and which has caused the temporary shutdown of business operations.

  • Force Majeure

In case the company has obtained substantial losses due to an irresistible force as by “Act of God” like lightning, earthquake, storm, flood and the like. It shall also include armed conflicts like war or insurgency.

  • Legitimate Business Reverses

For example, if the company has obtained substantial losses due to fire, robbery, theft or embezzlement, or for other economic reasons as determined by the Secretary of Finance.


The Minimum Corporate Income Tax is not an additional tax to normal corporate income tax. It is a tax imposed in line of normal corporate income tax cases where the normal income tax is questionably low. The computed minimum corporate income tax is being compared to the normal income tax, whichever is the higher amount less any excess of MCIT over NCIT serves as the tax payable of the corporation for the period.


Year 1 Year 2 Year 3 Year 4 Year 5
Gross Sales P1,000,000 P1,100,000 P 1,200,000 P1,300,000  P 1,400,000
Sales Returns & Allow. (100,000) (130,000) (80,000) (140,000) (90,000)
Net Sales P  900,000 P   970,000 P 1,120,000 P1,160,000 P1,310,000
Cost of Sales 130,000 150,000 180,000 190,000 200,000
Gross Income P   770,000 P   820,000 P    940,000  P  970,000 P1,110,000
Operating Expenses    (450,000)   (650,000) (760,000) (925,000) (870,000)
Net Taxable Income P   320,000 P  170,000 P   180,000  P    45,000  P   240,000
x NCIT Rate x 30% x 30% x  30% x 30% x 30%
Normal Corporate Income Tax P    96,000 P    51,000 P     54,000 P   13,500  P     72,000

Consider the following example:

Gross Income Note: MCIT doesn’t apply on Year 1, 2 and 3 yet P   970,000 P1,110,000
x MCIT Rate x  2% x  2%
Minimum Corporate Income Tax P     19,400 P    22,200


Higher of NCIT or MCIT P   96,000 P   51,000 P   54,000 P   19,400 P     72,000
Excess of MCIT over NCIT *(5,900)
Income Tax Due/Payable P   96,000 P   51,000 P   54,000 P   31,500 P     66,100


MCIT, Year 4 P        19,400
NCIT, Year 4           13,500
Excess MCIT over NCIT P        5,900*

As you can observe, the income tax payable in year 4 is the computed MCIT since it is higher than the NCIT.


Any excess of MCIT over NCIT can be carried forward as deduction to the normal income tax for three (3) immediately succeeding taxable years.

Any excess MCIT shall be recorded in the books of the corporation as “Deferred Charges-MCIT” under the Asset section. The journal entry in the above example would be as follows:

Year 4

Income Tax Expense                                       P 13,500
Deferred Charges-MCIT                      5,900
Income Tax Payable                                                        P 19,400


Year 5

Income Tax Expense                                       P  72,000
Deferred Charges-MCIT                                P   5,900
Income Tax Payable                                                            66,100

Any amount of excess MCIT which has not or cannot be credited against normal income tax within the 3-year allowed period shall be closed to Retained Earnings and can no longer be used as a charge against normal income tax. The journal entry would be as follows:

Retained Earnings                                            XX
Deferred Charges-MCIT                XX

The MCIT is paid on an annual and quarterly basis, same with the manner of paying the normal corporate income tax.

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