{"id":91,"date":"2018-12-12T00:37:31","date_gmt":"2018-12-12T00:37:31","guid":{"rendered":"http:\/\/scp-ph.com\/blogsite\/?p=91"},"modified":"2018-12-12T00:37:31","modified_gmt":"2018-12-12T00:37:31","slug":"minimum-corporate-income-tax","status":"publish","type":"post","link":"https:\/\/scp-ph.com\/blogsite\/?p=91","title":{"rendered":"Minimum Corporate Income Tax"},"content":{"rendered":"<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: center\"><img decoding=\"async\" loading=\"lazy\" class=\"alignnone  wp-image-92\" src=\"http:\/\/scp-ph.com\/blogsite\/wp-content\/uploads\/2018\/12\/shutterstock_fear1ess_tax-300x300.jpg\" alt=\"shutterstock_fear1ess_tax\" width=\"587\" height=\"587\" srcset=\"https:\/\/scp-ph.com\/blogsite\/wp-content\/uploads\/2018\/12\/shutterstock_fear1ess_tax-300x300.jpg 300w, https:\/\/scp-ph.com\/blogsite\/wp-content\/uploads\/2018\/12\/shutterstock_fear1ess_tax-150x150.jpg 150w, https:\/\/scp-ph.com\/blogsite\/wp-content\/uploads\/2018\/12\/shutterstock_fear1ess_tax-768x768.jpg 768w, https:\/\/scp-ph.com\/blogsite\/wp-content\/uploads\/2018\/12\/shutterstock_fear1ess_tax-1024x1024.jpg 1024w\" sizes=\"(max-width: 587px) 100vw, 587px\" \/><\/p>\n<p>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.<\/p>\n<p>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.<\/p>\n<p>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.<\/p>\n<p>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:<\/p>\n<ul>\n<li>A prolonged labor dispute<\/li>\n<\/ul>\n<p>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.<\/p>\n<ul>\n<li>Force Majeure<\/li>\n<\/ul>\n<p>In case the company has obtained substantial losses due to an irresistible force as by \u201cAct of God\u201d like lightning, earthquake, storm, flood and the like. It shall also include armed conflicts like war or insurgency.<\/p>\n<ul>\n<li>Legitimate Business Reverses<\/li>\n<\/ul>\n<p>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.<\/p>\n<p>&nbsp;<\/p>\n<p>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.<\/p>\n<p>&nbsp;<\/p>\n<table width=\"103%\">\n<tbody>\n<tr>\n<td width=\"24%\"><\/td>\n<td width=\"14%\"><strong>Year 1<\/strong><\/td>\n<td width=\"14%\"><strong>Year 2<\/strong><\/td>\n<td width=\"15%\"><strong>Year 3<\/strong><\/td>\n<td width=\"14%\"><strong>Year 4<\/strong><\/td>\n<td width=\"16%\"><strong>Year 5<\/strong><\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Gross Sales<\/td>\n<td width=\"14%\">P1,000,000<\/td>\n<td width=\"14%\">P1,100,000<\/td>\n<td width=\"15%\">P 1,200,000<\/td>\n<td width=\"14%\">P1,300,000<\/td>\n<td width=\"16%\">\u00a0P 1,400,000<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Sales Returns &amp; Allow.<\/td>\n<td width=\"14%\">(100,000)<\/td>\n<td width=\"14%\">(130,000)<\/td>\n<td width=\"15%\">(80,000)<\/td>\n<td width=\"14%\">(140,000)<\/td>\n<td width=\"16%\">(90,000)<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Net Sales<\/td>\n<td width=\"14%\">P\u00a0 900,000<\/td>\n<td width=\"14%\">P\u00a0\u00a0 970,000<\/td>\n<td width=\"15%\">P 1,120,000<\/td>\n<td width=\"14%\">P1,160,000<\/td>\n<td width=\"16%\">P1,310,000<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Cost of Sales<\/td>\n<td width=\"14%\">130,000<\/td>\n<td width=\"14%\">150,000<\/td>\n<td width=\"15%\">180,000<\/td>\n<td width=\"14%\">190,000<\/td>\n<td width=\"16%\">200,000<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Gross Income<\/td>\n<td width=\"14%\">P\u00a0\u00a0 770,000<\/td>\n<td width=\"14%\">P\u00a0\u00a0 820,000<\/td>\n<td width=\"15%\">P\u00a0\u00a0\u00a0 940,000<\/td>\n<td width=\"14%\">\u00a0P\u00a0 970,000<\/td>\n<td width=\"16%\">P1,110,000<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Operating Expenses<\/td>\n<td width=\"14%\">\u00a0\u00a0 (450,000)<\/td>\n<td width=\"14%\">\u00a0 (650,000)<\/td>\n<td width=\"15%\">(760,000)<\/td>\n<td width=\"14%\">(925,000)<\/td>\n<td width=\"16%\">(870,000)<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">Net Taxable Income<\/td>\n<td width=\"14%\">P\u00a0\u00a0 320,000<\/td>\n<td width=\"14%\">P\u00a0 170,000<\/td>\n<td width=\"15%\">P\u00a0\u00a0 180,000<\/td>\n<td width=\"14%\">\u00a0P\u00a0\u00a0\u00a0 45,000<\/td>\n<td width=\"16%\">\u00a0P\u00a0\u00a0 240,000<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\">x NCIT Rate<\/td>\n<td width=\"14%\">x 30%<\/td>\n<td width=\"14%\">x 30%<\/td>\n<td width=\"15%\">x\u00a0 30%<\/td>\n<td width=\"14%\">x 30%<\/td>\n<td width=\"16%\">x 30%<\/td>\n<\/tr>\n<tr>\n<td width=\"24%\"><strong>Normal Corporate Income Tax<\/strong><\/td>\n<td width=\"14%\"><strong>P\u00a0\u00a0\u00a0 96,000<\/strong><\/td>\n<td width=\"14%\"><strong>P\u00a0\u00a0\u00a0 51,000<\/strong><\/td>\n<td width=\"15%\"><strong>P\u00a0\u00a0\u00a0\u00a0 54,000<\/strong><\/td>\n<td width=\"14%\"><strong>P\u00a0\u00a0 13,500<\/strong><\/td>\n<td width=\"16%\"><strong>\u00a0P\u00a0\u00a0\u00a0\u00a0 72,000<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Consider the following example:<\/p>\n<table width=\"620\">\n<tbody>\n<tr>\n<td colspan=\"5\" width=\"620\">&nbsp;<\/td>\n<\/tr>\n<tr>\n<td width=\"150\">Gross Income<\/td>\n<td colspan=\"2\" rowspan=\"2\" width=\"276\"><em>Note: MCIT doesn&#8217;t apply on Year 1, 2 and 3 yet<\/em><\/td>\n<td width=\"96\">P\u00a0\u00a0 970,000<\/td>\n<td width=\"98\">P1,110,000<\/td>\n<\/tr>\n<tr>\n<td width=\"150\">x MCIT Rate<\/td>\n<td width=\"96\">x\u00a0 2%<\/td>\n<td width=\"98\">x\u00a0 2%<\/td>\n<\/tr>\n<tr>\n<td width=\"150\"><strong>Minimum Corporate Income Tax<\/strong><\/td>\n<td width=\"169\"><\/td>\n<td width=\"107\"><\/td>\n<td width=\"96\"><strong>P\u00a0\u00a0\u00a0\u00a0 19,400<\/strong><\/td>\n<td width=\"98\"><strong>P\u00a0\u00a0\u00a0 22,200<\/strong><\/td>\n<\/tr>\n<tr>\n<td width=\"150\"><\/td>\n<td width=\"169\"><\/td>\n<td width=\"107\"><\/td>\n<td width=\"96\"><\/td>\n<td width=\"98\"><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<table width=\"621\">\n<tbody>\n<tr>\n<td width=\"150\">Higher of NCIT or MCIT<\/td>\n<td width=\"96\">P\u00a0\u00a0 96,000<\/td>\n<td width=\"84\">P\u00a0\u00a0 51,000<\/td>\n<td width=\"96\">P\u00a0\u00a0 54,000<\/td>\n<td width=\"96\">P\u00a0\u00a0 19,400<\/td>\n<td width=\"99\">P\u00a0\u00a0\u00a0\u00a0 72,000<\/td>\n<\/tr>\n<tr>\n<td width=\"150\">Excess of MCIT over NCIT<\/td>\n<td width=\"96\"><\/td>\n<td width=\"84\"><\/td>\n<td width=\"96\"><\/td>\n<td width=\"96\"><\/td>\n<td width=\"99\">*(5,900)<\/td>\n<\/tr>\n<tr>\n<td width=\"150\"><strong>Income Tax Due\/Payable<\/strong><\/td>\n<td width=\"96\"><strong><u>P\u00a0\u00a0 96,000<\/u><\/strong><\/td>\n<td width=\"84\"><strong><u>P\u00a0\u00a0 51,000<\/u><\/strong><\/td>\n<td width=\"96\"><strong><u>P\u00a0\u00a0 54,000<\/u><\/strong><\/td>\n<td width=\"96\"><strong><u>P\u00a0\u00a0 31,500<\/u><\/strong><\/td>\n<td width=\"99\"><strong><u>P\u00a0\u00a0 \u00a0\u00a066,100<\/u><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<table width=\"320\">\n<tbody>\n<tr>\n<td width=\"213\">MCIT, Year 4<\/td>\n<td width=\"107\">P\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 19,400<\/td>\n<\/tr>\n<tr>\n<td width=\"213\">NCIT, Year 4<\/td>\n<td width=\"107\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 13,500<\/td>\n<\/tr>\n<tr>\n<td width=\"213\">Excess MCIT over NCIT<\/td>\n<td width=\"107\">P\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5,900*<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>As you can observe, the income tax payable in year 4 is the computed MCIT since it is higher than the NCIT.<\/p>\n<p>&nbsp;<\/p>\n<p>Any excess of MCIT over NCIT can be carried forward as deduction to the normal income tax for three (3) immediately succeeding taxable years.<\/p>\n<p>Any excess MCIT shall be recorded in the books of the corporation as \u201cDeferred Charges-MCIT\u201d under the Asset section. The journal entry in the above example would be as follows:<\/p>\n<p>Year 4<\/p>\n<p>Income Tax Expense\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 P 13,500<br \/>\nDeferred Charges-MCIT \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a05,900<br \/>\nIncome Tax Payable\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 P 19,400<\/p>\n<p>&nbsp;<\/p>\n<p>Year 5<\/p>\n<p>Income Tax Expense\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 P\u00a0 72,000<br \/>\nDeferred Charges-MCIT\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 P\u00a0\u00a0 5,900<br \/>\nIncome Tax Payable\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0 \u00a066,100<\/p>\n<p>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:<\/p>\n<p>Retained Earnings \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 XX<br \/>\nDeferred Charges-MCIT\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 XX<\/p>\n<p>The MCIT is paid on an annual and quarterly basis, same with the manner of paying the normal corporate income tax.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; &nbsp; 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 &#8230;<\/p>\n","protected":false},"author":4,"featured_media":92,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0},"categories":[3],"tags":[56,57,55,54],"_links":{"self":[{"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/posts\/91"}],"collection":[{"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=91"}],"version-history":[{"count":1,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/posts\/91\/revisions"}],"predecessor-version":[{"id":93,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/posts\/91\/revisions\/93"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=\/wp\/v2\/media\/92"}],"wp:attachment":[{"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=91"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=91"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scp-ph.com\/blogsite\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=91"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}