MINIMUM CORPORATE
INCOME TAX (MCIT)
Sec. 27 (E) and Sec. 28 (A) (2)
Revenue Regulations No. 9-98
Revenue Memorandum Circular No. 4-2003
Revenue Regulations No. 12-2007
Revenue Memorandum Circular 24-2008
M C I T on Domestic Corp.



2% of the gross income
whether calendar or fiscal year
is imposed beginning the 4th taxable year,


zero or negative income
whenever the MCIT is greater than the normal
tax due
M C I T on Domestic Corp.

In the case of domestic corporation whose
activities are partly covered by the regular
tax rate and partly covered under special
rate, the MCIT shall apply on operations
covered by regular rate.

Ex: BOI-registered and unregistered activity
Normal income tax means...

The income tax rates prescribed under
Sec. 27(A) and Sec. 28(A)(1) of the the
Code




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34% in 1998
33% in 1999
32% in 2000 until Oct. 31, 2004
35% effective Nov. 1, 2005
30% effective Jan. 1, 2009
Illustration
Gross Sales
Cost of Sales
Gross Income
Less Business Expenses
Net Income
Normal Income Tax
MCIT
P1,000,000
800,000
P 200,000
190,000
P 10,000
P
3,500
P
4,000
Gross Income


Means 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.
Gross sales….


Shall include only sales contributory to
taxable income under Sec. 27(A) of the
Code.
Passive income which have been subject to
a final tax at source shall not form part of
gross income for purposes of the MCIT.
For trading and merchandising concern:

Cost of goods sold - means the invoice cost
of the goods sold, plus import duties, freight
in transporting the goods to the place
where the goods are actually sold.
For manufacturing concern:

Cost of goods manufactured and sold
means all costs of production of finished
goods, such as raw materials used, direct
labor and manufacturing overhead, freight
cost, insurance premiums and other cost
incurred to bring the raw materials to the
factory or warehouse.
For sales of services

Gross income means gross receipts less
sales returns, allowances, discounts and
cost of services.
Cost of Services

Cost of services means all direct cost and
expenses necessarily incurred to provide the
services required.


Ex: salaries and employee benefits of personnel,
consultants and specialists directly rendering the service
cost of facilities directly utilized in providing the service



Depreciation
Rental of equipment
Cost of Supplies
Relief from the MCIT

Whenever the corporation sustained
substantial losses from a prolonged labor
dispute

strike staged by the employees which lasted for
more than six months within a taxable period
Relief from the MCIT

Force majeure

caused by irresistible force as by “Act of God”
like:






lightning
earthquake
storm
flood
and the like
also include armed conflicts like war or insurgency
Relief from the MCIT

Legitimate business reverses due to




fire
robbery
theft or embezzlement
or other economic reason as determined by the
Secretary of Finance
Determination of Effective Year of
MCIT
YEAR COMMENCING
BUSINESS OPERATION
1994 and prior years
1995
1996
x
EFFECTIVITY OF
MCIT
1998
1999
2000
x+4
Note: MCIT is applied on an annual basis not on a quarterly basis.
Manner of Filing and Payment


It shall be applicable at the time of filing the
quarterly corporate IT
MCIT shall apply only to domestic
corporations subject to the normal
corporate income tax
Exceptions (Domestic Corp)


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Proprietary educational institutions subject
to 10% Income Tax Rate
Non-profit hospital subject to 10% tax rate
Depository banks (FCDUs)
Firms taxed under a special income tax
regime
Resident Foreign Corp.


MCIT rate of 2%
Exceptions:


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International carrier - 2.5%
OBU
Regional operating headquarters
firms taxed under special income tax regime
Carry forward of excess MCIT


Any excess of the MCIT over the normal
income tax as computed under Sec. 27(A)
shall be carried forward on an annual basis
and credited against the normal income tax
for the three (3) immediately succeeding
years.
The excess MCIT cannot be clamed as a
credit against the MCIT itself or against any
other losses.
Illustration:
YEAR NORMAL IT
1998
25,000.00
1999
130,000.00
2000
200,000.00
2001
2002
10,000.00
2003
15,000.00
2004
8,000.00
2005
1,000.00
MCIT
EXCESS
100,000.00
75,000.00
150,000.00
20,000.00
190,000.00
300,000.00
300,000.00
50,000.00
40,000.00
60,000.00
45,000.00
40,000.00
32,000.00
50,000.00
49,000.00
Accounting Entries

For 1998
Provision for Income tax
Income Tax Payable
P25,000
P25,000
To record Income Tax liability - normal rate.
Deferred Charges - MCIT
Income tax payable
To record excess MCIT
P75,000
P75,000
Accounting Entries
Income Tax Payable
P100,000
Cash in Bank
P100,000
To record payment of income tax due for 1998.

For year 2000
Provision for Income Tax
P200,000
Income Tax Payable
P200,000
To record IT liability using the normal rate.
Accounting Entries
Income Tax Payable
P95,000
Deferred Charges-MCIT
P95,000
To record application of excess MCIT against
normal IT for year 2000.
Income Tax Payable
P105,000
Cash in bank
P105,000
To record payment of income tax due.
Accounting Entries
Retained Earnings
P300,000
Deferred Charges-MCIT
P300,000
To record the expired portion of the Deferred
Charges-MCIT
MCIT on Res. Foreign Corp.


Same rule shall apply except that only
income sources within the Phils. shall be
considered.
Exceptions:




international carrier;
res. Foreign corporations engaged in OBUs
res. Foreign corp. engaged in regional operating
headquarters
firms taxed under special tax regime