Taxation Talk: Minimum Corporate Income Tax

The Bureau of Internal Revenue recently issued Revenue Regulation No. 12-2007 amending certain provisions relative to the due date within which to pay Minimum Corporate Income Tax imposed on domestic corporations and resident foreign corporations pursuant to Section 27 (E) and Section 28 (A)(2) of the 1997 National Internal Revenue Code.

The Minimum Corporate Income Tax (MCIT), which took effect on January 1, 1998, is a legitimate tax scheme of the bureau to address the perennial problem of non-declaration and under-declaration of revenues by corporations who are earning positive returns and yet avoiding the payment of income tax. It is imposed whenever such corporation has zero and negative taxable income or whenever the amount of the minimum corporate income tax is greater than the normal income tax due from such corporation. Generally, corporations that are subject to said tax are those that are also subject to the regular income tax. With the full implementation of Republic Act No. 9337, the regular corporate income tax rate imposed on all domestic and resident foreign corporations was increased from thirty-two percent (32%) to thirty-five percent (35%) effective November 1, 2005 and will decrease to thirty percent (30%) come January 01, 2009.

The Gross Income which is the tax base of the two percent (2%) minimum corporate income tax comprises of income not only derived from core business activities of the corporation but also those income actually or constructively received during the taxable year which are subject to the regular corporate income tax, except those income exempt from tax or those that are subject to final withholding taxes or passive incomes. In other words, gains from foreign exchange transaction and other income previously classified as down-the-line items in the income statement now form part of the gross income for purposes of computing the MCIT.

Another issue that was clarified in the said regulation was the time of filing and payment of the said tax which is now on a quarterly basis as prescribed under Sec 75 and Sec 77 of the Tax Code, as amended. Thus, in the computation of the tax due for the taxable quarter, if computed quarterly MCIT is higher than the quarterly normal income tax, the tax due to be paid for such taxable quarter at the time of the filing of the quarterly income tax return shall be the MCIT. In the payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not be allowed to be credited. The excess MCIT which was not claimed as tax credit within the three-year reglementary period shall be treated as a loss chargeable against the retained earnings account.

Other rules on the MCIT were not superseded by this regulation. In other words, the composition of the Gross Sales, Cost of Good Sold/ Cost of Services, as well as the specific rules for determining the period when a corporation becomes subject to the MCIT, exempt corporations and the relief that may be granted to them are not repealed, amended or modified.