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Module 11 MCIT 2% ON GROSS

The Minimum Corporate Income Tax (MCIT) applies to domestic and resident foreign corporations subject to regular income tax, with a rate of 1% from July 1, 2020, to June 30, 2023, reverting to 2% thereafter. Corporations are exempt from MCIT during their first three years of operation, and any excess MCIT can be carried forward as a deferred charge for up to three years. The document also outlines the accounting treatment for MCIT and provides examples of tax calculations for corporations.

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4 views5 pages

Module 11 MCIT 2% ON GROSS

The Minimum Corporate Income Tax (MCIT) applies to domestic and resident foreign corporations subject to regular income tax, with a rate of 1% from July 1, 2020, to June 30, 2023, reverting to 2% thereafter. Corporations are exempt from MCIT during their first three years of operation, and any excess MCIT can be carried forward as a deferred charge for up to three years. The document also outlines the accounting treatment for MCIT and provides examples of tax calculations for corporations.

Uploaded by

Wymar Joshua Ediong
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MINIMUM CORPORATE INCOME TAX

The MCIT covers domestic and resident foreign corporations which are subject to the regular
income tax. The term “regular income tax” refers to the regular income tax rates under the Tax Code .
Thus, corporations which are subject to a special corporate tax or to preferential rates under
special laws do not fall within the coverage of the MCIT.

For corporations whose operations or activities are partly covered by the regular income tax
and partly covered by the preferential rate under special law, the MCIT shall apply the
regular income tax rate on its operations not covered by the tax incentives. Newly
established corporations or firms which are on their first 3 years of operations are not
covered by the MCIT.

Minimum corporate income tax (MCIT) on gross income, beginning in the fourth taxable year
following the year of commencement of business operations. MCIT is imposed where the CIT
at 25% is less than 2% MCIT on gross business income.
The commencement of business operations shall be construed as the registration date with
the BIR per RR 9-1998.
Under the CREATE Act, the prescribed MCIT for the period July 1,2020 until June 30, 2023 is
one percent (1%). Effective July 1, 2023, the MCIT rate reverted to its previous rate of two
percent (2%) based on the gross income of the corporation.
In computing the MCIT for the said accounting periods, the gross income shall be divided by
12 months to get the average monthly gross income to be applied the applicable MCIT rate
for the period. For taxable year ending December 31, 2023, apply the rate of 1% for the
period January 1, 2023 to June 30, 2023 and 2% for the period July 1, 2023 to December 31,
RMC No. 36-2024

Minimum corporate income tax (MCIT) on gross income, beginning in the fourth taxable
year following the year of commencement of business operations.
MCIT is imposed where the CIT at 25% is less than 2% MCIT on gross income.

1702
Sales P10,000,000
Cost of sale 4,000,000

Gross Business Income P 6,000,000 X 2% = P120,000 MCIT

Itemized Expenses 5,550,000


Net Taxable Income P 450,000 X 25% = P112,500 Normal Tax

Tax Due P 120,000


RMC No. 36-2024

1702
Sales P10,000,000
Cost of sale 4,000,000

Gross Business Income P 6,000,000 X 2% = P120,000 MCIT

Itemized Expenses 5,550,000


Net Taxable Income P 450,000 X 25% = P112,500 Normal Tax

Tax Due P 120,000

BOOK ENTRY:
Income Tax Expense 112,500
Deferred Charges 12,500
Income Tax Due/payable 120,000
Accounting/TAX Treatment of MCIT

 Any amount as excess MCIT shall be recorded in the corporation’s books as an asset under account title
“Deferred charges, MCIT.”

 This shall be carried forward and may be credited against the normal tax due for a period not
exceeding three taxable years immediately succeeding the taxable year(s) in which the same has been
paid.

 Any amount of the excess MCIT that has not or cannot be so credited against normal income taxes due for the three-
year reglementary period shall lose its creditability.

 MCIT” account is not allowed as deduction from gross income, it being an income tax (Rev.Reg.9-98).

 A taxpayer who is liable to MCIT and at the same time has an expanded withholding tax (EWT) may deduct the EWT
from MCIT and if there is still an excess EWT, he may request for tax credit or refund of tax withheld (BIR Ruling 001-99).
On the 5th year of operation of domestic corporation reported the following;
From prior year, unused EWT per 2307 =P10,000 and Excess MCIT P30,000.
This year records:
1st QTR 2nd QTR 3rd QTR 4th QTR
SALES 10,000,000 20,000,000 10,000,000 10,000,000
COST OF SALE 6,000,000 7,500,000 5,000,000 5,000,000
GROSS BUSINESS INCOME 4,000,000 12,500,000 5,000,000 5,000,000
EXPENSES 3,600,000 12,020,000 4,000,000 4,200,000
NET TAXABLE 400,000 480,000 1,000,000 800,000

EXPANDED W/TAX, 2307 20,000 130,000 120,000 100,000

1st QTR 2nd QTR 3rd QTR For the Year


This QTR 2% MCIT on cumulative Gross Income170,000 80,000 330,000 430,000 530,000
This QTR normal tax on cumulative Net Income 100,000 220,000 470,000 670,000
Income Tax due 100,000 330,000 470,000 670,000
Less, Tax Credits: 1

EWT prior year 10,000 10,000 10,000 10,000


EWT cumulative this year 20,000 150,000 270,000 370,000
Previous Qtr/s Payment/s 40,000 170,000 170,000
2
Excess MCIT 30,000 30,000 30,000 3
Net Tax Payable 40,000 130,000 (10,000) 90,000
4

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