CORPORATE INCOME TAX

The regular corporate income tax applies to all corporations in general. It covers all taxable income
of corporations that are not subject to final tax or capital gains tax. The regular corporate income
tax (RCIT) is 30% of taxable income.

Under the NIRC, domestic corporations may opt to be taxed at either:

a. the corporate gross income tax; or
b. the regular corporate income tax (RCIT) subject to the minimum corporate income tax
(MCIT).

Corporate Gross Income Tax

The President upon the recommendation of the Secretary of Finance, may, effective Jan. 1, 2020,
allow domestic corporations the option to be taxed at 15% of gross income after the following
conditions has been satisfied:
1. A tax effort ration of 20% of Gross National product (GNP);
2. A ratio of 40% of income tax collection to total tax revenues;
3. A VAT tax effort of 4% of GNP; and
4. A 0.9% ratio of the Consolidated Public Sector Financial Position (CPSFP) to GNP.

➢ The option to be taxed based on gross income shall be available only to corporations whose
ratio of cost of sales to gross sales/receipts from all sources does not exceed 55%.
➢ The election of gross income tax shall be irrevocable for 3 consecutive taxable years during
which the corporation is qualified under the scheme.

The 15% gross income tax remain in law but was not used in practice as the conditions for the
grant was never met.
Regular Corporate Income Tax (RCIT)
The taxability of income of corporations would depend on the nature of income and the type of
corporation. It would be too confusing to discuss them all – DC, RFC, and NRFC, so our topic is
limited only to domestic corporations. Income as to nature maybe classified as follows:
• Exempt Income where the law, treaty or the regulations expressly provides that the same
is exempt from income tax. Example: inter-corporate dividend from a DC to another DC;
income from a time deposit of more than 5 years.
• Final Income subject to final withholding taxes of varying rates corresponding to tax
required upon their payment of such income. Examples of income subject to final tax are
interest income on Philippine bank deposits and royalties.
• Capital gains subject to capital gains tax of 6% based on the fair market value of the real
property sold, or 5% and 10% of the net capital gains on sales of shares of a DC not thru
the local stock exchange.
• Ordinary income or those incomes not falling under any of the above classifications that
is subject to a regular corporate income tax of 30%.

Computation of RCIT is quite simple as follows:

Gross Sales/Receipts
Less: Sales discounts, returns and allowances
Net Sales/Receipts
Less: Cost of goods sold/service
Gross Income
Add: Other taxable income
Total Gross Income
Less: Allowable deductions (simply the business expenses)
Taxable Income
Multiplied by: 30% tax rate
Income Tax Due and Payable

Illustration 1: Venue Corporation has the following financial data:

Gross sales 30,000,000
Sales returns and allowances 900,000
Sales discounts 1,500,000
Cost of goods sold 10,500,000
Business expenses 15,000,000
Interest on notes receivable 50,000
Gain on sale of office equipment 200,000
Dividends from a domestic corporation 500,000
Interest income from bank deposits 150,000
Capital gain on sale of Lucky Corporation to direct buyer 300,000
Computation of Regular Corporate Income Tax (RCIT)
Gross sales 30,000,000
Less: Sales returns and allowances 900,000
Sales Discounts 1,500,000 2,400,000
Net sales 27,600,000
Less: Cost of goods sold 10,500,000
Gross Income 17,100,000
Add: Other taxable income
Interest on notes receivable 50,000
Gain on sale 200,000 250,000
Total gross income 17,350,000
Less: Allowable deductions 15,000,000
Taxable Income 2,350,000
Multiply by Tax Rate 30%
Income Tax Due 705,000

Illustration 2: The result of operations of a corporation for 2018 is as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Gross Income 500,000 600,000 700,000 800,000
Business expenses 300,000 350,000 400,000 450,000
Net Income 200,000 250,000 300,000 350,000
Required: Compute the taxable income and income tax due for each quarter.

Computation of quarterly income tax due

1st Quarter 2nd Quarter 3rd Quarter Year

Gross income for the quarter 500,000 600,000 700,000 800,000
Less: Allowable deductions 300,000 350,000 400,000 450,000
Taxable income 200,000 250,000 300,000 350,000
Add: taxable income from previous quarter(s) 0 200,000 450,000 750,000
Taxable income to date 200,000 450,000 750,000 1,100,000
x Tax rate 30% 30% 30% 30%
Income tax due 60,000 135,000 225,000 330,000
Less: Tax due from previous quarter(s) 60,000 135,000 225,000
Income tax due this quarter 60,000 75,000 90,000 105,000
Illustration 3. A Corporation shows the cumulative balance as of 2018:
1st Quarter 2nd Quarter 3rd Quarter Year
Gross income 1,920,000 3,840,000 5,760,000 7,440,000
Business expenses 1,440,000 2,880,000 4,080,000 5,040,000
Income tax withheld 36,000 84,000 156,000 276,000

Required: Compute the taxable income and income tax due for each quarter.

Computation of quarterly income tax due and payable

1st Quarter 2nd Quarter 3rd Quarter Year

Gross income for the quarter 1,920,000 3,840,000 5,760,000 7,440,000
Less: Allowable deductions 1,440,000 2,880,000 4,080,000 5,040,000
Taxable income 480,000 960,000 1,680,000 2,400,000
x Tax rate 30% 30% 30% 30%
Income tax due 144,000 288,000 504,000 720,000
Less: Income tax withheld 36,000 84,000 156,000 276,000
Less: Income tax paid from prev. quarters 108,000 204,000 348,000
Income Tax due and payable 108,000 96,000 144,000 96,000
Minimum Corporate Income Tax (MCIT)
Corporations are liable to MCIT of 2% of gross income when:
a. the corporation has zero or negative taxable income
b. MCIT is greater than the RCIT.

Corporations exempt from CMIT

1. Real Estate Investment Trusts (REITs) under RA 9856
2. Domestic corporations which opted to be taxed under the 15% corporate gross income tax
3. Domestic or resident corporations subject to special tax rates
a. Proprietary educational institutions and non-profit hospitals (10%)
b. FCDUs and OBUs (10% on FX transactions, 30% on local currency transactions)
c. Regional Operating Headquarters of multinational companies (10%)
d. International carries (2.5% on gross Philippine billings)
e. Firms subject to special income tax (PEZA, BCDA)
4. All non-resident foreign corporations

Timing of Imposition of MCIT

➢ MCIT is imposed beginning on the 4th taxable year following the year in which the corporation
commenced its operations.
➢ MCIT applies on the X + 4th year of operations.
o A corporation which stated its operations on any day in 2015 will be covered by MCIT
in 2019.
o The rule is apparently intended to enable the business to obtain competitive traction
before being subjected to MCIT.

Gross Income under the NIRC

➢ For corporations involved in sales of goods
o Gross sales less sales returns, discounts, allowances, and cost of goods sold

➢ For corporations involved in sales of services

o Gross receipts less sales returns, discounts, allowances, and cost of services

Cost of services shall mean all direct cost and expenses necessarily incurred to provide the
service required by customers and clients including:
a. Salaries and employee benefits of personnel, consultants and specialists
directly rendering the service, and
b. Cost of facilities directly used in providing the service such as depreciation
or rental of equipment, and cost of supplies.
c. In case of banks, cost of service shall include interest expense.
Under the Revenue Regulations No. 12-2007 (RR No. 12-2007), gross income includes all other
items of taxable income not subjected to final tax and capital gains tax.

Illustration 1. A corporate taxpayer subject to MCIT reported the following:

Gross sales ₱1,000,000
Sales discounts and allowances for defects 30,000
Sales returns by customers 20,000
Interest income from bank deposit 20,000
Rental income from vacant lot 60,000
Cost of goods sod 695,000
Business expenses 300,000

MCIT computation
Gross sales ₱1,000,000
Less: Sales discounts and allowances for defects 30,000
Sales returns by customers 20,000 50,000
Net Sales ₱ 950,000
Less: Cost of Goods sold 695,000
Gross income from operations ₱ 255,000
Add: Other taxable income not subject to final tax
Interest income from bank deposit 0
Rental income from vacant lot 60,000
Total gross income ₱ 315,000
x MCIT rate 2%
Minimum Corporate Income Tax (MCIT) ₱ 6,300

ANNUAL RCIT and MCIT. Integrative illustration.

Illustration 1. La-View Trading Corporation reported the following on its fifth year of
operations:
Sales 5,000,000
Cost of sales 2,000,000
Rent income 100,000
Interest from employee advances 50,000
Business expenses 3,100,000
Quarterly income tax payments 10,000

Required: (1) the income tax due and (2) income tax payable
 Sales 5,000,000
Cost of sales 2,000,000
Gross income 3,000,000
Add: Other taxable income
Rent income 100,000
Interest from employee advances 50,000
Total Gross Income 3,150,000
Less: Allowable deductions 3,100,000
Taxable Income 50,000
x Tax rate (RCIT) 30%
Income Tax Due 15,000

Total Gross Income 3,150,000

x Tax Rate (MCIT) 2%
Income Tax Due 63,000

Income Tax Due, whichever is higher 63,000

Less: Quarterly income tax payments 10,000
Income Tax Payable 53,000

Illustration 2. La-View Trading Corporation reported the following on its fifth year of
operations:
Sales, net of 1% creditable withholding tax 4,950,000
Cost of sales 2,000,000
Rent income, net of 5% creditable withholding tax 95,000
Interest from employee advances 50,000
Business expenses 3,100,000
Quarterly income tax payments 10,000

Required:
(1) total creditable withholding tax, (2) the income tax due and (3) income tax payable
Computation:

Sales (4,950,000 / 99%) 5,000,000

Cost of sales 2,000,000
Gross income 3,000,000
Add: Other taxable income
Rent income (95,000 / 95%) 100,000
Interest from employee advances 50,000
Total Gross Income 3,150,000
Less: Allowable deductions 3,100,000
Taxable Income 50,000
x Tax rate (RCIT) 30%
Income Tax Due 15,000

Total Gross Income 3,150,000

x Tax Rate (MCIT) 2%
Income Tax Due 63,000

Creditable Withholding Tax

Sales (5,000,000 x 1%) 50,000
Rent Income (100,000 x 5%) 5,000
Total creditable withholding tax 55,000

Income Tax Due, whichever is higher 63,000

Less: Quarterly income tax payments 10,000
Less: Creditable withholding Tax 55,000
Income Tax Payable (overpayment) (2,000)