Types of Income Tax

1. Final Withholding Tax

2. Capital Gains Tax
3. Regular Income Tax

✓ Regular Corporate Income Tax (RCIT)

Train Law: 30% of Taxable Income

Create Law: 25% of Taxable Income
Except: 20% for Domestic corporations with:
o Net Taxable Income doesn’t exceed 5,000,000 and
o Total assets doesn’t exceed 100,000,000 excluding land value.

✓ Minimum Corporate Income Tax (MCIT)

Train Law: 2% of Gross Income

Create Law: 1% of Gross Income (July 1, 2020 – June 30, 2023)

5 THINGS TO REMEMBER:
1. 1% of Gross Income
2. Applies only to Domestic and Resident Foreign Corporation
3. Effective beginning 4th taxable year following the year of commencement (Year of Commencement + 4
Years)
4. Excess MCIT can carry over for 3 years; credited against RCIT.
5. Computed quarterly and annually.
 Classification of
Taxable Source Tax Rates Tax Base
Corporate Taxpayers
Within Without
Domestic Corporation ✓ ✓ 25% or 20% Taxable Income
Resident Foreign
✓ 25% Taxable Income
Corporation
Non-Resident Foreign
✓ 25% Gross Income
Corporation

FORMAT:

Gross Income (Note 1)

Less: Allowable Deduction (Note 2)
Taxable Income
x RCIT
Tax Due

Note 1: Gross Income

3 THINGS TO REMEMBER:
1. Sale of Goods
Gross Sales
Less: Sales Return and Sales Discounts
Cost of Goods Sold
Gross Income

2. Sale of Services
Gross Receipts
Less: Sales Discounts if any
Cost of Services
Gross Income
 3. Excludes income subject to FWT and CGT.

Note 2: Allowable Deductions

1. Itemized Deductions
- actual operating expenses
- with supporting documents

2. Optional Standard Deduction (OSD)

- estimated expenses
- 40% of Gross Income
- no need for supporting documents

FOLLOW THIS 3 STEPS FRAMEWORK:

1. Identify the classification of Corporation

2. Compute for the Total Assets and Net Taxable Income, if the taxpayer is a domestic corporation.
3. Compute for the MCIT.
Exercises
1. PDP Corp. reported the following information in 2021:

Phils Japan
Gross Sales 6,000,000 4,000,000
Sales Return 200,000 150,000
Sales Discounts 100,000 80,000
Cost of Sales 2,000,000 1,500,000
Deductible expenses 1,000,000 500,000

Total asset excluding land 150,000,000

Requirement: Compute for the income tax due if the corporate taxpayer is:
a. Domestic Corporation
b. Resident Foreign Corporation
c. Non-Resident Foreign Corporation
d. Domestic Corporation with Total Assets amounting to 90,000,000
e. Domestic Corporation availing Optional Standard Deduction

Solution
PHILIPPINES JAPAN TOTAL
Gross Income 3,700,000 2,270,000 5,970,000
Taxable Income 2,700,000 1,770,000 4,470,000
A. DOMESTIC CORPORATION (w/n and w/o)

Taxable Income 4,470,000

Tax Rate 25%
RCIT 1,117,500 (Income Tax Due)
MCIT (1% of GI) 59,700 (5,970,000 x 1%)

B. RESIDENT FOREIGN CORPORATION (w/n)

Taxable Income 2,700,000

Tax Rate 25%
RCIT 675,000 (Income Tax Due)
MCIT (1% of GI) 37,000 (3,700,000 x 1%)

C. NON-RESIDENT FOREIGN CORPORATION (w/n)

Gross Income 3,700,000

Tax Rate 25%
RCIT 925,000 (Income Tax Due)

D. DOMESTIC CORPORATION (w/n and w/o)

Taxable Income 4,470,000

Tax Rate 20%
RCIT 894,000 (Income Tax Due)
MCIT (1% of GI) 59,700 (5,970,000 x 1%)

The 20% tax rate is applicable because it satisfied the 2 requirements:

o Net Taxable Income 4,470,000 is less than 5,000,000.
 o Total Assets excluding land 90,000,000 is less than 100,000,000.

E. DOMESTIC CORPORATION - OSD

Gross Income 5,970,000

Less: Allowable Deduction 2,388,000 → (5,970,000 x 40%)
Taxable Income 3,582,000
Tax Rate 25%
RCIT 895,500 (Income Tax Due)
MCIT (1% of GI) 59,700 (5,970,000 x 1%)

2. ESP, a corporation organized on 2017 under the Philippine Law reported the following information:

2021 2022 2023 2024

TA including land 110,000,000 120,000,000 140,000,000 120,000,000
Land Value 20,000,000 20,000,000 25,000,000 25,000,000
Gross Income 8,000,000 10,000,000 7,000,000 10,500,000
Allowable Deductions 3,500,000 4,500,000 7,250,000 9,000,000

Requirement: Compute for the income tax payable in the year of:
a. 2021
b. 2022
c. 2023
d. 2024
Solution
2021 2022 2023 2024

TA excluding land value 90,000,000 100,000,000 115,000,000 95,000,000

Net Taxable Income 4,500,000 5,500,000 (250,000) 1,500,000
Applicable Tax Rate 20% 25% 25% 20%
RCIT 900,000 1,375,000 0 300,000
MCIT 80,000 100,000 *105,000 210,000
Excess MCIT - - 105,000 (105,000)
195,000

* Last Year of effectivity of 1% MCIT is dated June 30, 2023.

Gross Income 7M / 2 = 3.5M x 1% 35,000

3.5M x 2% 70,000
Total MCIT 105,000
References
Banggawan, Rex B. Income Taxation Laws and Principles and Applications (2021). Real Excellence Publishing.