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MODULE 4:INCOME TAX ON CORPORATION
LEARNING OBJECTIVES
At the end of this module, you are expected to:
1. Define and classify corporate taxpayers;
2. Identify the classification and taxability of
income of a corporation;
3. Discuss the concept of Normal Corporate
Income Tax (NCIT) and Minimum Corporate Income Tax (MCIT);
4. Compute income taxes using the Normal Corporate Income Tax (NCIT);
5. Compute income taxes using the Minimum Corporate Income Tax (MCIT);
6. Discuss the treatment of a Special Corporation;
7. Compute income tax due of Special Corporate Taxpayers
Corporate Taxpayers
- Is an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence.
Classification of Corporation:
1. Domestic
- Organized under the existing laws of the Philippines
- Taxable on income earned within and without the Philippines
2. Foreign
- Organized under the laws of a foreign country
- Taxable on income earned within the Philippines only
- Classification of a foreign corporation:
a. Resident foreign corporation
b. Non-resident foreign corporation
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PHILIPPINE TAX SYSTEM AND INCOME TAXATION
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MODULE 4:INCOME TAX ON CORPORATION
Capital Gain
CORPORATION
TAXABLE NON-TAXABLE
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MODULE 4:INCOME TAX ON CORPORATION
ILLUSTRATION 1
ABC Corporation has the following data for the first year of business operations
Philippines Australia
Gross Sales 8,000,000 7,000,000
Cost of Sales 6,200,000 1,300,000
Allowable business expenses 1,700,000 1,040,000
Other Income 600,000 400,000
Required: Compute the amount of corporate tax liability under each of the following cases:
1. Domestic corporation using itemized deduction
2. Domestic corporation using OSD
3. Resident foreign corporation using itemized deduction
4. Resident foreign corporation using OSD
5. Non-resident foreign corporations
Answer:
1. Domestic corporation using itemized deduction
NCIT 1,728,000
MCIT 150,000
Tax to be paid is the NCIT, since it is higher than the calculated MCIT 1,728,000
Domestic corporations are taxable for income earned both in the Philippines and abroad and are subject
to either normal corporate income tax (NCIT) of 30% of net income or minimum corporate income tax
(MCIT) of 2% of gross profit whichever is higher.
Net Income Tax Rate Income Tax Due
NCIT 5,760,000 30% 1,728,000
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MODULE 4:INCOME TAX ON CORPORATION
NCIT 1,650,000
MCIT 150,000
Tax to be paid is the NCIT, since it is higher than the calculated MCIT 1,650,000
If a corporation opted to use optional standard deduction (OSD), such corporation are no longer allowed to claim
the line by line item of expenses it incurred. The deductions to total income earned will be based on a fixed rate of
40% of gross taxable income (gross profit, as the case may be).
Philippines Australia Total
Gross Profit 1,800,000 5,700,000.00 7,500,000
OSD rate 40% 40% 40%
Allowable Deductions 720,000 2,280,000 3,000,000
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MODULE 4:INCOME TAX ON CORPORATION
NCIT 210,000
MCIT 36,000
Foreign corporations, whether resident or non-resident, are taxable for income earned in the Philippines only.
Net Income Tax Rate Income Tax Due
NCIT 700,000 30% 210,000
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PHILIPPINES
Gross Sales P 8,000,000
Less: Cost of Sales 6,200,000
Gross Profit 1,800,000
Plus: Other Income 600,000
Total Income 2,400,000
Less: Allowable Deductions 720,000
Net Taxable Income P 1,680,000
NCIT 504,000
MCIT 36,000
Philippines
Gross Profit 1,800,000
OSD rate 40%
Allowable Deductions 720,000
Tax to be calculated is
only the NCIT 504,000
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MODULE 4:INCOME TAX ON CORPORATION
Non-resident foreign corporations are not subject to 2% minimum corporate income tax. Hence, such
corporate taxpayer will only be liable to the Philippine government for the 30% normal corporate
income tax.
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MODULE 4:INCOME TAX ON CORPORATION
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MODULE 4:INCOME TAX ON CORPORATION
ILLUSTRATION 2
The records of a domestic corporation that commenced operation in 2010 are as follows:
2015 2016 2017
Gross Income P15,000,000 P17,000,000 P19,000,000
Allowable Deductions (14,500,000) (17,200,000) (17,800,000)
Required: Determine the income tax payable for 2015, 2016 and 2017
Answer:
2015 2016 2017
Gross Income P 15,000,000 P 17,000,000 P 19,000,000
Less: Allowable Deductions 14,500,000 17,200,000 17,800,000
Net Taxable Income P 500,000 P (200,000) P 1,200,000
2015
Net Taxable
Income/ (Net Loss) 500,000
2016
Net Taxable
Income/ (Net Loss) (200,000.00)
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MODULE 4:INCOME TAX ON CORPORATION
In 2016, the corporation suffered from a net loss; hence, the company is not subject to the NCIT
of 30%. However, as provided in the tax code, a minimum corporate income tax of 2% still
applies even if a corporation incurs a loss.
2017
Net Taxable
Income/ (Net Loss) 1,200,000
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ILLUSTRATION 4
XYZ Corporation’s normal corporate income tax, minimum corporate income tax, income taxes withheld
from 1st to 4th quarters including excess MCIT and excess withholding taxes from prior years are as
follows:
Quarter NCIT MCIT Taxes Excess Excess
withheld MCIT Withholding tax
during the prior year prior year
year
1st P250,000 P210,000 P90,000 P110,000 P20,000
2 nd 290,000 550,000 110,000
3 rd 550,000 250,000 130,000
4 th 450,000 250,000 120,000
Required: Determine the following:
1. Income tax payable for the first quarter
2. Income tax payable for the second quarter
3. Income tax payable for the third quarter
4. Annual income tax payable
Answer:
1. Income tax payable for the first quarter
Q1
MCIT 210,000
NCIT 250,000
NCIT 250,000
Withholding tax-Prior Year (20,000)
Withholding tax-Current Year (90,000)
Excess MCIT-Prior Year (110,000)
Tax Paid-Previous Quarter -
The total tax liability of a corporation is either the NCIT or MCIT, whichever is higher. However, in some
instances, there are already payments made to the government that can be deducted from the total
amount of tax liability to arrive at the amount still payable to the government. These amounts are called
“tax credits”.
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MODULE 4:INCOME TAX ON CORPORATION
MCIT 760,000
Withholding tax-Prior Year (20,000)
Withholding tax-Current Year 90,000 110,000 (200,000)
Excess MCIT-Prior Year -
Tax Paid-Previous Quarter (30,000) (30,000)
In the second quarter, the corporation is liable to pay the MCIT. In this case, such excess MCIT that has been
carried over from the previous quarter cannot be offset or deducted against MCIT itself. Remember that any
excess of the MCIT shall be carried forward and credited (deducted) against the NCIT only. Hence, the NCIT
should be higher than MCIT in the year or quarter to which the excess MCIT is forwarded.
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MODULE 4:INCOME TAX ON CORPORATION
NCIT 1,090,000
Withholding tax-Prior Year (20,000)
Withholding tax-Current Year 90,000 110,000 130,000 (330,000)
Excess MCIT-Prior Year (110,000)
Tax Paid-Previous Quarter 30,000 510,000 (540,000)
NCIT 1,540,000
Withholding tax-Prior Year (20,000)
Withholding tax-Current Year 90,000 110,000 130,000 120,000 (450,000)
Excess MCIT-Prior Year (110,000)
Tax Paid-Previous Quarter 30,000 510,000 90,000 (630,000)
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MODULE 4:INCOME TAX ON CORPORATION
Special Corporation
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MODULE 4:INCOME TAX ON CORPORATION
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MODULE 4:INCOME TAX ON CORPORATION
ILLUSTRATION
Case 1 The following data were reported for 20xx business activities of Students
University, a private educational institution:
Tuition fees 525,000
School business-related expenses 325,000
Answer (CASE 1)
Tuition fees P 525,000
School business related expenses (325,000)
Net Taxable Income 200,000
Tax Rate 10%
Income Tax Payable P 20,000
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MODULE 4:INCOME TAX ON CORPORATION
End of Module 4
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MODULE 4:INCOME TAX ON CORPORATION
References
1. National Internal Revenue Code of 1997. (n.d.). Retrieved from
https://www.bir.gov.ph/index.php/tax-code.html.
2. Aduana, N. L. (2018). Simplified and procedural handbook on income taxation. Quezon
City: C & E Publishing Inc.
3. Garcia, E. R., & Tabag, E. D. (2018). Income Taxation. Quezon City: Good Dreams
Publishing.
4. Valencia, E. G. (2016). Income Taxation (7th Edition ed.). Baguio City: Valencia
Educational Supply.
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