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Minimum Corporate Income

Tax (MCIT)
 Improperly Accumulated
Earnings Tax (IAET)
 Gross Income Tax (GIT)

By: Aireen Joy S. Tiempo

imposed to corporation has zero or negative income imposed whenever the MCIT is greater than the normal income tax. .Minimum Corporate Income Tax (MCIT)     2% of the gross income is imposed upon any domestic corporation beginning the 4th taxable year.

gross income = gross receipts .Gross Income:    for trading/manufacturing: .gross income is equal to net sales less cost of goods receipts less cost of services for service concern under accrual basis accounting: . for service concern business under cash basis: .

500. a direct buyer P30.000 90. is on it’s 5th year of operations in 2009.000.000 200. It has the following financial data: Gross sales Sales return Sales Discount Cost of Goods sold Deductions Interest income from Int’l bank under FCDS Interest on Notes receivable Dividend from a resident corporation Capital gain on sale of shares of stock to a domestic corp.000 15.000 .000.000 10.000 50.000 900.Example: Venus Corporation.000 1.000 3.500.000. a resident foreign corporation.

400.000 ======== .500.600.000 2% P 342.000 10.000 P27.000 Net Sales Less: Cost of goods sold Gross Income Multiply by MCIT P30.500.000 Sales Discount 1.000 2.000 P17.100.000.Answer: (under MCIT) Gross sales Less: Sales Returns 900.

000 Less: Deductions 15.000.500.350.500.000 Multiply by tax rate 30% Normal Tax P 705.000 Less: Cost of goods sold 10.000.350.000 ======== .000 Gross profit from sales P17.000 2.000 Net Sales P27.000 Less: Sales return 900.000 Add: Other gross income 250.000 Net Income P 2.000 Gross Income P17.100.000 Sales discount 1.600.Answer: (under normal tax) Gross sales P30.400.

000 P 250..000 4.000 x 7 ½ %) Capital Gain (90.000 ======= The higher between MCIT and normal income tax.000 200.500 ====== Income tax due P 705.     Other Gross income: interest on notes Dividend from resident corp.000.500 P 229. .Cont.000 ======= P 225.000 x 5%) Total P 50.. Total Final tax on passive income: Interest Income From Int’l Bank (P3..

based on it’s RR 2-2001 there is imposed for each taxable year a tax equal to 10% of the improperly accumulated taxable income of corporation. the rationale is that if the earnings and profits were distributed. 2001. the shareholder would be liable to income tax thereon.Improperly Accumulated Earnings Tax (IAET):    Issued by BIR on March 9. .

publicly-held corporation -taxable partnership & GPP .non-taxable joint ventures .insurance companies .Coverage:   domestic corporation classified as closelyheld corporations. Not covered: .banks & other non-bank financial intermediaries .

the amount of NOLCO taxable income will be reduced by: .income exempt from tax .amounts reserved for reasonable needs of the business .income tax paid/payable .income excluded from gross income . and .Tax base of IAET:   taxable income plus .dividends actually/constructively paid .income subject to final tax.

65.000 Dividend from resident corp. Peace Corp..000 .000 CG on sale of shares.000 Dividend paid 800.000 Cost of goods sold 2. Following are related data: Gross sales 7.000 Interest income under FCDS 750.000 Sales discount 375.275.000 Deduction 3. is subject to IAET after having been assessed as retaining earnings beyond the reasonable needs of business. a domestic corporation.500. 225.625.000 Interest on notes receivable 50. 100.000 Sales return & allow.000 Dividend from domestic corp.Example: Assume that in taxable year 2009. direct buyer 75.

625.275.000 ====== Gross sales Less: SR SD Net Sales Less: CGS 7.000 GP from sales 4.000 6.000 2.000 Less: SR 225.900.000 Net Income 1.000 Multiply by: MCIT 2% P 85.000 Gross Income 4.625.150.000 Multiply by 30% Normal tax P 345.425.000 Less: Deduction 3.000 SD 375.000 Less: CGS 2.000 375.900.275.000 600.500 ====== .000 600.275.000 Add: other GI 150.500.500.000 225.000 Gross Income 4.Answer: Gross Sales 7.000 Net Sales 6.

000 890.000 1.000 Income tax 2009 345..000 CG on sale 75.205.000 FT in passive income 60.040.000 Less: Dividends paid 800.000 Add: Income exempt from tax 65.000 Multiply by 10% Improperly Accumulated earnings tax P 83.000 Total 2.000 Income subject to final tax Int. Income under FCDS 750. Taxable Income 1...000 Improperly accumulated earnings 835.150.Cont.500 ====== .

the election of the GIT by the corporation shall be irrevocable for three consecutive taxable years. .Gross Income Tax (GIT) o o o o 15% of gross income Applicable to firms whose ratio of cost of sales to gross sales or receipts from all sources does not exceed 55%. applicable to domestic and resident foreign corporation.

000 3.000 450..Example: ( For merchandising/manufacturing) Dwight Corporation. Sales Discount Cost of goods sold Deductions P 15. opts to be taxed under the GIT for the taxable year 2009.000 6.750. a domestic merchandising corp. compute the GI and GIT if its financial records show the following: Gross Sales Sales Return and allow.000 .000 600.000.375.

000 P 15.750/15.750.000) .000 ======= Note: Ratio of cost of goods sold is 45% (6.000 13.200.950. Net Sales Less: Cost of goods sold Gross income Multiply by Gross Income tax P 600.000 450.000.000 1.080.000 6.050.000 15% 1.Answer: Gross Sales Less: Sales Return Sales Disc.000 7.

000 . data Gross receipts Sales Return and allow. Sales Discount Cost of services Deductions 10..000.000. a domestic company providing for art design services opts for the GIT. Merit Corporation.500.000 400.000 500.Example: (engaged in sale of services) For the taxable year 2009.000 4. It has the ff.000 2.

000 ======= Note: Ratio of cost of services is 45% (4. . Gross income Multiply by Gross Income tax 10.000 400.000 9.000 15% P 1.365.000 500.000 900.500/10.000)  cost of services is not deducted to arrive at gross income in case of sale of services using cash basis.100.000.Answer: Gross Receipts Less: Sales Return Sales Disc.