Introduction to Minimum Corporate Income Tax (MCIT)
● Definition of MCIT: The Minimum Corporate Income Tax (MCIT) is a tax imposed on
corporations when their Regular Corporate Income Tax (RCIT) is less than the computed
MCIT for the same taxable period. It ensures that corporations, even if reporting low or no
profits, contribute a minimum tax to the government.
● Objective of MCIT:
○ To prevent tax evasion by companies that continually declare low taxable income or
losses.
○ It serves as a "floor" or minimum tax that corporations must pay, regardless of their
income or deductions.
● Legal Basis:
○ The MCIT was introduced under Section 27(E) of the National Internal Revenue Code
(NIRC) of 1997, as amended.
○ The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act
temporarily lowered the MCIT rate to assist corporations affected by the pandemic.
Applicability and Coverage of MCIT
● Who is Subject to MCIT?
○ Domestic Corporations: Those incorporated in the Philippines and taxed on their
worldwide income.
○ Resident Foreign Corporations: Those doing business in the Philippines, taxed on their
Philippine-sourced income.
● Who is Exempt from MCIT?
○ Non-resident Foreign Corporations: Taxed based on gross income from Philippine
sources but not subject to MCIT.
○ Special Corporations: Government-owned or controlled corporations, nonprofit
institutions, and corporations with tax exemptions under special laws.
○ Newly Established Corporations: MCIT is applicable only starting from the fourth
taxable year immediately following the year of their operation.
● Applicability Based on Taxable Period:
○ The MCIT is imposed if the corporation's RCIT for a taxable period is less than the
computed MCIT. This tax is typically evaluated annually but can also apply to quarterly
tax returns.
MCIT Rates and Computation
● MCIT Rate:
1. Under the CREATE Act, the MCIT rate was temporarily reduced from 2% to 1% of
gross income effective from July 1, 2020 to June 30, 2023, as a relief measure for
businesses affected by the COVID-19 pandemic.
2. After this period, the MCIT rate will revert to 2% of gross income.
● Computation of MCIT:
1. Gross Income: MCIT is based on gross income, which refers to all income derived from
business activities, minus the cost of goods sold or services rendered.
■ Gross Sales/Receipts: Total amount earned from business transactions.
■ Cost of Sales/Services: Direct expenses incurred in generating income, such as
the purchase of raw materials or labor costs.
2. MCIT Calculation: MCIT = Gross Income x MCIT Rate (1% or 2%)
3. Comparison to RCIT: After computing both the RCIT and MCIT, the corporation will
pay the higher amount between the two.
■ RCIT Calculation: Based on net taxable income after deductions and the
applicable tax rate (usually 25% or 20% for smaller corporations under
CREATE).
Reliefs and Credits for MCIT
● Carry-Forward of MCIT:
○ If a corporation’s MCIT exceeds its RCIT, the excess MCIT can be carried forward
and credited against future RCIT liabilities within a period of three (3) consecutive
taxable years.
○ Example: If in Year 1, a corporation’s MCIT exceeds its RCIT, the excess MCIT can be
used to offset future RCIT in Years 2, 3, or 4.
● Suspension or Exemption from MCIT:
○ The Secretary of Finance, upon recommendation of the BIR Commissioner, may
suspend the imposition of MCIT on corporations experiencing losses or financial
difficulties due to economic conditions or other valid reasons.
○ Example: A corporation facing severe business downturns may apply for suspension of
MCIT payment, especially during periods of economic recession.
● Special Deductions and Incentives:
○ Certain corporations may be able to reduce their taxable base by availing of tax
incentives or deductions under laws like the CREATE Act. These incentives may help
lower the RCIT, but if MCIT is higher, it will still apply.
Compliance, Filing, and Penalties
● Filing of Returns:
○ Corporations are required to file both their RCIT and MCIT computations when filing
their annual income tax returns. MCIT should be reflected in the BIR Form 1702 for
corporations.
○ The MCIT is paid alongside quarterly tax returns and finalized with the annual return. If
MCIT applies for a specific year, it will be the payable amount for that period.
● Payment of MCIT:
○ Payment of MCIT can be done at authorized agent banks, through electronic channels
like eFPS, or over-the-counter.
○ Corporations must monitor their gross income and ensure compliance with MCIT
requirements annually.
● Penalties for Non-compliance:
○ Failure to file the correct MCIT or any errors in filing may result in penalties, including a
25% surcharge on the unpaid tax, 12% annual interest, and compromise penalties
depending on the severity of the violation.
○ Repeated violations or fraudulent reporting can lead to criminal liability under the Tax
Code, including possible fines or imprisonment for corporate officers.
