CHAPTER 4 (BOOK BASED)

Question 1

CREBA

Answer 1

Chamber of Real Estate and Builders’ Associations

Question 2

T OR F

Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of gross income, beginning on the 4th taxable year immediately following the year in which it commenced its business operations, MCIT is greater than the normal corporate income tax.

Answer 2

TRUE

Question 3

T OR F

If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.

Answer 3

T

Question 4

T OR F

The imposition of the MCIT is constitutional.

An income tax is arbitrary and confiscatory if it taxes capital, because it is income, and not capital, which is subject to income tax. However, MCIT is imposed on gross income which is computed by deducting from gross sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.

Answer 4

T

Question 5

_____ of 2% of the gross income as of the end of the taxable year is imposed upon any domestic corporation beginning the fourth (4th) taxable year (whether calendar or fiscal year, depending on the accounting period employed) immediately following the taxable year in which such corporation commenced its business operations.

Answer 5

minimum corporate income tax (MCIT)

Question 6

The MCIT shall be imposed whenever:

Answer 6

a. such corporation has zero or negative taxable income; or
b. the amount of MCIT tax is greater than the normal income tax due from such corporation. Provided, that effective July 1, 2020 until June 30, 2023, the rate shall be 1% (Section 6 of R.A. 11534).

Question 7

MCIT Rates:

On or before June 30, 2020

Answer 7

2%

Question 8

MCIT Rates:

July 1, 2020 to June 30, 2023

Answer 8

1%

Question 9

MCIT Rates:

Starting July 1, 2023

Answer 9

2%

Question 10

shall mean the income tax rates prescribed under Sections 27(A) and 28(A)(1) of the Code

Answer 10

Normal income tax

Question 11

Per R.A. 11534 or CREATE Act, effective July 1, 2020, the income tax rate of domestic corporations, in general, shall be ____

Answer 11

25% (or 20% if the net taxable income is not exceeding 5M and total assets is not exceeding 100M).

Question 12

T OR F

The Secretary of Finance, upon recommendation of the Commissioner, may suspend the imposition of the MCIT upon submission of proof by the applicant-corporation, duly verified by the Commissioner’s authorized representative, that the corporation sustained substantial losses on account of a prolonged labor dispute, or because of force majeure, or because of legitimate business reverses.

Answer 12

T

Question 13

T OR F
Gross sales shall include only sales contributory to income taxable under Section 27(A) of the Code.

Answer 13

T

Question 14

T OR F

Cost of goods sold shall include the purchase price or cost to produce the merchandise and all expenses directly incurred to bring them to their present location and use.

Answer 14

T

Question 15

For a trading or merchandising concern, ________ means the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit

Answer 15

cost of goods sold

Question 16

T OR F

The cost composition of “cost of goods sold” includes only those items which are direct and incidental to the acquisition of the merchandise intended for resale.

Answer 16

T

Question 17

T OR F

For a manufacturing concern, “cost of goods manufactured and sold” shall include all costs of production of finished goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse.

Answer 17

T

Question 18

means amounts actually or constructively received during the taxable year..

Answer 18

Gross receipts

Question 19

For taxpayer employing the accrual basis of accounting, the term ____ shall mean amounts earned as gross income.

Answer 19

gross receipts

Question 20

_____ means all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including:

1. salaries and employee benefits of personnel, consultants and specialists directly rendering the service; and
2. cost of facilities directly utilized in providing the service such as depreciation of rental of equipment used and cost of supplies.

Answer 20

Cost of services

Question 21

T OR F

Income exempt from income tax, and passive income which has been subject to a final tax at source, shall not form part of gross income for purposes of the MCIT

Answer 21

T

Question 22

means losses arising from a strike staged by the employees which lasted for more than six (6) months within a taxable period and which has caused the temporary shutdown of business operations.

Answer 22

Substantial losses from a prolonged labor dispute

Question 23

means a cause due to an irresistible force as by “Act of God” like lightning, earthquake, storm, flood and the like. This term shall also include armed conflicts like war or insurgency.

Answer 23

Force majeure

Question 23

Any amount paid as excess MCIT shall be recorded in the corporation’s books as an asset under account title ______

Answer 23

Deferred Charges-MCIT

Question 23

It shall include substantial losses sustained due to fire, robbery, theft or embezzlement, or for other economic reason as determined by the Secretary of Finance.

Answer 23

Legitimate business reverses

Question 24

This asset account shall be carried forward and may be credited against the NIT due for a period not exceeding _______ taxable years immediately succeeding the taxable year/s in which the same has been paid.

Answer 24

three (3)

Question 25

T OR F

Any amount of the excess MCIT which has not or cannot be so credited against the NIT due for the 3-year reglementary period shall lose its creditability.

Answer 25

T

Question 26

T OR F

The minimum corporate income tax (MCIT) shall apply only to domestic corporations subject to the normal corporate income tax.

Answer 26

T

Question 27

Accordingly, the minimum corporate income tax shall not be imposed upon any of the following:

Answer 27

a. Proprietary educational institutions.
b. Proprietary hospital operations which are non-profit.
c. Domestic corporations engaged in business as depository banks under the expanded foreign currency deposit system, otherwise known as Foreign Currency Deposit Units (FCDUs)
d. Firms that are taxed under a special income tax regime such as those in accordance with R.A. 7916 and 7227 (the PEZA law and the Bases Conversion Development Act, respectively).
e. Real estate investment trusts in accordance with R.A. 9856 and RR 13-2011.