INCOME TAX: CHAPTER 4,5&6

Question 1

What is the normal income tax rate for domestic corporations as of January 1, 2020?

Answer 1

25%

The rate was reduced from 30% effective January 1, 2009.

Question 2

What was the income tax rate for domestic corporations under the CREATE Act effective November 1, 2005?

Answer 2

35%

This was part of the amendments introduced by the CREATE Act.

Question 3

What is the income tax rate for domestic corporations effective from January 1, 1999?

Answer 3

33%

This rate continued until the adjustments made in subsequent years.

Question 4

What does ‘Normal income tax’ mean?

Answer 4

Income tax rates prescribed under Sections 27(A) of the Code

These rates vary based on specific legislative amendments.

Question 5

What is the minimum corporate income tax (MCIT) rate starting July 1, 2023?

Answer 5

2%

This is established under Section 6 of R.A. 11534.

Question 6

For the period from July 1, 2020 to June 30, 2023, what is the MCIT rate?

Answer 6

1%

This rate applies to domestic corporations during this timeframe.

Question 7

When is the MCIT imposed on a domestic corporation?

Answer 7

Whenever the corporation has zero or negative taxable income or has commenced its business operations

This applies starting from the fourth taxable year.

Question 8

What is the MCIT based on?

Answer 8

2% of the Gross income as of the end of the taxable year (whether calendar or fiscal year)

This is calculated regardless of taxable income.

Question 9

True or False: The MCIT is always lower than the normal income tax due from a corporation.

Answer 9

False

The MCIT can be greater than the normal income tax due.

Question 10

**Relief From the MCIT Under Certain Conditions*$

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 of what? _______ (3 reasons)

Answer 10

1. Substantial losses on account of a prolonged labor dispute
2. Force majeure
3. Legitimate business reverses

Question 11

______ 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 11

Cost of goods sold

Question 12

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 12

“cost of goods sold”

Question 13

For a manufacturing concern, “_______” 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 13

cost of goods manufactured and sold

Question 14

_____ as used herein means amounts actually or constructively received during the taxable year.

Answer 14

Gross receipts

Question 15

True or False

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

Answer 15

True

Question 16

______ 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 or rental of equipment used and cost of supplies.

Answer 16

Cost of services

Question 17

TRUE OR FALSE

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 17

TRUE

Question 18

_______ 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 18

Substantial losses from a prolonged labor dispute

Question 19

______ 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 19

Force majeure

Question 20

______ 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 20

Legitimate business reverses

Question 21

Gross Receipts and Cost of Services Per Industry

In said circulars, the BIR explicitly enumerated the items that shall comprise the gross receipts and costs of services of the following entities:

Answer 21

• Insurance and pension funding companies
• Brokers of securities (excluding banks)
• General engineering and/or building contractors
• Common carriers or transportation contractors
• Food service establishments
• Radio and/or television broadcasting
• Telephone and telegraph, electric, gas and water utilities

Question 22

Resident Foreign Corporations Not Subject to MCIT

The minimum corporate income tax shall only apply to resident foreign corporations which are subject to NIT. Accordingly, the MCIT shall not apply to the following resident foreign corporations:

a.________ subject to tax at 2.50% of their “gross Philippine billings.”

b._______ (ROHQ) subject to tax at 10% of their taxable income.

c.

Answer 22

a. Resident foreign corporations engaged in business as “international carrier”

b. Resident foreign corporations engaged in business as regional operating headquarters

c. Firms that are taxed under a special income tax regime

Question 23

Domestic Corporations Not Subject to MCIT

(MCIT) shall apply only to domestic corporations subject to the normal corporate income tax. Accordingly, the minimum corporate income tax shall not be imposed upon any of the following: (5)

Answer 23

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

d. Firms that are taxed under a special income tax regime

e. Real estate investment trusts