Blt 134 chapter 4
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The document summarizes key aspects of minimum corporate income tax (MCIT), improperly accumulated earnings tax (IAET), and general information tax (GIT) in the Philippines. It explains that MCIT is 2% of gross income imposed on domestic corporations starting in their 4th tax year of operations if their taxable income is zero or negative, or if MCIT is greater than normal income tax. Any excess MCIT paid can be credited against normal income tax over the next 3 years. It provides examples of journal entries recording MCIT payments and credits over multiple years for a sample corporation.
Blt 134 chapter 4
- 1. INCOME TAXATION Chapter 4 - Ballada
- 2. CHAPTER IV – MINIMUM CORPORATE INCOME TAX, IAET AND GIT MINIMUM CORPORATE INCOME TAX (MCIT) Two percent (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 yea, depending on the accounting periodemployed) immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever: a. Such corporation has zero or negative taxable income; or b. The amount of minimum corporateincome tax is greater than the normal income tax due from such corporation. Relief from MCIT under Certain Conditions The Secretary of Finance, upon recommendation of the Commissioner,may suspend the imposition of 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.
- 3. PERIOD SUBJECT TO MCIT For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic registered with the BIR. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning Jan. 1, 1998. Firms which were registered with BIR in any month in 1998 shall be covered by the MCIT in 2002 after the lapse of three calendar years from 1998. The reckoning point for firms using the fiscal year shall also be 1998. For example, a firm which registered with the BIR on July 1, 1998 shall be subject to MCIT on his gross income earned for the entire fiscal year ending in the year 2002.
- 4. ACCOUNTING TREATMENT OF EXCESS MCIT PAID Any amount paid as excess MCIT shall be recorded in the corporation’s books as an asset under account title “Deferred Charges – MCIT”. This asset account shall be carried forward and may be credited against the normal income tax due for a period not exceeding three (3) taxable years immediately succeeding the taxable year/s in which the same has been paid. Any amount of the excess MCIT which has not or cannot be credited against the normal income taxes due for the 3-year reglementary period shall lose its creditability. Such amount shall be removed and deducted from “Deferred charges – MCIT” account by a debit entry to “Retained Earnings” account and a credit entry to “Deferred Charges-MCIT” account since this tax is not allowable as deduction from gross income it being an income tax.
- 5. LA PAGAYO CORPORATION YEAR JOURNAL ENTRIES DR. CR. 2003 a Provision for Income Tax 25,000.00 Income Tax Tapayable 25,000.00 b Deferred Charges - MCIT 75,000.00 Income Tax Payable 75,000.00 c Income Tax Payable 100,000.00 Cash In Bank 100,000.00
- 6. Deferred Charges - MCIT 2003(b) 75,000.00 Income Tax Payable 2003(c) 100,000.00 25,000.00 2003(a) 75,000.00 2003(b) 100,000.00 100,000.00
- 7. YEAR JOURNAL ENTRIES DR. CR. 2004 a Provision for Income Tax 130,000.00 Income Tax Tapayable 130,000.00 b Deferred Charges - MCIT 20,000.00 Income Tax Payable 20,000.00 c Income Tax Payable 150,000.00 Cash In Bank 150,000.00
- 8. Deferred Charges - MCIT BB 75,000.00 2004(b) 20,000.00 95,000.00 Income Tax Payable 2004(c) 150,000.00 130,000.00 2004(a) 20,000.00 2004(b) 150,000.00 150,000.00
- 9. YEAR JOURNAL ENTRIES DR. CR. 2005 a Provision for Income Tax 200,000.00 Income Tax Tapayable 200,000.00 b Income Tax Payable 95,000.00 Deferred Charges - MCIT 95,000.00 c Income Tax Payable 105,000.00 Cash In Bank 105,000.00
- 10. Deferred Charges - MCIT BB 95,000.00 95,000.00 2005(b) Income Tax Payable 2004(b) 95,000.00 200,000.00 2005(a) 2004(c) 105,000.00 200,000.00 200,000.00
- 11. YEAR JOURNAL ENTRIES DR. CR. 2006 a Deferred Charges - MCIT 300,000.00 Income Tax Payable 300,000.00 b Income Tax Payable 300,000.00 Cash In Bank 300,000.00
- 12. Deferred Charges - MCIT 2006(a) 300,000.00 Income Tax Payable 2006(b) 300,000.00 300,000.00 2006(a)
- 13. YEAR JOURNAL ENTRIES DR. CR. 2007 a Provision for Income Tax 10,000.00 Income Tax Tapayable 10,000.00 b Deferred Charges - MCIT 40,000.00 Income Tax Payable 40,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
- 14. Deferred Charges - MCIT BB 300,000.00 2007(B) 40,000.00 340,000.00 Income Tax Payable 2007(c) 50,000.00 10,000.00 2007(a) 40,000.00 2007(b) 50,000.00 50,000.00
- 15. YEAR JOURNAL ENTRIES DR. CR. 2007 a Provision for Income Tax 10,000.00 Income Tax Tapayable 10,000.00 b Deferred Charges - MCIT 40,000.00 Income Tax Payable 40,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
- 16. Deferred Charges - MCIT BB 300,000.00 2007(B) 40,000.00 340,000.00 Income Tax Payable 2007(c) 50,000.00 10,000.00 2007(a) 40,000.00 2007(b) 50,000.00 50,000.00
- 17. YEAR JOURNAL ENTRIES DR. CR. 2008 a Provision for Income Tax 15,000.00 Income Tax Tapayable 15,000.00 b Deferred Charges - MCIT 45,000.00 Income Tax Payable 45,000.00 c Income Tax Payable 60,000.00 Cash In Bank 60,000.00
- 18. Deferred Charges - MCIT BB 340,000.00 2008(B) 45,000.00 385,000.00 Income Tax Payable 2008(c) 60,000.00 15,000.00 2008(a) 45,000.00 2008(b) 60,000.00 60,000.00
- 19. YEAR JOURNAL ENTRIES DR. CR. 2009 a Provision for Income Tax 8,000.00 Income Tax Tapayable 8,000.00 b Deferred Charges - MCIT 32,000.00 Income Tax Payable 32,000.00 c Income Tax Payable 40,000.00 Cash In Bank 40,000.00 d Retained Earnings 300,000.00 Deferred Charges - MCIT 300,000.00
- 20. Deferred Charges - MCIT BB 385,000.00 300,000.00 2009(d) 2009(B) 32,000.00 417,000.00 300,000.00 117,000.00 Income Tax Payable 2009(c) 40,000.00 8,000.00 2009(a) 32,000.00 2009(b) 40,000.00 40,000.00
- 21. YEAR JOURNAL ENTRIES DR. CR. 2010 a Provision for Income Tax 1,000.00 Income Tax Tapayable 1,000.00 b Deferred Charges - MCIT 49,000.00 Income Tax Payable 49,000.00 c Income Tax Payable 50,000.00 Cash In Bank 50,000.00
- 22. Deferred Charges - MCIT BB 117,000.00 2010(a) 2010(B) 49,000.00 166,000.00 Income Tax Payable 2010(c) 50,000.00 1,000.00 2010(a) 49,000.00 2010(b) 50,000.00 50,000.00
- 23. QUARTERLY NORMAL INCOME TAX VS. MCIT Excess MCIT is allowed to be credited against normal income tax only when normal income tax is greater than MCIT. However, if in the computation of the annual income tax due, the computed annual MCIT due appears to be highe than the annual normal income tax due, what may be credited against the annual MCIT due shall only be the quarterly MCIT payments of the current taxable quaters, the quarterly normal income tax payments in the quarters of the current taxable year, the expanded withholding taxes in the current year and excess expanded withholding taxes in the prior years. Excess MCIT from the previous taxable year/s shall not be allowed to be credited therefrom as the same can only be appied against normal income tax. (Revenue regulations 12-2007, Oct. 10, 2007)
- 24. IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)