What is MCIT in Income Tax for Corporation

Corporations who are subject to regular income tax is covered by Minimum Corporate Income Tax (MCIT). It is not an additional tax, MCIT is compared to the regular income tax of the corporation (RICT) in the income tax return form, wherein whichever amount is higher will be the final tax due to be paid by the corporation. 

MCIT is computed as 2% of the gross income. Gross income is clearly defined on the next paragraph.

Gross income is gross sales less sales returns, discounts and cost of goods sold. Passive income do not form part of gross income for purposes of computing the MCIT.

Cost of goods sold includes all business expenses directly incurred to produce the merchandise to bring them to their present location and use.

• For trading or merchandising concern, cost of goods sold means the invoice cost of 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.
• For a manufacturing concern, cost of goods manufactured and sold means 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.
• For sale of services, gross income means gross receipts less discounts and cost of services which cover all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including:

• Salaries and employees benefits of personnel, consultants and specialists directly rendering the service;
• Cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used;
• Cost of supplies

Interest Expense is not included as part of cost of service, except in the case of banks and other financial institutions.

A corporation is covered by MCIT on the fourth year following the year of commencement of its business operation.

Source: https://www.bir.gov.ph/index.php/bir-forms/income-tax-return.html