DOMESTIC corporations would no longer pay the minimum corporate income tax beginning in 2027 under a measure intended to align tax obligations more closely with their actual financial performance.
House Majority Leader Ferdinand Alexander “Sandro” A. Marcos and Speaker Faustino “Bojie” G. Dy III on Tuesday filed House Bill (HB) No. 10346 following President Ferdinand “Bongbong” R. Marcos Jr.’s call in his fifth State of the Nation Address (SONA) for tax relief benefiting businesses.
“President Ferdinand ‘Bongbong’ R. Marcos Jr.’s SONA recognized that a business should not be forced to pay a minimum tax based on gross income when margins are already thin, and we moved quickly to translate that policy into legislation. Removing the MCIT gives viable enterprises more room to keep people employed, meet payroll and invest in their next stage of growth,” Marcos stressed.
The measure amends Section 27 of the National Internal Revenue Code and expressly ends the imposition of the MCIT beginning January 1, 2027.
Under existing law, a domestic corporation generally pays an MCIT equivalent to two percent of gross income beginning with its fourth taxable year whenever that amount exceeds the regular corporate income tax.
HB 10345 retains the current 2 percent MCIT only until December 31, 2026, providing businesses and tax authorities with a transition period before its abolition.
Beginning January 1, 2027, corporations covered by the measure will instead pay the regular corporate income tax computed from taxable income under Section 27(A).
The regular corporate income tax is generally 25 percent, while qualified domestic corporations with net taxable income not exceeding P5 million and total assets not exceeding P100 million are subject to a 20 percent rate.
The bill allows excess MCIT previously paid over the regular income tax to be carried forward and credited against the regular corporate income tax for the three immediately succeeding taxable years.
Until the MCIT is abolished, the secretary of finance may suspend its imposition on corporations suffering losses caused by a prolonged labor dispute, force majeure or legitimate business reverses.
The measure retains the existing definitions used to compute gross income and recognizes the direct costs incurred by trading, manufacturing and service businesses.
For trading enterprises, those costs include the invoice price, import duties, freight and insurance, while manufacturing costs include raw materials, labor, overhead, freight and insurance.
“The President’s SONA asked Congress to give small businesses practical relief, and Speaker Bojie Dy has kept the House focused on measures that reach the shop floor and the neighborhood store. By shifting covered corporations to the regular tax on taxable income beginning in 2027, the bill makes the system more responsive to actual business performance,” Marcos added.
The secretary of the Department of Finance, upon the recommendation of the Bureau of Internal Revenue (BIR) commissioner, must issue the implementing rules within 90 days, while the law will take effect 15 days after publication.
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