This is the second installment in our series examining the CREATE Bill (Senate Bill 1357). Today we look at the Minimum Corporate Income Tax (MCIT).
What is MCIT?
MCIT is a tax on the corporation's total gross income, currently at 2%. Corporations face only one income tax computation — either RCIT or MCIT, whichever is higher.
Key Requirements:
- MCIT liability begins only in the fourth taxable year following business commencement
- Payment is required only when MCIT exceeds the Regular Corporate Income Tax (RCIT)
Key Definitions
- Gross Income = Total Sales - Cost of Sales/Services + Other Non-Final-Tax Income
- Cost of Sales/Services = Necessary expenses directly tied to product delivery or service provision
- Net Income = Gross Income - All Allowable Deductions
The Proposed Amendment
Senate Bill 1357 proposes reducing MCIT from 2% to 1% during a limited window: July 1, 2020 through June 30, 2023. This reduction serves as pandemic relief for small and medium enterprises whose gross income may remain positive while net income turns negative.
Impact
For struggling businesses, this 50% reduction in MCIT rate provides meaningful cash flow relief during the recovery period.