[Ask The Tax Whiz] What do you need to know about the reversion of tax rates, effective July 1, 2023?

I have heard that the rate for percentage tax will be increased starting July 1, 2023. Is this true?

Pursuant to Revenue Regulation Memorandum Circular No. 69-2023, certain taxes, including percentage tax, will revert back to their original rates. Other affected taxes are the minimum corporate income tax (MCIT), and the regular corporate income tax of proprietary educational institutions and nonprofit hospitals.

If you will recall, under the CREATE law, these taxes had been lowered in order to help taxpayers recover from the economic hardships brought about by COVID-19.

Starting July 1, 2023, what are the rates that would be applicable for these taxes?

Percentage Tax (PT)

Starting July 1, 2023, the percentage tax rate would revert back to its original rate of 3%. Previously, from July 1, 2020 to June 30, 2023, the percentage tax rate had been 1%.

The percentage tax is applicable to corporations, self-employed individuals, and professionals with gross sales or gross receipts below P3 million, excluding cooperatives and self-employed individuals who choose the 8% income tax rate.

Minimum Corporate Income tax (MCIT)

Starting from said date, the MCIT would revert back to its original 2% rate. Previously, the rate had been lowered to 1% pursuant to CREATE Law. The MCIT applies to both domestic & resident foreign corporations based on the gross income of the said corporations. 

Regular Corporate Income tax

The regular corporate income tax of proprietary educational institutions and nonprofit hospitals would now revert back to 10%. Previously, from July 1, 2020 to June 30, 2023, the rate had been reduced to 1%.

Given the changes in the rates, how would I compute the relevant taxes for the taxable year of 2023? 

Here’s the computation provided for the calendar and fiscal year.  

Period	MCIT/RCIT/PT	Tax Due
Gross Income/ Taxable Income/Quarterly Sales or Receipts from January 1, 2023 to June 30, 2023 (Calendar Year) or  X month to June 30, 2023 (Fiscal Year)	1 %	PXXX
Gross Income/ Taxable Income/Quarterly Sales or Receipts from  July 1, 2023, to December 31, 2023 (Calendar Year) or   July 1, 2023, to X month (Fiscal Year)	2%/10%/3%	PXXX
Total Tax Due		PXXX

Is there an easy guide to understanding the above computation? What if I am under a domestic corporation or non-profit corporation?

For a better understanding of the above computation, here is an illustrative problem for you.

A domestic corporation has a gross income of ₱840 million and allowable deductions of ₱799 million. Compute the income tax payable, both in the calendar and fiscal year.

A proprietary educational institution that has a taxable income of ₱40 million. Compute the income tax payable, both in the calendar and fiscal year.

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