Prepare for Higher Taxes: BIR Announces Expiry of CREATE Act Relief Measures in July 2023
The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) NO. 69-2023 dated June 20, 2023, which reverts the rates of Percentage Tax, Minimum Corporate Income Tax, and Regular Corporate Income Tax on Proprietary Educational Institutions and Not for Profit Hospitals
If you’re a business owner or you’re involved with private schools or nonprofit hospitals, this is something you really need to know.
The tax breaks offered by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act are due to end on June 30, 2023. The Bureau of Internal Revenue (BIR) is giving a heads-up to all businesses, especially those that file percentage taxes and the ones that fall under Minimum Corporate Income Tax (MCIT), to brace for higher taxes beginning July.
Let’s jog our memory a bit.
The CREATE Act under the Duterte administration, introduced reduced tax rates for private schools and nonprofit hospitals from July 1, 2020, and were meant to last until June 30, 2023. It also lowered the Percentage Tax and Minimum Corporate Income Tax Rate (MCIT). These were measures taken to ease the tax burden and respond to the changing needs of the business sectors during the COVID-19 pandemic.
But, with the relief period ending, businesses should prepare for the return to standard tax rates.
Effective July 1, 2023:
1.Percentage Tax
The rate of percentage tax (PT) shall now revert from 1% to three percent (3%) of gross quarterly sales or receipts of the taxpayer.
This rate applies to corporations, self-employed individuals, and professionals whose gross sales or gross receipts are not exceeding the P3,000,000.00 threshold, except for cooperatives and self-employed individuals and professionals availing of the eight percent (8%) income tax rate.
2.Minimum Corporate Income Tax
The rate of minimum corporate income tax (MCIT) for domestic and resident foreign corporations, including offshore banking units and regional operating headquarters, shall now revert to two percent (2%) based on the gross income of such corporations; and
3.Regular Corporate Income Tax for proprietary educational institutions and hospitals
The rate of regular corporate income tax (RCIT) for proprietary educational institutions and hospitals which are nonprofit shall now revert to ten percent (10%) of their taxable income.
Based on the above, the relevant taxes for taxable year 2023 shall be computed as follows:
A. Calendar Year
| Period | MCIT/RCIT/PT | Tax Due |
| Gross Income/Taxable Income/Quarterly Sales or Receipts from January 1 to June 30, 2023 | 1% | xxx |
| Gross Income/Taxable Income/Quarterly Sales or Receipts from July 1 to December 31, 2023 | 2%/10%/3% | P xxx |
| Total Tax Due | P xxx |
B. Fiscal Year
| Period | MCIT/RCIT/PT | Tax Due |
| Gross income/Taxable income/Quarterly Sales or Receipts from X month to June 30, 2023 | 1% | PhP xxx |
| Gross Income/Taxable income/Quarterly Sales or receipts from July 1, 2023 to x month | 2%/10%/3% | PhP xxx |
| Total Tax Due | PhP xxx |
Examples:
Minimum Corporate Income Tax (Domestic Corporations/ROHQ/OBUs)
A. Calendar Year
ABC Corporation, a domestic trading corporation, has gross sales of PhP 1,400,000,000.00, with cost of sales of PhP 560,000,000.00 and allowable deductions of PhP 799,000,000.00 for calendar year 2023. Its total assets of PhP 480,000,000.00 includes the land and building in which the business operation is counducted, amounting to PHP 100,000,000.00 and PhP 125,000,000.00 respectively.
| Particulars | (In PhP) |
| Gross Sales | 1,400,000,000.00 |
| Less: Cost of Sales | 560,000,000.00 |
| Gross Income | 840,000,000.00 |
| Less: Allowable Deductions | 799,000,000.00 |
| Taxable Income | 41,000,000.00 |
| Tax Due (PhP 41,000,000 x 25%) | 10,250,000.00 |
| Compare with MCIT: | |
| January 1 – June 30, 2023 (PhP 840,000,000/12 x 6 months x 1% | 4,200,000.00 |
| July 1 – December 31, 2023 (PhP 840,000,000/12) x 6 months x 2% | 8,400,000.00 |
| Total MCIT | 12,600,000.00 |
| Income Tax Payable (Higher between the regular income tax and MCIT) | 12,600,000.00 |
B. Fiscal Year
Assuming the same information above, except that ABC Corporation has adopted a fiscal year ending August 31, 2023, the computation of its income tax payable shall be as follows:
| Particulars | (In PhP) |
| Gross Sales | 1,400,000,000.00 |
| Less: Cost of Sales | 560,000,000.00 |
| Gross Income | 840,000,000.00 |
| Less: Allowable Deductions | 799,000,000.00 |
| Taxable Income | 41,000,000.00 |
| Tax Due (PhP 41,000,000 x 25%) | 10,250,000.00 |
| Compare with MCIT: | |
| September 1, 2022 – June 30, 2023 (PhP 840,000,000/12) x 10 months x 1% | 7,000,000.00 |
| July 1 – August 31, 2023 (PhP 840,000,000/12) x 2 months x 2% | 2,800,000.00 |
| Total MCIT | 9,800,000.00 |
| Income Tax Payable (Higher between the regular income tax and MCIT) | 10,250,000.00 |
Income Tax for Proprietary Educational Institutions/Hospitals Which are Non-Profit
A. Calendar Year
R & D Colleges, a proprietary educational institution, has gross income of PhP 200,000,000.00, all of which are from related activities, with allowable deductions of PhP 160,000,000.00 for the calendar year 2023.
| Particulars | (In PhP) |
| Gross Sales | 200,000,000.00 |
| Less: Allowable Deductions | 160,000,000.00 |
| Taxable Income | 40,000,000.00 |
| January 1 – June 30, 2023 (PhP 40,000,000.00/12) x 6 months x 1% | 200,000.00 |
| July 1 – December 31, 2023 (PhP 40,000,000.00/12) x 6 months x 1% | 2,000,000.00 |
| Income Tax Payable | 2,200,000.00 |
B. Fiscal Year
If R & D Colleges has adopted a fiscal year ending in September 30, 2023, the computation of its income tax shall be as follows:
| Particulars | (In PhP) |
| Gross Sales | 200,000,000.00 |
| Less: Allowable Deductions | 160,000,000.00 |
| Taxable Income | 40,000,000.00 |
| October 1 – June 30, 2023 (PhP 40,000,000.00/12) x 9 months x 1% | 300,000.00 |
| July 1 – December 31, 2023 (PhP 40,000,000.00/12) x 3 months x 10% | 1,000,000.00 |
| Income Tax Payable | 1,300,000.00 |
As some of the the tax relief provided by the CREATE Act comes to an end on June 30, 2023, businesses, especially private schools, nonprofit hospitals, and those filing under the Percentage Tax and corporations, should brace for a reversion of tax rates.
The COVID-19 pandemic triggered the implementation of these tax breaks, but as these measures expire, it signals a return to the standard taxation system.
Proactive preparation is crucial for businesses to effectively manage these upcoming changes and continue to thrive in the post-pandemic economy.
