The top leaders of the House of Representatives have heeded President Marcos' call on the legislature to provide tax relief for local businesses, as mentioned in his fifth State of the Nation Address (SONA).

House Speaker Isabela 6th district Rep. Faustino "Bojie" Dy III and Majority Leader Ilocos Norte 1st district Rep. Sandro Marcos have filed House Bill (HB) No. 10346, which seeks to scrap domestic corporations' minimum corporate income tax (MCIT) beginning next year, as well as align its tax obligations more closely with their actual financial performance.

“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,” Rep. Marcos said.

The measure amends Section 27 of the National Internal Revenue Code and expressly ends the imposition of the MCIT beginning Jan. 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 No.10345 retains the current 2 percent MCIT only until Dec. 31, 2026, providing businesses and tax authorities with a transition period before its abolition.

Beginning Jan. 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,” added the presidential son.

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.

President Marcos delivered his fifth SONA before a joint session of Congress last Monday, July 27.