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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes [Abstract] |
Income Taxes |
7. | Income Taxes
Corporate Income Tax The major components of consolidated net deferred income tax assets and liabilities recognized in our consolidated statements of financial position as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
Net deferred income tax assets |  |  | 27,697 |  |  |  | 30,466 |
Net deferred income tax liabilities |  |  | 2,981 |  |  |  | 3,366 |
The components of our consolidated net deferred income tax assets and liabilities as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
Net deferred income tax assets: |  |  |  |  |  |  |  |
Unamortized past service pension costs |  |  | 5,252 |  |  |  | 5,098 |
Customer list and trademark |  |  | 4,670 |  |  |  | 6,760 |
Pension and other employee benefits |  |  | 4,296 |  |  |  | 3,620 |
Accumulated provision for expected credit losses/doubtful accounts |  |  | 3,709 |  |  |  | 3,102 |
NOLCO |  |  | 3,231 |  |  |  | 243 |
Fixed asset impairment/depreciation due to shortened life of property and equipment |  |  | 1,870 |  |  |  | 5,597 |
Unearned revenues |  |  | 1,776 |  |  |  | 1,778 |
Provision for other assets |  |  | 1,595 |  |  |  | 2,523 |
Unrealized foreign exchange losses |  |  | 1,092 |  |  |  | 746 |
Accumulated provision for inventory obsolescence and write-down |  |  | 916 |  |  |  | 669 |
MCIT |  |  | 905 |  |  |  | 607 |
Derivative financial instruments |  |  | (58 | ) |  |  | (30 | )
Others |  |  | (1,557 | ) |  |  | (247 | )
Total deferred income tax assets – net |  |  | 27,697 |  |  |  | 30,466 |
Net deferred income tax liabilities: |  |  |  |  |  |  |  |
Intangible assets and fair value adjustment on assets acquired – net of amortization |  |  | 2,175 |  |  |  | 2,387 |
Unrealized foreign exchange gains |  |  | 366 |  |  |  | 269 |
Investment property |  |  | 277 |  |  |  | 207 |
Undepreciated capitalized interest charges |  |  | 7 |  |  |  | 8 |
Unamortized fair value adjustment on fixed assets from business combination |  |  | — |  |  |  | 338 |
Others |  |  | 156 |  |  |  | 157 |
Total deferred income tax liabilities |  |  | 2,981 |  |  |  | 3,366 |
Changes in our consolidated net deferred income tax assets (liabilities) as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
Net deferred income tax assets – balance at beginning of the year |  |  | 30,466 |  |  |  | 27,348 |
Net deferred income tax liabilities – balance at beginning of the year |  |  | (3,366 | ) |  |  | (3,567 | )
Net balance at beginning of the year |  |  | 27,100 |  |  |  | 23,781 |
Movement charged directly to other comprehensive income |  |  | 591 |  |  |  | 507 |
Excess MCIT deducted against RCIT due |  |  | (370 | ) |  |  | — |
Adjustments due to adoption of IFRS 15 |  |  | (1,166 | ) |  |  | — |
Benefit from (provision for) deferred income tax |  |  | (1,375 | ) |  |  | 2,738 |
Others |  |  | (64 | ) |  |  | 74 |
Net balance at end of the year |  |  | 24,716 |  |  |  | 27,100 |
Net deferred income tax assets – balance at end of the year |  |  | 27,697 |  |  |  | 30,466 |
Net deferred income tax liabilities – balance at end of the year |  |  | (2,981 | ) |  |  | (3,366 | )
The analysis of our consolidated net deferred income tax assets as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
Deferred income tax assets: |  |  |  |  |  |  |  |
Deferred income tax assets to be recovered after 12 months |  |  | 25,163 |  |  |  | 26,246 |
Deferred income tax assets to be recovered within 12 months |  |  | 4,872 |  |  |  | 5,602 |
|  |  | 30,035 |  |  |  | 31,848 |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Deferred income tax liabilities to be settled after 12 months |  |  | (1,992 | ) |  |  | (1,206 | )
Deferred income tax liabilities to be settled within 12 months |  |  | (346 | ) |  |  | (176 | )
|  |  | (2,338 | ) |  |  | (1,382 | )
Net deferred income tax assets |  |  | 27,697 |  |  |  | 30,466 |
The analysis of our consolidated net deferred income tax liabilities as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
Deferred income tax liabilities: |  |  |  |  |  |  |  |
Deferred income tax liabilities to be settled after 12 months |  |  | (2,743 | ) |  |  | (3,026 | )
Deferred income tax liabilities to be settled within 12 months |  |  | (238 | ) |  |  | (340 | )
Net deferred income tax liabilities |  |  | (2,981 | ) |  |  | (3,366 | )
Provision for income tax for the years ended December 31, 2018, 2017 and 2016 consist of:
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  |  |  |  |  | (in million pesos) |  |  |
Current |  |  | 2,467 |  |  |  | 3,841 |  |  |  | 6,043 |
Deferred |  |  | 1,375 |  |  |  | (2,738 | ) |  |  | (4,134 | )
|  |  | 3,842 |  |  |  | 1,103 |  |  |  | 1,909 |
The reconciliation between the provision for income tax at the applicable statutory tax rate and the actual provision for corporate income tax for the years ended December 31, 2018, 2017 and 2016 are as follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  |  |  |  |  | (in million pesos) |  |  |
Provision for income tax at the applicable statutory tax rate |  |  | 6,845 |  |  |  | 4,371 |  |  |  | 6,621 |
Tax effects of: |  |  |  |  |  |  |  |  |  |  |  |
Nondeductible expenses |  |  | 1,235 |  |  |  | 784 |  |  |  | 3,239 |
Equity share in net losses (earnings) of associates and joint ventures |  |  | 26 |  |  |  | (872 | ) |  |  | (354 | )
Difference between Optional Standard Deduction, or OSD, and itemized deductions |  |  | (22 | ) |  |  | (22 | ) |  |  | (20 | )
Income subject to final tax |  |  | (297 | ) |  |  | (2,545 | ) |  |  | (2,879 | )
Income subject to lower tax rate |  |  | (750 | ) |  |  | (520 | ) |  |  | (168 | )
Income not subject to income tax |  |  | (1,827 | ) |  |  | (301 | ) |  |  | (35 | )
Net movement in unrecognized deferred income tax assets and other adjustments |  |  | (1,368 | ) |  |  | 208 |  |  |  | (4,495 | )
Actual provision for income tax |  |  | 3,842 |  |  |  | 1,103 |  |  |  | 1,909 |
The breakdown of our consolidated deductible temporary differences, carryforward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO (excluding those not recognized due to the adoption of the OSD method) for which no deferred income tax assets were recognized and the equivalent amount of unrecognized deferred income tax assets as at December 31, 2018 and 2017 are as follows:
|  | 2018 |  |  | 2017 |
|  |  |  |  | (in million pesos) |
NOLCO |  |  | 4,289 |  |  |  | 7,151 |
Accumulated provision for doubtful accounts |  |  | 3,144 |  |  |  | 3,014 |
Provisions for other assets |  |  | 1,881 |  |  |  | 3,735 |
Fixed asset impairment |  |  | 1,148 |  |  |  | 43 |
Gain on disposal of asset |  |  | 106 |  |  |  | — |
Unrealized foreign exchange losses |  |  | 49 |  |  |  | 105 |
MCIT |  |  | 27 |  |  |  | 111 |
Unearned revenues |  |  | 25 |  |  |  | 1,314 |
Pension and other employee benefits |  |  | 13 |  |  |  | 1,740 |
Accumulated write-down of inventories to net realizable values |  |  | 11 |  |  |  | 303 |
Asset retirement obligation |  |  | — |  |  |  | 621 |
Derivative financial instruments and others |  |  | — |  |  |  | 139 |
|  |  | 10,693 |  |  |  | 18,276 |
Unrecognized deferred income tax assets |  |  | 3,227 |  |  |  | 5,561 |
DMPI recognized deferred income tax assets to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. Digitel’s unrecognized deferred income tax assets amounted to Php1,421 million as at December 31, 2018, while Digitel and DMPI’s unrecognized deferred income tax assets amounted to Php2,798 million as at December 31, 2017. Our consolidated deferred income tax assets have been recorded to the extent that such consolidated deferred income tax assets are expected to be utilized against sufficient future taxable profit. Deferred income tax assets shown in the preceding table were not recognized as we believe that future taxable profit will not be sufficient to realize these deductible temporary differences and carryforward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO in the future. The breakdown of our consolidated excess MCIT and NOLCO as at December 31, 2018 are as follows:
Date Incurred |  | Expiry Date |  | MCIT |  |  | NOLCO |
|  |  |  |  |  |  | (in million pesos) |
December 31, 2016 |  | December 31, 2019 |  |  | 108 |  |  |  | 1,133 |
December 31, 2017 |  | December 31, 2020 |  |  | 113 |  |  |  | 2,203 |
December 31, 2018 |  | December 31, 2021 |  |  | 711 |  |  |  | 11,724 |
|  |  |  |  | 932 |  |  |  | 15,060 |
Consolidated tax benefits |  |  |  |  | 932 |  |  |  | 4,518 |
Consolidated unrecognized deferred income tax assets |  |  |  |  | (27 | ) |  |  | (1,287 | )
Consolidated recognized deferred income tax assets |  |  |  |  | 905 |  |  |  | 3,231 |
The excess MCIT totaling Php932 million as at December 31, 2018 can be deducted against future RCIT liability. The excess MCIT that was deducted against RCIT amounted to Php488 million, Php15 million and nil for the years ended December 31, 2018, 2017 and 2016, respectively. The amount of expired portion of excess MCIT amounted to Php1 million, Php72 million and Php232 million for the years ended December 31, 2018, 2017 and 2016, respectively. Due to the loss of control of VIH, excess MCIT amounting to Php8 million was derecognized as at December 31, 2018. See Note 2 – Summary of Significant Accounting Policies – External Funding in VIH. NOLCO totaling Php15,060 million as at December 31, 2018 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php1,094 million, Php4,241 million and Php8,531 million for the years ended December 31, 2018, 2017 and 2016, respectively. The amount of expired NOLCO amounted to Php1,272 million, Php354 million and Php571 million for the years ended December 31, 2018, 2017 and 2016, respectively. Due to the loss of control of VIH, excess NOLCO amounting to Php2,518 million was derecognized as at December 31, 2018. See Note 2 – Summary of Significant Accounting Policies – External Funding in VIH. Registration with Subic Bay Freeport Enterprise and Clark Special Economic Zone Enterprise SubicTel and Clarktel are registered with Subic Bay Freeport Enterprise and Clark Special Economic Zone Enterprise, or Economic Zones, respectively, under R.A. 7227 otherwise known as the Bases Conversion and Development Act of 1992. As registrants, SubicTel and ClarkTel are entitled to all the rights, privileges and benefits established thereunder including tax and duty-free importation of capital equipment and a special income tax rate of 5% of gross income, as defined in R.A. 7227. Our consolidated income derived from non-registered activities within the Economic Zones is subject to the RCIT rate at the end of the reporting period.

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