Income Taxes

12 Months Ended

Dec. 31, 2019

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, 2019 and 2018 are as follows:

	2019		2018
	(in million pesos)
Net deferred income tax assets		23,623		27,697
Net deferred income tax liabilities		2,583		2,981

The components of our consolidated net deferred income tax assets and liabilities as at December 31, 2019 and 2018 are as follows:

	2019			2018
	(in million pesos)
Net deferred income tax assets:
Unamortized past service pension costs		5,846			5,252
Pension and other employee benefits		4,886			4,296
Lease liabilities		4,474			—
Customer list and trademark		3,890			4,670
Accumulated provision for expected credit losses		3,806			3,709
Unearned revenues		2,108			1,776
Provision for other assets		1,661			1,595
MCIT		1,408			905
Accumulated provision for inventory obsolescence and write-down		701			916
Unrealized foreign exchange losses		580			1,092
NOLCO		432			3,231
Fixed asset impairment/depreciation due to shortened life of property and equipment		138			1,870
Derivative financial instruments		—			(58	)
ROU assets		(4,081	)		—
Others		(2,226	)		(1,557	)
Total deferred income tax assets – net		23,623			27,697
Net deferred income tax liabilities:
Intangible assets and fair value adjustment on assets acquired – net of amortization		1,964			2,175
Investment property		278			277
Unrealized foreign exchange gains		254			366
Undepreciated capitalized interest charges		—			7
Others		87			156
Total deferred income tax liabilities		2,583			2,981

Changes in our consolidated net deferred income tax assets (liabilities) as at December 31, 2019 and 2018 are as follows:

	2019			2018
	(in million pesos)
Net deferred income tax assets – balances at beginning of the year		27,697			30,466
Net deferred income tax liabilities – balances at beginning of the year		(2,981	)		(3,366	)
Net balances at beginning of the year		24,716			27,100
Movement charged directly to other comprehensive income		2,673			591
Adjustments due to adoption of IFRS 16		(83	)		—
Provision for deferred income tax		(6,267	)		(1,375	)
Excess MCIT deducted against RCIT due		—			(370	)
Adjustments due to adoption of IFRS 15		—			(1,166	)
Others		1			(64	)
Net balances at end of the year		21,040			24,716
Net deferred income tax assets – balances at end of the year		23,623			27,697
Net deferred income tax liabilities – balances at end of the year		(2,583	)		(2,981	)

The analysis of our consolidated net deferred income tax assets as at December 31, 2019 and 2018 are as follows:

	2019			2018
	(in million pesos)
Deferred income tax assets:
Deferred income tax assets to be recovered after 12 months		18,111			25,163
Deferred income tax assets to be recovered within 12 months		7,759			4,872
		25,870			30,035
Deferred income tax liabilities:
Deferred income tax liabilities to be settled after 12 months		(2,078	)		(1,992	)
Deferred income tax liabilities to be settled within 12 months		(169	)		(346	)
		(2,247	)		(2,338	)
Net deferred income tax assets		23,623			27,697

The analysis of our consolidated net deferred income tax liabilities as at December 31, 2019 and 2018 are as follows:

	2019			2018
	(in million pesos)
Deferred income tax liabilities:
Deferred income tax liabilities to be settled after 12 months		(2,376	)		(2,743	)
Deferred income tax liabilities to be settled within 12 months		(207	)		(238	)
Net deferred income tax liabilities		(2,583	)		(2,981	)

Provision for income tax for the years ended December 31, 2019, 2018 and 2017 consist of:

	2019		2018		2017
	(in million pesos)
Current		3,283		2,467		3,841
Deferred (Note 3)		6,267		1,375		(2,738	)
		9,550		3,842		1,103

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, 2019, 2018 and 2017 are as follows:

	2019			2018			2017
	(in million pesos)
Provision for income tax at the applicable statutory tax rate		9,701			6,845			4,371
Tax effects of:
Nondeductible expenses		907			1,235			784
Equity share in net losses (earnings) of associates and joint ventures		460			26			(872	)
Loss (income) not subject to income tax		154			(1,827	)		(301	)
Diffeence between Optical Standard Deduction, OSD, and itemized deductions		(251	)		(22	)		(22	)
Income subject to final tax		(599	)		(297	)		(2,545	)
Income subject to lower tax rate		(1,323	)		(750	)		(520	)
Net movement in unrecognized deferred income tax assets and other adjustments		501			(1,368	)		208
Actual provision for income tax		9,550			3,842			1,103

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, 2019 and 2018 are as follows:

	2019			2018
	(in million pesos)
NOLCO		3,322			4,289
Accumulated provision for expected credit losses		2,947			3,144
Fixed asset impairment		1,146			1,148
Gain on disposal of asset		105			106
Unearned revenues		95			25
Unrealized foreign exchange losses		45			49
MCIT		27			27
Accumulated write-down of inventories to net realizable values		11			11
Operating lease		1			—
Pension and other employee benefits		—			13
Provisions for other assets		(116	)		1,881
		7,583			10,693
Unrecognized deferred income tax assets		2,294			3,227

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 Php1,362 million and Php1,421 million as at December 31, 2019 and 2018, respectively.

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, 2019 are as follows:

Date Incurred	Expiry Date	MCIT				NOLCO
					(in million pesos)
December 31, 2017	December 31, 2020		6				2,161
December 31, 2018	December 31, 2021		725				2,396
December 31, 2019	December 31, 2022		704				205
			1,435				4,762
Consolidated tax benefits			1,435				1,429
Consolidated unrecognized deferred income tax assets			(27	)			(997	)
Consolidated recognized deferred income tax assets			1,408				432

The excess MCIT totaling Php1,435 million as at December 31, 2019 can be deducted against future RCIT liability. The excess MCIT that was deducted against RCIT amounted to Php206 million, Php488 million and Php15 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of expired portion of excess MCIT amounted to Php10 million, Php1 million and Php72 million for the years ended December 31, 2019, 2018 and 2017, respectively.

NOLCO totaling Php4,762 million as at December 31, 2019 can be claimed as deduction against future taxable income. The NOLCO claimed as deduction against taxable income amounted to Php9,530 million, Php1,094 million and Php4,241 million for the years ended December 31, 2019, 2018 and 2017, respectively. The amount of expired NOLCO amounted to Php973 million, Php1,272 million and Php354 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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.