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2005 ANNUAL REPORT69ConsolidatedStatements of Changes in Capital Funds2005 2004Changes in fair values of available-for-sale financial assets P 5,916 P 1,225Deferred Tax Income P 5,916 P 1,225The Group has a NOLCO of P2,246,592 and P2,877,997 in the parent company and consolidated financial statements, respectively, as ofDecember 31, 2005 that can be claimed as deduction against taxable income for the next three consecutive years after the NOLCO wasincurred.The breakdown of NOLCO with the corresponding validity periods follow:Year Consolidated Parent Valid Until2005 P 1,384,876 P 1,289,362 20082004 859,635 407,569 20072003 633,486 549,661 2006In the parent company and consolidated financial statements, the deferred tax asset arising from the 2002 NOLCO amounting toP558,964 and P563,816, respectively, expired in 2005.As of December 31, 2005, the Group has MCIT totaling P77,812 and P84,361 in the parent company and consolidated financial statements,respectively, that can be applied against regular corporate income tax for the next three consecutive years after the MCIT was incurred.The breakdown of MCIT with the corresponding validity periods follow:Year Consolidated Parent Valid Until2005 P 29,111 P 29,111 20082004 31,760 28,433 20072003 23,490 20,268 2006In the parent company and consolidated financial statements, the deferred tax asset arising from the 2002 MCIT amounting to P2,385expired in 2005.21.2 Relevant Tax RegulationsAmong the significant provisions of the National Internal Revenue Code (NIRC) that apply to the Group are the following:a. The regular corporate income tax of 32% (35% starting November 1, 2005) is imposed on taxable income net of applicable deductions;b. Fringe benefits tax (same rate as the 32% corporate income tax) is imposed on the grossed-up value of the benefits given by employersto their managerial and supervisory employees (this is a final tax to be paid by the employer);c. MCIT of 2% based on gross income, as defined under the Tax Code, is required to be paid at the end of the year starting on the fourthyear from the date of registration with the Bureau of Internal Revenue (BIR) whenever the RCIT is lower than the MCIT;d. NOLCO can be claimed as deduction against taxable income within three years after NOLCO is incurred;e. The amount of interest expense allowed as income tax deduction is reduced by an amount equal to 38% of the interest incomesubjected to final tax;f. FCDU transactions with non-residents of the Philippines and other offshore banking units (offshore income) are tax-exempt;g. Foreign currency transactions with foreign currency deposit units, local commercial banks, and branches of foreign banks are subjectto 10% withholding tax; and,h. Withholding tax of 7.5% is imposed on interest earned by residents under the expanded foreign currency deposit system.21.3 New Tax RegulationsOn May 24, 2005, Republic Act (RA) No. 9337 (“RA 9337”), amending certain sections of the National Internal Revenue Code of 1997 wassigned into law and became effective beginning November 1, 2005. The following are the major changes brought about by RA No. 9337that are relevant to the Group:a. RCIT rate is increased from 32% to 35% starting November 1, 2005 until December 31, 2008 and will be reduced to 30% beginningJanuary 1, 2009;