G.R. No. 160756 , March 9, 2010
CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATIONS, INC., Petitioner, vs. THE HON. EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondents.

FACTS

Petitioner Chamber of Real Estate and Builders’ Associations, Inc., an association of real estate developers and builders, filed an original petition for certiorari and mandamus questioning the constitutionality of Section 27(E) of Republic Act (RA) 8424 (the National Internal Revenue Code of 1997) and related revenue regulations (RRs). The assailed provisions impose a Minimum Corporate Income Tax (MCIT) on domestic corporations and a Creditable Withholding Tax (CWT) on income from sales of real properties classified as ordinary assets. Petitioner argues that the MCIT violates due process by taxing income even when no gain is realized. It also contends that the CWT regulations (Sections 2.57.2(J) and 2.58.2 of RR 2-98, as amended by RR 6-2001, and Section 4 of RR 7-2003) are contrary to law, as they ignore the different tax treatment of ordinary and capital assets, and that the Secretary of Finance has no authority to impose a CWT based on gross selling price. Petitioner further asserts these CWT provisions violate due process by collecting tax before net income is determined and violate equal protection by singling out real estate businesses.

ISSUE

1. Whether the Court should take cognizance of the case.
2. Whether the imposition of the Minimum Corporate Income Tax (MCIT) on domestic corporations is unconstitutional.
3. Whether the imposition of Creditable Withholding Tax (CWT) on income from sales of real properties classified as ordinary assets under RRs 2-98, 6-2001, and 7-2003 is unconstitutional.

RULING

1. On the Court’s Cognizance: The Court took cognizance of the case as it involves constitutional issues of transcendental importance affecting the government’s tax collection and the livelihood of many in the real estate industry.
2. On the Constitutionality of the MCIT: The imposition of the MCIT is NOT unconstitutional. The MCIT is a valid tax on gross income, which is a recognized subject of taxation. It does not violate due process as it is reasonably calculated to produce at least a minimum revenue from corporations and to prevent tax evasion by those reporting consistent losses. The tax is not confiscatory as it allows a carry-forward of excess MCIT as a credit against normal income tax for three succeeding years, and the Secretary of Finance has authority to grant relief under specific conditions.
3. On the Constitutionality of the CWT on Sales of Ordinary Assets: The imposition of the CWT on income from sales of real properties classified as ordinary assets is NOT unconstitutional. The CWT is a method of collecting income tax in advance, not a separate tax. It is authorized by Section 57 of the NIRC, which grants the Secretary of Finance the authority to prescribe rules for the withholding of creditable tax at source on income items. The regulations are consistent with the law’s intent to improve tax collection. The CWT does not violate due process as it is merely an advance payment, subject to adjustment upon filing the final income tax return. It does not violate equal protection as the classification (taxing those habitually engaged in real estate business) is based on substantial distinctions, is germane to the law’s purpose of ensuring tax collection, and applies to all members of the real estate business class.