Title
Chamber of Real Estate and Builders' Association, Inc. vs. Romulo
Case
G.R. No. 160756
Decision Date
Mar 9, 2010
A real estate association challenges the constitutionality of the Minimum Corporate Income Tax and Creditable Withholding Tax on property sales, alleging due process and equal protection violations. The Supreme Court upholds both taxes as valid exercises of the state's taxing power.

Case Summary (G.R. No. 227021)

Key Dates

– RA 8424 (“Tax Reform Act of 1997”) took effect January 1, 1998.
– RR 2-98 (withholding on expanded credits): April 17, 1998; amended by RR 6-2001 on July 31, 2001.
– RR 9-98 (implementing MCIT): August 25, 1998.
– RR 7-2003 (asset classification guidelines): February 11, 2003.

Applicable Law

– 1987 Philippine Constitution
– Republic Act 8424 (National Internal Revenue Code of 1997)
– Revenue Regulations 2-98, 6-2001, 7-2003, and 9-98

Issues Presented

  1. Jurisdiction and standing: whether an actual case or controversy exists and CREBA may sue.
  2. Constitutionality of MCIT under Section 27(E) RA 8424 and RR 9-98 (due process, equal protection).
  3. Constitutionality of CWT on sales of ordinary real property assets under RRs 2-98, 6-2001, and 7-2003 (due process, equal protection, separation of capital vs. ordinary assets).

Jurisdiction and Standing

– A concrete controversy exists upon enactment and implementation of the challenged measures; no need to await individual assessments or business closures.
– CREBA has organizational standing through its members’ direct interests in real estate taxation.
– Even if technical requirements of ripeness or standing were not met, the issues’ public importance justified Supreme Court review.

Overview of MCIT (Section 27(E) RA 8424)

– Imposes a 2% MCIT on gross income (gross sales less returns, discounts, allowances, cost of goods sold or services) starting in the fourth taxable year.
– Payable only when MCIT exceeds the normal corporate income tax (32% of net income).
– Excess MCIT is creditable against normal tax for three succeeding years.
– Secretary of Finance may suspend MCIT in cases of losses from labor disputes, force majeure, or legitimate business reverses.

Concept and Rationale of the MCIT

– Addresses under-reporting of net income by corporations repeatedly declaring losses to avoid tax.
– Ensures a minimum contribution to public finances via a broad tax base (gross income) at a low rate (2%).
– Provides safeguards: three‐year grace period, carry-over credit, and suspension for genuine business reverses.
– Similar minimum‐tax schemes (e.g., U.S. Alternative Minimum Tax) exist internationally.

MCIT and Due Process

– Tax legislation is presumptively constitutional; to invalidate it as violative of due process, one must show it is arbitrary, confiscatory, or lacks a rational basis.
– MCIT taxes gross income—not capital—and applies only when net‐income tax is suspiciously low; rate reduction from 32% to 2% reflects legislative policy.
– Broader base at a lower rate falls within the legislature’s fiscal discretion; deductions are matters of legislative grace.
– CREBA presented no factual evidence of confiscation or undue hardship; thus, MCIT does not violate due process.

RR 9-98 as Implementation, Not Amendment

– The provision that MCIT applies when taxable income is zero or negative merely implements Section 27(E)’s clear text.
– RR 9-98 confines itself to detailing mechanics of Section 27(E) without expanding its scope.

Authority for CWT on Ordinary Real Property Sales

– Section 57(B) RA 8424 authorizes the Secretary of Finance, upon CIR recommendation, to require withholding of creditable income tax on any income payable to residents, at rates between 1% and 32%.
– RRs 2-98 (as amended), 6-2001, and 7-2003 properly exercise that authority by prescribing 1.5%–5% CWT on gross selling price (GSP) or fair market value (FMV) of ordinary asset sales.

Nature of CWT and Tax Base

– CWT constitutes advance payments credited against the taxpayer’s final net‐income tax due when the annual return is filed.
– The ultimate tax base remains net income under Sections 24 (individuals) or 27(A) (corporations); RRs expressly confirm the seller’s net taxable income is computed at year-end.
– GSP/FMV is used for withholding practicality, as the buyer (withholding agent) lacks knowledge of the seller’s net results.

Preservation of Asset Classification

– Capital assets: subject to final withholding tax (6%) under Section 27(D)(5), a separate scheme.
– Ordinary assets: subject to CWT with graduated rates and subsequent net‐income taxation.
– Distinct treatments under final vs. creditable withholding preserve statutory distinctions between asset classes.

CWT and Due Process

– CWT does not impose new or higher taxes, only changes the timing of payment.
– Over-withholding is recoverable via refund or tax credit; no property is confiscated.
– Admini




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