CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. vs.

EXECUTIVE SECRETARY- Minimum Corporate Income Tax

FACTS:
CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it
levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital
assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per
transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties;
(3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being
levied upon real estate enterprises but not on other enterprises, more particularly those in the manufacturing sector.

ISSUE:
Are the impositions of the MCIT on domestic corporations and
ordinary assets unconstitutional?

CWT on income from sales of real properties classified as

HELD:
NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the
capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales.
Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the
law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can
suspend the imposition of MCIT in justifiable instances.
The regulations on CWT did not shift the tax base of a real estate business income tax from net income to GSP or FMV of the
property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the
annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as
ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors
reasonably known to the buyer in connection with the performance of the duties as a withholding agent.
Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is,
by itself, a class on its own and can be validly treated different from other businesses.