.Chamber of Re al Estate and Bu i l d e r s Associatio ns, Inc., v. The H on. ExecutiveSecr etary Alberto Romulo, et alG.R. No. 160756.

. March 9, 2010Facts: Petitioner Chamber o f Real Estate and Bui lders Associations, I

nc. (CREBA), an asso ciation of real estate developers and builders in the Philippines, questioned the validity of Section 27(E) of the Tax Code which imposes theminimum corporate income tax (MCIT) on

corporations.Under the Tax Code, a corporation can become subject to theMCIT at the rate of 2% of gross income, beginning on the 4thtaxable year imm ediately following th e year in which itco mmenced its busines

s operations, when s uch MCIT isgreater than the normal corporate income tax. If the regularincome tax is higher than the MCIT, the corporation does notpay the MCIT.CREBA argued, among others, that the use of gross income

asMCIT base amounts to a confiscation of capital because grossincome, unlike net income, is not realized gain.CREBA also sought to invalidate the provisions of RR No. 298, as amended, oth erwise known as the

Consolidated Withho lding Tax Regulations, which prescribe the rules andprocedures for the collection of CWT on sales of real propertiesclassified a s ordinary assets, on the grounds that th eseregulations:

Use gross selling price (G SP) or fair market value(FMV) as basis for determiningthe income tax on the sale of real estate classified as ordinary assets, instead of the entitys net taxable income as

providedfor under the Tax Code; Mandate the collect ion of income tax o n a pertransaction basis, contrary to the Tax Code provision which imposes income tax on net income at the end of the taxable period;

Go against the due process clause beca use thegovernment collects income tax even when the netincome has not yet been determined; gain is neverassured by mere receipt of the selling price; and

Contravene the equal protection clause beca use theCWT is being charged upon real estate enterprises, butnot on other business enterprises, more particularly,those in the manufacturing sector, which do

businesssimilar to that of a real estate enterprise. Issues: (1) Is the imposition of MCIT constitutional? (2) Is theimposition of CWT on income from sales of real propertiesclassified as ordinary assets constitutional?

Held: ( 1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary and confiscatory if it taxes capital, because it is i ncome, and not capital, which is subject toincome tax. However, MCIT is

imposed on gross income whichis computed by deducting from gross sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods andother direct expenses from gross sales. Clearly, the capital isnot being

taxed. Various safeguards were incorporated into the law imposingMCIT.

Firstly, recognizing the birth pangs of business es and thereality of the need to recoup initial major capital expenditures,the MCIT is imposed only on the 4th taxable year

immediately following the year in which the corporation commenced itsoperations.Secondly, the law allows the carryforward of any excess of theMCIT paid over the normal income tax which shall be creditedagainst the nor mal income tax for the three immediate

ly succeeding years.Thirdly, since certain businesses may be incurring genuinerepeated losses, the law authorizes the Secretary of Finance tosuspend the imposition of MCIT if a corporation suffers lossesdue to prolonged labor dispute, force

majeure and legitimate business reverses.(2) Yes. Despite the imposition of CWT on GSP or FMV, theincome tax base for sales of real property classified as ordinary assets remains as the entitys net taxable income as provided inthe Tax Code, i.e., gross inc

ome less allowable cost s anddeductions. The seller shall file its income tax return and creditthe taxes withheld by the withholding agentbuyer against itstax due. If the tax due is greater than the tax withheld, then thetaxpayer shall pay the difference. If, on the other hand, the

taxdue is less than the tax withheld, the taxpayer will be entitledto a refund or tax credit.The use of the GSP or FMV as basis to determine the CWT isfor purposes of practicality and convenience. The knowledge of the withholding agen t-

buyer is limited to the particulartransaction in which he is a party. Hence, his basis can only bethe GSP or FMV which figures are reasonably known to him. Also, the collectio n of income tax via the CWT on a pertransaction basis, i.e., upon

consummation of the sale, is notcontrary to the Tax Code which calls for the payment of the netincome at the end of the taxable period. The taxes withheld arein the nature of advance tax payments by a taxpayer in order tocancel its possible future tax obligation. They are

installmentson the annual tax which may be due at the end of the taxable year. The withholding agentbuyers act of collecting the tax atthe time of the transaction, by withholding the tax due fromthe income payable, is the very essence of the withholding taxmethod

of tax collection.On the alleged violation of the equal protection clause, thetaxing power has t he authority to make r easonableclassification s for purposes of taxatio n. Inequalities whichresult from singling out a particular class for ta xation, orexemption, in

fringe no constitutional limitation. The realesta te industry is, by itself, a class and can be validly treateddifferently from other business enterprises. What distin guishes the real estate business from otherma nufacturing enterprises, for purposes of the imposition of the CWT,

is not their production processes but the prices of their goods sold and the number of transactions involved. Theincome from the sale of a real property is bigger and itsfrequency of transaction limited, making it less cumbersomefor the

parties to comply with the withholding tax scheme. Onthe other hand, each manufacturing enterprise may have tensof thousands of transactions with several thousand customersevery month involving both minimal and substantial amounts.