Chamber of Real Estate and Builders Associations, Inc., v. The Hon.

Executive Secretary
Alberto Romulo, et al
G.R. No. 160756. March 9, 2010

Facts:
Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an association of
real estate developers and builders in the Philippines, questioned the validity of Section 27(E) of
the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations.
Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of gross
income, beginning on the 4th taxable year immediately following the year in which it
commenced its business operations, when such MCIT is greater than the normal corporate
income tax. If the regular income tax is higher than the MCIT, the corporation does not pay the
MCIT.
CREBA argued, among others, that the use of gross income as MCIT base amounts to a
confiscation of capital because gross income, unlike net income, is not realised gain.
CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as
the Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for
the collection of CWT on sales of real properties classified as ordinary assets, on the grounds
that these regulations:
Use gross selling price (GSP) or fair market value (FMV) as basis for determining the
income tax on the sale of real estate classified as ordinary assets, instead of the entitys
net taxable income as provided for under the Tax Code;
Mandate the collection of income tax on a per transaction 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 because the government collects income tax even
when the net income has not yet been determined; gain is never assured by mere
receipt of the selling price; and
Contravene the equal protection clause because the CWT is being charged upon real
estate enterprises, but not on other business enterprises, more particularly, those in the
manufacturing sector, which do business similar to that of a real estate enterprise.
Issues:
(1) Is the imposition of MCIT constitutional?
(2) Is the imposition of CWT on income from sales of real properties classified 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 income, and not capital, which is subject to
income tax. However, MCIT is imposed on gross income which is computed by deducting
from gross sales 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. Clearly, the capital is not being
taxed.
Various safeguards were incorporated into the law imposing MCIT.
Firstly, recognizing the birth pangs of businesses and the reality 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 its operations.
Secondly, the law allows the carry-forward of any excess of the MCIT paid over the
normal income tax which shall be credited against the normal income tax for the three
immediately succeeding years.
Thirdly, since certain businesses may be incurring genuine repeated losses, the law
authorizes the Secretary of Finance to suspend the imposition of MCIT if a corporation
suffers losses due to prolonged labour dispute, force majeure and legitimate business
reverses.
(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of real
property classified as ordinary assets remains as the entitys net taxable income as
provided in the Tax Code, i.e., gross income less allowable costs and deductions. The
seller shall file its income tax return and credit the taxes withheld by the withholding
agent-buyer against its tax due. If the tax due is greater than the tax withheld, then the
taxpayer shall pay the difference. If, on the other hand, the tax due is less than the tax
withheld, the taxpayer will be entitled to a refund or tax credit.
The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality
and convenience. The knowledge of the withholding agent-buyer is limited to the
particular transaction in which he is a party. Hence, his basis can only be the GSP or FMV
which figures are reasonably known to him.


CITY OF MANILA v. COCA-COLA BOTTLERS PHILIPPINES, INC. -
FACTS:
Respondent paid the local business tax only as manufacturers as it was expressly exempted
from the business tax under a different section and which applied to businesses subject to
excise VAT or percentage tax under the Tax Code. The City of Manila subsequently amended
the ordinance by deleting the provision exempting businesses under the latter section if they
have already paid taxes under a different section in the ordinance. This amending ordinance
was later declared by the Supreme Court null and void. Respondent then filed a protest on the
ground of double taxation. RTC decided in favour of Respondent and the decision was received
by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for
Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007
within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this
time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on
May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to
timely file the Petition.

ISSUES:
(1) Has Petitioners the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?
HELD:
(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20,
2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for
Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior
to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended
period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the
first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered
mail their Petition for Review on 30 May 2007, they were able to comply with the period for
filing such a petition.
(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject
matter the privilege of doing business in the City of Manila; (2) for the same purpose to
make persons conducting business within the City of Manila contribute to city revenues; (3) by
the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction
within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per
calendar year; and (6) of the same kind or character a local business tax imposed on gross
sales or receipts of the business.


Villegas vs Hiu Chiong Tsai Pao Ho (1978)
Facts:
The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those
employed in the diplomatic and consular missions of foreign countries, in technical assistance
programs of the government and another country, and members of religious orders or
congregations) to procure the requisite mayors permit so as to be employed or engage in trade
in the City of Manila. The permit fee is 50, and the penalty for the violation of the ordinance is
3 to 6 months imprisonment or a fine of P 00 to 200, or both.
Issue:
Whether the ordinance imposes a regulatory fee or a tax.
Held:
The ordinances purpose is clearly to raise money under the guise of regulation by exacting 50
from aliens who have been cleared for employment. The amount is unreasonable and excessive
because it fails to consider difference in situation among aliens required to pay it, i.e. being
casual, permanent, part-time, rank-and-file or executive.
[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being
applied only to aliens who are thus deprived of their rights to life, liberty and property and
therefore violates the due process and equal protection clauses of the Constitution. Further,
the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of
his discretion, thus conferring upon the mayor arbitrary and unrestricted powers. ]

25 SCRA 938
GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the other is imposed by
the city."

FACTS:
The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329,
thereby amending the city charter empowering it to fix the license fee and regulate businesses,
trades and occupations as may be established or practiced in the City. De Leon was assessed for
50 annual fee it being shown that he was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there
is no statutory authority which expressly grants the City of Baguio to levy such tax, and that
there it imposed double taxation, and violates the requirement of uniformity.
ISSUE:
Are the contentions of the defendant-appellant tenable?
HELD:
No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample
statutory authority for the enactment thereof.
Second, an argument against double taxation may not be invoked where one tax is imposed by
the state and the other is imposed by the city, so that where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double taxation results.
Third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to
the same occupation, calling or activity by both the state and the political subdivisions thereof.



Sison v. Ancheta (1984)
Facts:
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income as a
professional vis-a-vis those which are imposed upon fixed income or salaried individual
taxpayers. Thus it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity
in taxation.
Issue:
Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
Held:
There is a need for proof of such persuasive character as would lead to a conclusion that there
was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. An obvious example is where it can be shown to amount
to the confiscation of property. That would be a clear abuse of power. It then becomes the duty
of this Court to say that such an arbitrary act amounted to the exercise of an authority not
conferred. That properly calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack
on due process grounds.
Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. Where the differentiation
conforms to the practical dictates of justice and equity, similar to the standards of equal
protection, it is not discriminatory within the meaning of the clause and is therefore uniform.
Taxpayers may be classified into different categories, such as recipients of compensation
income as against professionals. Recipients of compensation income are not entitled to make
deductions for income tax purposes as there is no practically any overhead expense, while
professionals and businessmen have no uniform costs or expenses necessary to produce their
income. There is ample justification to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards
professional and business income.

CIR vs. CA, CTA and FORTUNE TOBACCO CORP.
G.R. No. 119761; August 29, 1996
Facts:
Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different
brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them
as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune changed the names of 'Hope' to 'Hope Luxury' and 'More' to
'Premium More,' thereby removing the said brands from the foreign brand category.
A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was
enacted 55% for locally manufactured foreign brand while 45% for locally manufactured
brands. 2 days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93
("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are
of Champion, Hope and More, it follows that the same shall be considered locally manufactured
foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via telefax a copy
of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then Fortune Tobacco
received, by ordinary mail, a certified Xerox copy of RMC 37-93. CIR assessed Fortune Tobacco
for ad valorem tax deficiency amounting to 9,598,334.00.
Fortune Tobacco filed a petition for review with the CTA.

CTA upheld the position of Fortune.
CA affirmed.
Issue:
WON it was necessary for BIR to follow the legal requirements when it issued its RMC
Held:
YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers
which publication, filing, and prior hearing.
When an administrative rule is merely interpretative in nature, its applicability needs nothing
further than its bare issuance for it gives no real consequence more than what the law itself has
already prescribed. However, on the other hand, when the administrative rule goes beyond
merely providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially increases the burden of those governed, the
agency must accord, at least to those directly affected, a chance to be heard, before that new
issuance is given the force and effect of law.
RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended,
but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium
More" and "Champion" within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands
to 55% the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative
authority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.



COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MICHEL J. LHUILLIER PAWNSHOP, INC.,
respondent.
[G.R. No. 150947. July 15, 2003] 406 scra 178
FACTS:
Revenue Memorandum Orders (RMOs) were issued imposing a 5% lending investors tax on
pawnshop. Pursuant to this, the BIR issued an assessment against Michel J. Lhuillier Pawnshop,
Inc. (hereafter Lhuillier) demanding payment of deficiency percentage tax. Lhuillier filed an
administrative protest, contending, inter alia, that pawnshops are different from lending
investors, which are subject to the 5% percentage tax under the specific provision of the Tax
Code. Its protest having been not acted upon, Lhuillier with the CTA which declared the RMOs
in question null and void insofar as they classify pawnshops as lending investors subject to 5%
percentage tax.
ISSUE:
Are pawnshops included in the term lending investors for the purpose of imposing the 5%
percentage tax under then Section 116 of the NIRC?
HELD:
NO. While it is true that pawnshops are engaged in the business of lending money, they are not
considered lending investors for the purpose of imposing the 5% percentage taxes since: (1)
prior to its amendment the NIRC, pawnshops and lending investors were subjected to different
tax treatments; (2) Congress never intended pawnshops to be treated in the same way as
lending investors, since the amendment of the NIRC treated both tax subjects differently (3)
Under the maxim expressio unius est exclusio alterius, the mention of one thing implies the
exclusion of another thing not mentioned, Sec. 116 subjects to percentage tax dealers in
securities and lending investors only.
ISSUE: Whether or not the RMOs in question are valid
HELD:
NO. There are two kinds of administrative issuances: the legislative rule and the interpretative
rule. A legislative rule is in the nature of subordinate legislation, designed to implement a
primary legislation by providing the details thereof. An interpretative rule, on the other hand, is
designed to provide guidelines to the law which the administrative agency is in charge of
enforcing
When an administrative rule is merely interpretative in nature, its applicability needs nothing
further than its bare issuance, for it gives no real consequence more than what the law itself
has already prescribed. When, on the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the implementation of
the law but substantially increases the burden of those governed, it behoves the agency to
accord at least to those directly affected a chance to be heard, and thereafter to be duly
informed, before that new issuance is given the force and effect of law.
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or
corrective measures revoking in the process the previous rulings of past Commissioners.
Specifically, they would have been amendatory provisions applicable to pawnshops. Without
these disputed CIR issuances, pawnshops would not be liable to pay the 5% percentage tax,
considering that they were not specifically included in Section 116 of the NIRC of 1977, as
amended. In so doing, the CIR did not simply interpret the law. The due observance of the
requirements of notice, hearing, and publication should not have been ignored.