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CREBA vs. EXECUTIVE

SECRETARY- Minimum Corporate
Income Tax (/law-library/taxationlaw/income-taxation/1882-crebavs-executive-secretary-minimumcorporate-income-tax.html)
Income Taxation (/Law-Library/Taxation-Law/Income-Taxation.html)

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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
dierent 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
properties classified as ordinary assets unconstitutional?

CWT on income from sales of real

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 sucient 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 dierent from other businesses.
House of Representatives Electoral Tribunal C...
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