CREBA vs. Romulo (G.R.No.160756 : March 9, 2010)

FACTS: Petitioner assails the constitutionality of some provisions of the Tax Reform Code which impose minimum corporate income tax (MCIT) against real estate corporations. 

ISSUE: Imposing tax on capital, is the law confiscatory?

HELD: No, it does not impose tax on capital. It is imposed on gross income which is gross sales minus sales costs and other expenses.

ISSUE: Does it impose additional income tax?

HELD: No, MCIT is not additional income tax. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income. ISSUE: The Secretary of Finance issued a revenue regulation (RR) which mandates the use of the method of withholding tax at source. The law does not say this. Is the RR valid?

Yes, the RR is valid. Implementing regulations are valid unless ultra vires. Although the law does not mandate withholding of taxes as a method, it is a mere procedure of collection. The Tax Code gives the Secretary the power to promulgate necessary rules for the effective enforcement of tax laws. Withholding of taxes is more convenient for taxpayers and it avoids loss due to failure to file returns.

ISSUE: The law targets only real estate companies. Equal protection violated?

No, the equal protection clause is not violated because there is substantial and real distinction, the distinction is germane to the purpose of the law, the distinction is not limited to existing conditions only and it applies to all members of the same class.

The distinction, for example, between real estate companies and manufacturing companies is clear, substantial and real.