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C h a m b e r o f R e a l E s t a t e a n d B u i l d e r s A s s o c i a t i o n s , I n c . , v . Th e H o n . E x e c u t i v e Secretary Alberto Romulo, et alG.R. No. 160756. March 9, 2010Facts: P e t i t i o n e r C h a m b e r o f R e a l E s t a t e a n d B u i l d e r s A s s o c i a t i o n s , I n c . ( C R E B A ) , a n a s s o c i a t i o nof re a l es t a t edevelopers and bui lders in the Phi l ippines , quest ioned the val id i ty of Sect ion 27(E) of theTax Code which imposes theminimum corporate income tax (MCIT) on corporations.Under the Tax Code, acorporat ion can become subject to theMCIT at the ra te of 2% of gross income, beginning on the4tht a x a b l e y e a r i m m e d i a t e l y f o l l o w i n g t h e y e a r i n w h i c h i t c o m me nc e d i t s b us in es sop e r a t io ns , wh en su ch MC IT i s g rea t e r t han the no rma l co rpora te i ncome t ax . I f t he r egula r incometax is hig her tha n the MCI T, the cor por ati on doe s not pay the MCIT.CREBA argued, among others, that the use ofgross income asMC IT bas e a mo unt s to a c onf isc ati on of ca pit al bec aus e g ros sincome, unlike net income, is notrealized gain.CREBA also sought to invalidate the provisions of RR No. 2-9 8 , a s a m e n d e d , o t h e r w i s e k n o w n a s t h e C o n s o l i d a t e d Withholding Tax Regulat ions,wh ic h pr es cr ib e th e ru le s an dprocedures for the collection of CWT on sales of realpropertiesc l a s s i f i e d a s o r d i n a r y a s s e t s , o n t h e g r o u n d s t h a t t h e s e regulations:

Us e g r os s s e l l i n g p r i c e (G SP ) o r f a i r ma rk e t va lu e (FMV) as basis for determiningthe income t ax on thesale of real es ta te c lass i f ied as ordinary assets , ins tead of the entitys net taxable income as pro videdforunder the Tax Code;

M a n d a t e t h e c o l l e c t i o n o f i n c o m e t a x o n a p e r t ransaction basis, cont rary to theTa x Co de pr ov is io n which imposes income tax on net income at the end of the taxable period;

G o a g a i n s t t h e d u e p r o c e s s c l a u s e b e c a u s e t h e g o v e r n m e n t c o l l e c t s i n c o m e t a xev en wh en th e n e t in co me ha s n o t ye t be en de t e rm in ed ; ga in i s ne ve rassured by mere receipt of theselling price; and

Con tr ave ne the equ al pro te cti on cl aus e bec au se the CWT is being charged upon real estate enterprises, butnot onother business enterprises, more particularly,those in the manufacturing sector, which do businesssimilarto that of a real estate enterprise.Issues: (1) Is the imposition of MCIT constitutional? (2) Is theimposition of CWT on income from sales of realpropertiesclassified as ordinary assets constitutional?Held: ( 1) Yes . The imposi t ion of the MCIT is const i tu t ional . An income tax is arbi t rary and conf iscatory i f i t taxescap it a l, be ca us e i t i s i n co me , an d no t ca p i t a l , wh ic h i s su b j ec t t o income tax. However, MCIT isimposed on gross income whichis computed by deducting from gross sales the capital spent by a corporation in the sale of itsgoods, i.e., the cost of goods andother direct expenses from gross sales. Clearly, the capital isnot beingtaxed. Various safeguards were incorporate d into the l aw impo singMCIT