SC Upholds Two Tax Measures

By Jay B. Rempillo

The Supreme Court has upheld the validity of the imposition by the Bureau of Internal Revenue (BIR) of minimum corporate income tax (MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.
In a 48-page unanimous decision penned by Justice Renato C. Corona, the Court held that petitioner Chamber of Real Estate and Builders’ Associations, Inc., an association of real estate developers and builders in the country, “has miserably failed to discharge its burden of convincing the Court that the imposition of MCIT and CWT is unconstitutional.” In particular, the petitioner assailed the constitutionality of sec. 27(e) of RA 8424 (The National Internal Revenue Code of 1997), and the revenue regulations (RRs) issued by the BIR to implement said provision and those involving creditable withholding taxes.
The Court ruled that MCIT did not violate due process. It stressed that an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. MCIT, however, is imposed not on capital but on gross income which 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, the Court explained.
The Court upheld the authority of the Finance Secretary to order the collection of CWT on sales of real property considered as ordinary assets. Section 57(b) of RA 8424 grants the Finance Secretary authority to require the withholding of a tax on items of income payable to any person, national or juridical, residing in the Philippines, it ruled.
The Court also ruled that there was no deprivation of property without due process with the imposition of CWT. It said that “nothing is taken that is not due so there is no confiscation of property repugnant to the constitutional guarantee of due process.” It stressed that CWT “does not impose new taxes nor does it increase taxes” but relates entirely to the method and time of payment. (GR No. 160756, Chamber of Real Estate and Builders’ Associations, Inc. v. Executive Secretary Romulo, March 9, 2010)
[ Source: SC Benchmark Online May 2010 ]

Revenue Regulations (RRs)
are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
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