ABAKADA Guro Party List vs.

Ermita

G.R. No. 168056 September 1, 2005

FACTS:

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section
4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions
have been satisfied. Petitioners argue that the law is unconstitutional.

ISSUES:

1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the
Constitution.

RULING:

1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the
Senate was acting within its constitutional power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise
taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when
it describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power
is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or arbitrariness.

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
different 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 CWT on income from sales of real
properties classified as ordinary assets unconstitutional?

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 sufficient 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 different from other businesses.