SC upholds minimum corporate income tax

The Supreme Court has upheld the constitutionality of the minimum corporate income tax on companies, as it cited the need to avoid tax avoidance schemes. The court also saw nothing wrong with government moves to collect creditable withholding taxes from the sale of real properties considered as ordinary assets. The two revenue collection schemes were questioned by the Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) for being "highly oppressive, arbitrary and confiscatory, [amounting] to deprivation of property without due process of law." But the tribunal said these were questions of policy that should be brought instead to the Executive and Legislature. In a 48-page unanimous decision penned by Associate Justice Renato C. Corona, the full court rejected the contentions of the industry association. It said the minimum corporate income tax is supposed to "[prevent] tax evasion and [minimize] tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other stratagems." Under the Tax Code, companies must pay the tax four years after the start of commercial operations if it is higher than regular tax. The regular corporate income tax rate is 30 percent. The high court noted that some companies repeatedly report loss or minimal net income due to under-declarations in income earned or over-deductions in expenses. As a result, these companies pay a suspiciously smaller or even zero net income. Since the minimum corporate income tax is pegged on gross income, a company must contribute a reasonable amount to the country’s coffers even if it incurs a loss. The court set straight the group’s assertion that the tax amounts to confiscation of a company’s capital. The builders’ group earlier said gross income is not "realized gain." The high court said gross income is derived by subtracting the capital spent on the sale of the goods, adding that the tax is not imposed on capital. The tribunal also upheld the creditable withholding tax, referring to it as an advanced tax payment system. "At the end of the year, the taxpayer/seller shall file its income tax return and credit the taxes withheld against its tax due. If the tax due is greater than the tax withheld, then the taxpayer shall pay the difference. If, on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a refund or tax credit," the high court said. — Ira P. Pedrasa, BusinessWorld