In a suit filed with the Supreme Court challenging the constitutionality of these taxes, CREBA chairman-founder Manuel Serrano issued the following statement:
"The government has imposed a minimum corporate income tax of two percent based on gross income, which is being collected by the Bureau of Internal Revenue even when a corporation records a ‘zero taxable income’ or a net loss.
"A creditable withholding tax of up to six percent of the gross selling price of real property classified as ‘ordinary asset’ is also being collected from realty enterprises at the point of every sales transaction.
"These taxes are unconstitutional – being highly oppressive, confiscatory and manifestly arbitrary. The amount to a deprivation of property without due process of law – even as it is downright immoral for government to impose taxes in such manner particularly in these difficult times.
"In the United States whence our income taxation system originated, and even under our very own jurisprudence, as far as business income taxation is concerned, the fundamental rule is that there must be realized gain before an income tax may be levied.
"Otherwise put, if there is no realized gain, there is no income – hence nothing upon which to base or collect an income tax.
"And in order to determine whether or not there is realized gain, an amount sufficient to restore capital value must be withdrawn from the gross proceeds of sales transactions. Income is not synonymous with receipts.
"In violation of these fundamental rule, both the MCIT and CWT amount to the forbidden act of confiscating capital for they preclude sufficient restoration of the capital value expended by the business enterprise for purposes of generating taxes – a restoration that is essential if the business is to thrive, as its inherent right.
"That the MCIT is being collected even when there is actually a loss compounds the injury a thousand-fold.
"The CWT is even worse, for it is levied not even on gross income, but rather on whichever is higher of the gross selling price or zonal value of the real property sold.
"The CWT, as applied to real property classified as ordinary asset and collected at the point of every sales transaction, is not only unconstitutional but illegal as well, for nothing in the law authorizes it.
"It is a mere concoction of the BIR under its promulgated regulations on withholding taxes – which in essence treats ordinary assets in the same manner as capital assets, the sale of which is subject to the capital gains tax for which the law authorizes withholding.
"The CWT on real property sales is contrary to the specific provisions of law relating to income from sale of ordinary assets, under which provisions it is very clear that the appertaining income tax (1) shall be computed based on net taxable income, not on gross selling price or gross income or zonal value; and (2) shall be levied, collected and paid at the time the return is filed – meaning, at the end of the taxable period – not at the point of each sales transaction via a withholding tax.
"The MCIT and CWT represent considerable amounts which could otherwise be used by business enterprises to pay labor wages, materials, cost of money and other expenses necessary to continue operating regularly.
"The continued collection of the same – under the prevailing adverse economic conditions where most businesses, however hard they try to realize gain, are incurring heavy losses instead, and where countless enterprises have retrenched if not completely shut down – cannot be anything but ruinous, not only for the business sector but for the entire nation as well.
"We need not remind all and sundry that the nation’s survival hinges upon the health of the business sector which is, undeniably, the nation’s engine of growth-particularly the real estate industry which not only represents the hope of 4.5 million homeless families to acquire their own decent dwelling, but is also the acknowledged economic pump primer in terms of employment, investment and revenue generation.
"Unless the Supreme Court grants relief by restraining the BIR from levying these taxes, small and medium-scale realty enterprises, if not other similarly situated businesses, will definitely close shop – until none but the giant conglomerates of the Spanish tycoons and Chinese taipans remain.