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EN BANC C. REPUBLIC ACT NO.

9337S STAND-BY
Agenda for October 18, 2005 AUTHORITY TO THE EXECUTIVE TO INCREASE
Item No. 45 THE VAT RATE, ESPECIALLY ON ACCOUNT OF
THE EFFECTIVE RECOMMENDATORY POWER
G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. GRANTED TO THE SECRETARY OF FINANCE,
Alcantara, et al. vs. The Hon. Executive Secretary Eduardo R. Ermita); CONSTITUTES UNDUE DELEGATION OF
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary LEGISLATIVE AUTHORITY.
Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas
Shell Dealers, Inc., et al. vs. Cesar V. Purisima, et al.); G.R. No. 168463 2) Motion for Reconsideration of petitioner in G.R. No. 168730,
(Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No. Bataan Governor Enrique T. Garcia, Jr., with the argument
168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. that burdening the consumers with significantly higher prices
Ermita, et al.) under a VAT regime vis--vis a 3% gross tax renders the law
unconstitutional for being arbitrary, oppressive and
inequitable.
RESOLUTION

and
For resolution are the following motions for reconsideration of the Courts
Decision dated September 1, 2005 upholding the constitutionality of
Republic Act No. 9337 or the VAT Reform Act[1]: 3) Motion for Reconsideration by petitioners Association of
Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on the
grounds that:
1) Motion for Reconsideration filed by petitioners in G.R. No.
168463, Escudero, et al., on the following grounds: I. This Honorable Court erred in upholding the
constitutionality of Section 110(A)(2) and Section
A. THE DELETION OF THE NO PASS ON 110(B) of the NIRC, as amended by the EVAT Law,
PROVISIONS FOR THE SALE OF PETROLEUM imposing limitations on the amount of input VAT that
PRODUCTS AND POWER GENERATION may be claimed as a credit against output VAT, as well
SERVICES CONSTITUTED GRAVE ABUSE OF as Section 114(C) of the NIRC, as amended by the
DISCRETION AMOUNTING TO LACK OR EXCESS EVAT Law, requiring the government or any of its
OF JURISDICTION ON THE PART OF THE instrumentalities to withhold a 5% final withholding
BICAMERAL CONFERENCE COMMITTEE. VAT on their gross payments on purchases of goods and
services, and finding that the questioned provisions:
B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES
THE CONSTITUTIONAL IMPERATIVE ON A. are not arbitrary, oppressive and consfiscatory as to
EXCLUSIVE ORIGINATION OF REVENUE BILLS amount to a deprivation of property without
UNDER 24, ARTICLE VI, 1987 PHILIPPINE due process of law in violation of Article III,
CONSTITUTION. Section 1 of the 1987 Philippine Constitution;
B. do not violate the equal protection clause prescribed generation, transmission and distribution to be saddled with such burden,
under Article III, Section 1 of the 1987 clearly shows that there are indeed differences between the bills coming from
Philippine Constitution; and each house, which differences should be acted upon by the bicameral
conference committee. It is incorrect to conclude that there is no clash
C. apply uniformly to all those belonging to the same
between two opposing forces with regard to the no pass-on provision for
class and do not violate Article VI, Section
VAT on the sale of petroleum products merely because such provision exists
28(1) of the 1987 Philippine Constitution.
in the House version while it is absent in the Senate version. It is precisely
the absence of such provision in the Senate bill and the presence thereof in
II. This Honorable Court erred in upholding the the House bills that causes the conflict. The absence of the provision in the
constitutionality of Section 110(B) of the NIRC, as Senate bill shows the Senates disagreement to the intention of the House of
amended by the EVAT Law, imposing a limitation on Representatives make the sellers of petroleum bear the burden of the VAT.
the amount of input VAT that may be claimed as a credit Thus, there are indeed two opposing forces: on one side, the House of
against output VAT notwithstanding the finding that the Representatives which wants petroleum dealers to be saddled with the burden
tax is not progressive as exhorted by Article VI, Section of paying VAT and on the other, the Senate which does not see it proper to
28(1) of the 1987 Philippine Constitution. make that particular industry bear said burden. Clearly, such conflicts and
differences between the no pass-on provisions in the Senate and House bills
had to be acted upon by the bicameral conference committee as mandated by
the rules of both houses of Congress.
Respondents filed their Consolidated Comment. Petitioner Garcia filed his
Reply.
Moreover, the deletion of the no pass-on provision made the present VAT
law more in consonance with the very nature of VAT which, as stated in the
Petitioners Escudero, et al., insist that the bicameral conference committee
Decision promulgated on September 1, 2005, is a tax on spending or
should not even have acted on the no pass-on provisions since there is no
consumption, thus, the burden thereof is ultimately borne by the end-
disagreement between House Bill Nos. 3705 and 3555 on the one hand, and
consumer.
Senate Bill No. 1950 on the other, with regard to the no pass-on provision for
the sale of service for power generation because both the Senate and the
House were in agreement that the VAT burden for the sale of such service Escudero, et al., then claim that there had been changes introduced
shall not be passed on to the end-consumer. As to the no pass-on provision in the Rules of the House of Representatives regarding the conduct of the
for sale of petroleum products, petitioners argue that the fact that the presence House panel in a bicameral conference committee, since the time
of such a no pass-on provision in the House version and the absence thereof of Tolentino vs. Secretary of Finance[2] to act as safeguards against possible
in the Senate Bill means there is no conflict because a House provision cannot abuse of authority by the House members of the bicameral conference
be in conflict with something that does not exist. committee. Even assuming that the rule requiring the House panel to report
back to the House if there are substantial differences in the House and Senate
bills had indeed been introduced after Tolentino, the Court stands by its ruling
Such argument is flawed. Note that the rules of both houses of Congress
that the issue of whether or not the House panel in the bicameral conference
provide that a conference committee shall settle the differences in the
committee complied with said internal rule cannot be inquired into by the
respective bills of each house. Verily, the fact that a no pass-on provision is
Court. To reiterate, mere failure to conform to parliamentary usage will not
present in one version but absent in the other, and one version intends two
invalidate the action (taken by a deliberative body) when the requisite number
industries, i.e., power generation companies and petroleum sellers, to bear the
of members have agreed to a particular measure.[3]
burden of the tax, while the other version intended only the industry of power
houses of Congress and in fact make the House superior to
the Senate.
Escudero, et. al., also contend that Republic Act No. 9337 grossly
violates the constitutional imperative on exclusive origination of revenue Given, then, the power of the Senate to propose
bills under Section 24 of Article VI of the Constitution when the Senate amendments, the Senate can propose its own version even
introduced amendments not connected with VAT. with respect to bills which are required by the Constitution
to originate in the House.
...
Indeed, what the Constitution simply means is
The Court is not persuaded.
that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and
bills of local application must come from the House of
Article VI, Section 24 of the Constitution provides: Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the
Sec. 24 All appropriation, revenue or other hand, the senators, who are elected at large, are
tariff bills, bills authorizing increase of the public expected to approach the same problems from the national
debt, bills of local application, and private bills perspective. Both views are thereby made to bear on the
shall originate exclusively in the House of enactment of such laws.[4]
Representatives, but the Senate may propose or
concur with amendments.
Section 24 speaks of origination of certain bills from the House of
Clearly, after the House bills as approved on third reading are duly
Representatives which has been interpreted in the Tolentino case as follows:
transmitted to the Senate, the Constitution states that the latter can propose or
concur with amendments. The Court finds that the subject provisions found
To begin with, it is not the law but the revenue bill in the Senate bill are within the purview of such constitutional provision as
which is required by the Constitution to "originate declared in the Tolentino case.
exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in
The intent of the House of Representatives in initiating House Bill
the House may undergo such extensive changes in the
Nos. 3555 and 3705 was to solve the countrys serious financial problems. It
Senate that the result may be a rewriting of the whole At
was stated in the respective explanatory notes that there is a need for the
this point, what is important to note is that, as a result of
government to make significant expenditure savings and a credible package
the Senate action, a distinct bill may be produced. To insist
of revenue measures. These measures include improvement of tax
that a revenue statute and not only the bill which initiated
administration and control and leakages in revenues from income taxes and
the legislative process culminating in the enactment of the
value added tax. It is also stated that one opportunity that could be beneficial
law must substantially be the same as the House bill would
to the overall status of our economy is to review existing tax rates, evaluating
be to deny the Senate's power not only to "concur with
the relevance given our present conditions. Thus, with these purposes in mind
amendments" but also to " propose amendments." It would
and to accomplish these purposes for which the house bills were filed, i.e., to
be to violate the coequality of legislative power of the two
raise revenues for the government, the Senate introduced amendments on
income taxes, which as admitted by Senator Ralph Recto, would yield broader perspective to properly evaluate them. His function is to gather and
about P10.5 billion a year. collate statistical data and other pertinent information and verify if any of the
two conditions laid out by Congress is present. Congress granted the
Secretary of Finance the authority to ascertain the existence of a fact, namely,
Moreover, since the objective of these house bills is to raise whether by December 31, 2005, the value-added tax collection as a
revenues, the increase in corporate income taxes would be a great help and percentage of GDP of the previous year exceeds two and four-fifth percent
would also soften the impact of VAT measure on the consumers by (24/5%) or the national government deficit as a percentage of GDP of the
distributing the burden across all sectors instead of putting it entirely on the previous year exceeds one and one-half percent (1%). If either of these two
shoulders of the consumers. instances has occurred, the Secretary of Finance, by legislative mandate, must
submit such information to the President. Then the 12% VAT rate must be
imposed by the President effective January 1, 2006. Congress does not
As to the other National Internal Revenue Code (NIRC) provisions abdicate its functions or unduly delegate power when it describes what job
found in Senate Bill No. 1950, i.e., percentage taxes, franchise taxes, must be done, who must do it, and what is the scope of his authority; in our
amusement and excise taxes, these provisions are needed so as to cushion the complex economy that is frequently the only way in which the legislative
effects of VAT on consumers. As we said in our decision, certain goods and process can go forward. There is no undue delegation of legislative power but
services which were subject to percentage tax and excise tax would no longer only of the discretion as to the execution of a law. This is constitutionally
be VAT exempt, thus, the consumer would be burdened more as they would permissible. Congress did not delegate the power to tax but the mere
be paying the VAT in addition to these taxes. Thus, there is a need to amend implementation of the law. The intent and will to increase the VAT rate to
these sections to soften the impact of VAT. The Court finds no reason to 12% came from Congress and the task of the President is to simply execute
reverse the earlier ruling that the Senate introduced amendments that are the legislative policy. That Congress chose to use the GDP as a benchmark
germane to the subject matter and purposes of the house bills. to determine economic growth is not within the province of the Court to
inquire into, its task being to interpret the law.
Petitioners Escudero, et al., also reiterate that R.A. No. 9337s stand-
by authority to the Executive to increase the VAT rate, especially on account With regard to petitioner Garcias arguments, the Court also finds the
of the recommendatory power granted to the Secretary of Finance, constitutes same to be without merit. As stated in the assailed Decision, the Court
undue delegation of legislative power. They submit that the recommendatory recognizes the burden that the consumers will be bearing with the passage of
power given to the Secretary of Finance in regard to the occurrence of either R.A. No. 9337. But as was also stated by the Court, it cannot strike down the
of two events using the Gross Domestic Product (GDP) as a benchmark law as unconstitutional simply because of its yokes. The legislature has
necessarily and inherently required extended analysis and evaluation, as well spoken and the only role that the Court plays in the picture is to determine
as policy making. whether the law was passed with due regard to the mandates of the
Constitution. Inasmuch as the Court finds that there are no constitutional
infirmities with its passage, the validity of the law must therefore be upheld.
There is no merit in this contention. The Court reiterates that in
making his recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter ego of the Finally, petitioners Association of Pilipinas Shell Dealers, Inc.
President or even her subordinate. He is acting as the agent of the legislative reiterated their arguments in the petition, citing this time, the dissertation of
department, to determine and declare the event upon which its expressed will Associate Justice Dante O. Tinga in his Dissenting Opinion.
is to take effect. The Secretary of Finance becomes the means or tool by
which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much
The glitch in petitioners arguments is that it presents figures based
on an event that is yet to happen. Their illustration of the possible effects of
the 70% limitation, while seemingly concrete, still remains theoretical. The concept of vested right is a consequence of the constitutional
Theories have no place in this case as the Court must only deal with an guaranty of due process that expresses a present fixed interest which in right
existing case or controversy that is appropriate or ripe for judicial reason and natural justice is protected against arbitrary state action; it
determination, not one that is conjectural or merely anticipatory.[5] The includes not only legal or equitable title to the enforcement of a demand but
Court will not intervene absent an actual and substantial controversy admitting also exemptions from new obligations created after the right has become
of specific relief through a decree conclusive in nature, as distinguished from vested. Rights are considered vested when the right to enjoyment is a present
an opinion advising what the law would be upon a hypothetical state of facts.[6] interest, absolute, unconditional, and perfect or fixed and irrefutable. [8] As
adeptly stated by Associate Justice Minita V. Chico-Nazario in her
Concurring Opinion, which the Court adopts, petitioners right to the input
The impact of the 70% limitation on the creditable input tax will VAT credits has not yet vested, thus
ultimately depend on how one manages and operates its business. Market
forces, strategy and acumen will dictate their moves. With or without these
VAT provisions, an entrepreneur who does not have the ken to adapt to It should be remembered that prior to Rep. Act
economic variables will surely perish in the competition. The arguments No. 9337, the petroleum dealers input VAT credits were
posed are within the realm of business, and the solution lies also in business. inexistent they were unrecognized and disallowed by
law. The petroleum dealers had no such property called
input VAT credits. It is only rational, therefore, that they
Petitioners also reiterate their argument that the input tax is a cannot acquire vested rights to the use of such input VAT
property or a property right. In the same breath, the Court reiterates its finding credits when they were never entitled to such credits in the
that it is not a property or a property right, and a VAT-registered persons first place, at least, not until Rep. Act No. 9337.
entitlement to the creditable input tax is a mere statutory privilege.
My view, at this point, when Rep. Act No. 9337
has not yet even been implemented, is that petroleum
Petitioners also contend that even if the right to credit the input VAT dealers right to use their input VAT as credit against their
is merely a statutory privilege, it has already evolved into a vested right that output VAT unlimitedly has not vested, being a mere
the State cannot remove. expectancy of a future benefit and being contingent on the
continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act
As the Court stated in its Decision, the right to credit the input tax is No. 9337.
a mere creation of law. Prior to the enactment of multi-stage sales taxation,
the sales taxes paid at every level of distribution are not recoverable from the
taxes payable. With the advent of Executive Order No. 273 imposing a 10%
multi-stage tax on all sales, it was only then that the crediting of the input tax The elucidation of Associate Justice Artemio V. Panganiban is
paid on purchase or importation of goods and services by VAT-registered likewise worthy of note, to wit:
persons against the output tax was established. This continued with the
Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997
(R.A. No. 8424). The right to credit input tax as against the output tax is Moreover, there is no vested right in generally
clearly a privilege created by law, a privilege that also the law can limit. It accepted accounting principles. These refer to accounting
should be stressed that a person has no vested right in statutory privileges.[7] concepts, measurement techniques, and standards of
presentation in a companys financial statements, and are
not rooted in laws of nature, as are the laws of physical SO ORDERED.
science, for these are merely developed and continually
modified by local and international regulatory accounting
bodies. To state otherwise and recognize such asset
account as a vested right is to limit the taxing power of the
State. Unlimited, plenary, comprehensive and supreme,
this power cannot be unduly restricted by mere creations of
the State.

More importantly, the assailed provisions of R.A. No. 9337 already


involve legislative policy and wisdom. So long as there is a public end for
which R.A. No. 9337 was passed, the means through which such end shall be
accomplished is for the legislature to choose so long as it is within
constitutional bounds. As stated in Carmichael vs. Southern Coal & Coke
Co.:

If the question were ours to decide, we could not


say that the legislature, in adopting the present scheme
rather than another, had no basis for its choice, or was
arbitrary or unreasonable in its action. But, as the state is
free to distribute the burden of a tax without regard to the
particular purpose for which it is to be used, there is no
warrant in the Constitution for setting the tax aside because
a court thinks that it could have distributed the burden more
wisely. Those are functions reserved for the legislature.[9]

WHEREFORE, the Motions for Reconsideration are

hereby DENIED WITH FINALITY. The temporary restraining order

issued by the Court is LIFTED.