ABAKADA GURO vs.

EXECUTIVE SECRETARY
G.R. No. 168056 | September 1, 2005 & October 18, 2005
By: Krizzia Erika P. Casilana

Doctrine:

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange
or lease of goods or properties and services. Being an indirect tax on expenditure, the
seller of goods or services may pass on the amount of tax paid to the buyer, with the
seller acting merely as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction
or business it engages in, without transferring the burden to someone else (e.g.,
individual and corporate income taxes, transfer taxes, and residence taxes).

Facts:

On May 24, 2005, the President signed into law Republic Act 9337 (VAT Reform Act).
However, the Court issued a TRO enjoining government from implementing the law due
to petitions filed questioning its constitutionality.

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue
Code (NIRC), whereas,

 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 provisions contain a provision which 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:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)

of the previous year exceeds two and four-fifth percent (2 4/5%);

or (ii) National government deficit as a percentage of GDP of the previous year

exceeds one and one-half percent (1½%)”

Petitioners allege that the grant of stand-by authority to the President to increase the
VAT rate is an abdication by Congress of its exclusive power to tax because such
delegation is not covered by Section 28 (2), Article VI of the Constitution. They argue
that VAT is a tax levied on the sale or exchange of goods and services which can’t be
included within the purview of tariffs under the exemption delegation since this refers to
customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on imported/exported goods.

Issues:

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

2. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, violate Article VI, Sections 1 and 2 of the Constitution
3. Whether or not there is a violation of the due process and equal protection of the
Constitution.

Ruling:

1. No, 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. No, 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. In this case, it is not a delegation of legislative power but a delegation of
ascertainment of facts upon which enforcement and administration of the
increased rate under the law is contingent.

3. No, 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.