G.R. No.
L-30727 July 15, 1975 (c) Pick Up, Jeepneys, PU Cars and others of similar
THE CITY OF OZAMIZ, Represented by THE CITY MAYOR, MUNICIPAL BOARD, CITY TREASURER, and
CITY AUDITOR, petitioner-appellant,
vs.
SERAPIO S. LUMAPAS and HONORABLE GERONIMO R. MARAVE, respondents-appellees.
ANTONIO, J.:
Appeal by certiorari from the decision, dated March 18, 1969, of respondent Judge Geronimo R. Marave, of the
Court of First Instance of Misamis Occidental, Branch II, Ozamiz City, declaring Ordinance No. 466, series of
1964, of the Municipal Board of the City of Ozamiz, null and void (Civil Case No. OZ-159), and ordering
petitioner to return to respondent Serapio S. Lumapas the sum of P1,243.00, representing the amount collected
as parking fees, by virtue of the ordinance, without costs.
The facts of this case, which are not disputed, are as follows:
Respondent Serapio S. Lumapas is an operator of transportation buses for passengers and cargoes, under the
name of Romar Line, with Ozamiz City and Pagadian, Zamboanga del Sur, as terminal points, by virtue of a
certificate of public convenience issued to him by the Public Service Commission. On September 15, 1964, the
Municipal Board of Ozamiz City enacted the following:
ORDINANCE NO. 466
AN ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE PARKED ON ANY PORTION
OF THE EXISTING PARKING SPACE IN THE CITY OF OZAMIZ. Be it ordained by the Municipal Board of the
City of Ozamiz, that:
SECTION 1 — There is hereby imposed parking fees for all motor vehicles parked on any portion of the duly
designated parking areas in the City of Ozamiz;
SECTION 2. — Motor Vechicles' as used in this ordinance shall be construed to mean all vehicles run by engine
whether the same is offered for passengers or for cargoes of whatever kind or nature;
SECTION 3. — The word "Parking" as used in this ordinance shall be construed to mean, when a motor vehicle
of whatever kind is stopped on any portion of the existing parking areas for the purpose of loading and
unloading passengers or cargoes;
SECTION 4. — For purposes of the fee hereinabove provided, the following schedule of rates collectible daily
from the conductor, driver, operator and/or owner must be observed:
For Passenger
(a) Passenger Bus ........................................................................ P1.00
(b) Weapon Carrier, Baby Bus & others of similar nature ..... .70
nature ....................................................................................................................... .50
For Cargoes
(a) Cargo Trucks .......................................................................... 1.00
(b) Pick Up, Jeeps, Jeepneys, Weapon Carriers & Others of similar
nature ...................................................................................................................... .70
SECTION 5. — That the City Treasurer or his authorized representative is hereby empowered to collect the
herein parking fees using any form of official receipt he may devise, from the conductor, driver, operator and/or
owner of the motor vehicles parked in said designated parking areas;
SECTION 6. — Any person or persons, violating any provision of this ordinance shall, upon conviction thereof,
be punished by an imprisonment of not less than two (2) months nor more than six (6) months, or by a fine in
the sum of not less than P100.00 but not more than P400.00 or both such fine and imprisonment at the
discretion of the Court;
SECTION 7. — This ordinance shall take effect immediately upon its approval.
Enacted, September 15, 1964,
Approved, October 7, 1964.1
After approval of the above-quoted ordinance, the City of Ozamiz began collecting the prescribed parking' fees
and collected from respondent-appellee Serapio S. Lumapas, who had paid under protest, the parking fees at
One Peso (P1.00) for each of his buses, from October 1964 to January 1967, or an aggregate amount of
P1,259.002 for which official receipts were issued by petitioner.
About four (4) years later, or on January 11, 1968, respondent Serapio S. Lumapas filed a complaint, dated
August 3, 19673 against the City of Ozamiz, represented by the City Mayor, Municipal Board, City Treasurer,
and City Auditor, with the Court of First instance of Misamis Occidental, Branch II (Civil Case No. OZ-159), for
recovery of parking fees, alleging, among others, that said Ordinance No. 466 is ulta vires, and praying that
judgment be issued (1) nullifying Ordinance No. 466, series of 1964, and (2) ordering the Municipal Board to
appropriate the amount of P1,459.00 for the reimbursement of P1,259.00 he had paid as parking fees, plus
P200.00 as attorney's fees.
On January 25, 1968, petitioner filed its answer, with affirmative defenses4 to which respondent-appellee
Serapio S. Lumapas filed his reply, dated January 30, 1968.5
On January 3, 1969, the parties, through their respective counsel, filed the following:
STIPULATION OF FACTS
COME NOW the plaintiff and the defendants, through their respective counsel, and unto this Honorable Court
respectfully submit this stipulation of facts, to wit:
Page 1 of 43
(1) That the area enclosed in red pencil in the sketch is a market site of the City of Ozamiz which holds the
same in its proprietary character as evidenced by Tax Declaration No. 51234. This area is for public use.
(2) That the Zulueta Street is now extended up to the end of the market site passing a row of tiendas up to the
end marked "toilet" in the sketch plan of market site when the market building was constructed in 1969;
(3) That on the right side near the row of tiendas and near the toilet and marked with series of x's and where the
buses of plaintiff were parking waiting for passengers going to the south;
(4) That this space marked "rig parking" in the sketch plan marked "x" has been designated by City Ordinance
No. 233 as a parking place marked Exhibit "2";
(5) That the defendant City Government has been collecting parking fees and issued corresponding official
receipts to the plaintiff for each unit belonging to the plaintiff every time it left Ozamiz City from said parking
place but once a day at one peso per unit;
(6) That the total amount of parking fees collected from the plaintiff by the defendant is P1,243.00 as per official
receipts actually counted in the presence of both parties;
(7) That the plaintiff made a demand for the reimbursement of the total amount collected from 1964 to 1967 and
this demand was received on September 1, 1967, by the City Treasurer and that the City Treasurer replied by
first indorsement dated September 11, 1967, asking for reference and verification; and
(8) That in reply to said first indorsement, the plaintiff sent a letter to the City Treasurer dated January 18, 1967,
citing cases in support of the demand, and in answer to that letter, the City Treasurer in his communication
dated January 11, 1968, flatly denied payment of the demand.
(9) That the parties will file their respective memoranda within twenty days from today.
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered based upon this
stipulation of facts after the parties shall have submitted their respective memoranda or after the lapse of twenty
days from today.
Ozamiz City, December 27, 1968.6
On the basis of the foregoing Stipulation of Facts, and of the court's finding, after an ocular inspection of the
parking area designated by Ordinance No. 286, series of 1956, 7 superseding Ordinance No. 234, series of
1953, that it is a municipal street, although part of the public market, said court rendered judgment on March 18,
1969 declaring that such parking fee is in the nature of toll fees for the use of public road and made in violation
of Section 59[b] of Republic Act No. 4136 (Land Transportation and Traffic Code), there being no prior approval
therefor by the President of the Philippines upon recommendation of the Secretary of Public Works and
Communications (now Public Works). Hence, the present appeal by certiorari.
Petitioner now contends that the lower court erred: (1) in declaring Ordinance No. 466, series of 1964, of
Ozamiz City, null and void; (2) in considering parking fees as road tolls under Section 59[b] of Republic Act No.
4136; (3) in declaring the parking area as a public street and not the patrimonial property of the city; and (4) in
ordering the reimbursement of parking fees paid by respondent-appellee.
Decisive of this controversy is whether the Municipal Board of the City of Ozamiz, herein petitioner-appellant,
had the power to enact said Ordinance No. 466.
Petitioner-appellant, in maintaining the affirmative view, contends: (1)that the ordinance is valid for the fees
collected thereunder are in the nature of property rentals for the use of parking spaces belonging to the City in
its proprietary character, as evidenced by Tax Declaration No. 51234, and are authorized by Section 2308 (f) of
the Revised Administrative Code, 8(2) that Section 15 (y) of the Charter of Ozamiz City (Republic Act No.
321) 9 also authorizes the Municipal Board to regulate the use of streets which carries with it the power to
impose fees for its implementation; (3) that, pursuant to such power, the Municipal Board passed said
Ordinance No. 234, the purpose of which is to minimize accidents, to avoid congestion of traffic, to enable the
passengers to know the exact time of the departure of trucks and, for this purpose, the Municipal Board
provided for parking areas for which the City has to have funds for the implementation of the purposes
abovestated; (4) that Section 2 of the Local Autonomy Law (Republic Act No. 2264)likewise empowers the local
governments to impose taxes and fees, except those that are enumerated therein, and parking fee is not among
the exceptions: and (5) that the word "toll" connotes the act of passing along the road and the collection of toll
fees may not be imposed unless approved by the President of the Philippines upon the recommendation of the
Secretary of Public Works, pursuant to Section 59[b] of Republic Act No. 4136; whereas the word "parking"
implies a stationary condition and the parking fees provided for in Ordinance No. 466 is for the privilege of using
the designated parking area, which is owned by the City of Ozamiz, as its patrimonial property.
On the other hand, respondent-appellee insists (1) that Ozamiz City has no power to impose parking fees on
motor vehicles parked on Zulueta Street, which is property for public use and, as such, Ordinance No. 466
imposing such fees is null and void; (2) that granting arguendo that Zulueta Street is part of the City's public
market site, its conversion into a street removes it from its category as patrimonial property to one for public
use; 10 (3) that the use of Zulueta Street as a parking place is only incidental to the free passage of motor
vehicles for, as soon as the buses are loaded with passengers, the vehicles start their journey to their respective
destinations and pay the toll clerk at a station about one hundred; (100) feet ahead along Zulueta Street before
they are allowed to get out of the City and as such, the prohibition to impose taxes or fees embodied in Section
59[b] of Republic. Act No. 4136 applies to this case; (4) that Section 2308[f] of the Revised Administrative Code
providing that the "proceeds on income from the ... use or management of property lawfully held by the
municipality" accrue to the municipality, does not grant, either expressly or by implication, to the municipality,
the power to impose such tax, (5) that Section 15[y] of the Charter of Ozamiz City (Republic Act No. 321) which
authorizes the City, among others, "to regulate the use of a street," does not empower the City to impose
parking fees; besides, said section contains a proviso, i.e., "except as otherwise provided by law", which, in this
case, is Republic Act No. 4136; and (6) that, since the power to impose parking fees is not among those
conferred by the Local Autonomy Act on local government, said City cannot, therefore, impose such parking
fees.
After the filing of its brief, or on December 10, 1969, the petitioner- appellant, through its counsel, First Assistant
City Fiscal Artemio C. Engracia, filed the following Manifestation, dated November 27, 1969, praying that the
decision of the lower court be reversed in view of the approval by the President of the Philippines upon the
recommendation of the Secretary of Public Works of the ordinance in question that validates the same, to wit:
1. That the decision of the lower court, marked Annex "E" of the petition, declaring Ordinance No. 466, series of
1964, of Ozamiz City, marked Annex "G" of the petition, null and void is based on the non-compliance with the
provisions of Section 59[b] of Republic Act No. 4136, otherwise known as The Land Transportation Law, which
requires the approval by the President of the Philippines upon the recommendation of the Secretary of Public
Works of such kind of ordinance..
2. That the President of the Philippines has now approved the Ordinance in question. A certified copy of said
approval is hereunder quoted.
Page 2 of 43
xxx xxx xxx
4th Indorsement
Manila, September 26, 1969
Respectfully returned to the Mayor, City of Ozamiz, hereby approving, as recommended in the 3rd indorsement
hereon of the Secretary of Public Works and Communications, Ordinance No. 466, series of 1964, of that city,
entitled: "AN ORDINANCE IMPOSING PARKING FEES FOR EVERY MOTOR VEHICLE PARKED ON ANY
PORTION OF THE EXISTING PARKING SPACE IN THE OZAMIZ."
By Authority of the President:
(Sgd.) FLORES BAYOT
Assistant Executive Secretary
3. That the approval by the President of the Philippines is based upon the recommendation of the Secretary of
Public Works. A certified copy of said recommendation is hereunder reproduced:
3rd Indorsement
June 3, 1969
Respectfully forwarded to His Excellency, the President of the Philippines, Malacañang, recommending
favorable action, in view of the representations herein made, on the within letter dated March 21, 1969 of Mayor
Hilarion A. Ramiro, Ozamiz City, requesting approval No. 466, series of 1964, passed by the Municipal Board,
same city regarding the collection of fees for the privilege of parking vehicles in the lots privately-owned by said
City.
(Sgd.) ANTONIO V. RAQUIZA
Secretary
4. That the action of the Secretary of Public Works is based upon the findings of the Commissioner of the Land
Transportation Commission. A certified copy of the same is herein reproduced:
xxx xxx xxx
2nd Indorsement
May 16, 1969
Respectfully returned to the Honorable Secretary, Department of Public Works and Communications, Manila,
with the statement that this Commission interposes no objection on the approval of Ordinance No. 466, series of
1964, of Ozamiz City, considering that the schedule of rate collectible from the conductor, driver, operator
and/or owner as stated under Section 4 thereof appears to be reasonable.
It may be stated in this connection that on the Decision of the CFI of Misamis Occidental, Branch II, dated
March 18, 1969 under Civil Case No. OZ(159), the said Ordinance was declared null and void for failure to
comply with the provisions of Section 59[b] of R. A. 4136, regarding the required "approval by the President of
the Philippines upon recommendation of the Secretary of Public Works and Communications."
(Sgd.) ROMEO F. EDU
Commissioner
The rule is well-settled that municipal corporations, being mere creatures of the law, have only such powers as
are expressly granted to them and those which are necessarily implied or incidental to the exercise thereof, and
the power to tax is inherent upon the State and it can only be exercised by Congress, unless delegated or
conferred by it to a municipal corporation. As such, said corporation has only such powers as the legislative
department may have deemed fit to grant. By reason of the limited powers of local governments and the nature
thereof, said powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the terms
used in granting said powers must be construed against the municipality. 11
The implied powers which a municipal corporation possesses and can exercise are only those necessarily
incident to the powers expressly conferred. Inasmuch as a city has no power, except by delegation from
Congress, in order to enable it to impose a tax or license fee, the power must be expressly granted or be
necessarily implied in, or incident to, the powers expressly conferred upon the city.
Under Sec. 15[Y] of the Ozamiz City Charter (Rep. Act No. 321), the municipal board has the power "... to
regulate the use of streets, avenues, alleys, sidewalks, wharves, piers, parks, cemeteries and other public
places; ...", and in subsection [nn] of the same section 15, the authority "To enact all ordinances it may deem
necessary and proper for the sanitation and safety, the furtherance of prosperity and the promotion of the
morality, peace, good order, comfort, convenience, and general welfare of the city and its inhabitants, and such
others as may be necessary to carry into effect and discharge the powers and duties conferred by this
Charter ..." By this express legislative grant of authority, police power is delegated to the municipal corporation
to be exercised as a governmental function for municipal purposes.
It is, therefore, patent that the City of Ozamiz has been clothed with full power to control and regulate its streets
for the purpose of promoting the public health, safety and welfare. Indeed, municipal power to regulate the use
of streets is a delegation of the police power of the national government, and in the exercise of such power, a
municipal corporation can make all necessary and desirable regulations which are reasonable and manifestly in
the interest of public safety and convenience.
By virtue of the aforecited statutory grant of authority, the City of Ozamiz can regulate the time, place, manner of
parking in the streets and public places. It is, however, insisted that the ordinance did not charge a parking fee
but a toll fee for the use of the street. It is true that the term " parking" ordinarily implies "something more than a
mere temporary and momentary stoppage at a curb for the purpose of loading or unloading passengers or
merchandize; it involves the idea of using a portion of the street as storage space for an automobile." 12
In the case at bar, the TPU buses of respondent-appellee Sergio S. Lumapas stopped on the extended portion
of Zulueta Street beside the public market (Exhibit "X-1" of Exhibit "X", Development Plan for Ozamiz Market
Site),and that as soon as the buses were loaded, they proceeded to the station, about one hundred (100) feet
away from the parking area, where a toll clerk of the City collected the "Parking" fee of P1.00 per bus once a
day, before said buses were allowed to proceed to their destination.
Section 3 of the questioned Ordinance No. 466 defines the word "'parking' to mean the stoppage of a motor
vehicle of whatever kind on any portion of the existing parking areas for the purpose of loading and unloading
passengers or cargoes." 13 (Emphasis supplied.)
The word "toll" when used in connection with highways has been defined as a duty imposed on goods and
passengers travelling public roads. 14 The toll for use of a toll road is for its use in travelling thereon, not for its
use as a parking place for vehicles. 15
Page 3 of 43
It is not pretended, however, that the public utility vehicles are subject to the payment, if they pass without
stopping thru the aforesaid sections of Zulueta Street. Considering that the public utility vehicles are only
charged the fee when said vehicles stop on "any portion of the existing parking areas for the purpose of loading
or unloading passengers or cargoes", the fees collected are actually in the nature of parking fees and not toll
fees for the use of Zulueta Street. This is clear from the Stipulation of Facts which shows that fees were not
exacted for mere passage thru the street but for stopping in the designated parking areas therein to unload or
load passengers or cargoes. It was not, therefore a toll fee for the use of public roads, within the context of
Section 59[b] of Republic Act No. 4136, which requires the authorization of the President of the Philippines.

As adverted to above, the Municipal Board of Ozamiz City is expressly granted by its Charter the power to
regulate the use of its streets. The ordinance in question appears to have been enacted in pursuance of this
grant. The parking fee imposed is minimal in amount, the maximum being only P1.00 a day for each passenger
bus and P1.00 for each cargo truck, the rates being lower for smaller types of vehicles. This indicates that its
purpose is not for revenue but for regulation. Moreover, it is undeniable that by designating a specific place
wherein passenger and freight vehicles may load and unload passengers and cargoes, benefits are accorded to
the city's residents in the form of increased safety and convenience arising from the decongestion of traffic.

Undoubtedly the city may impose a fee sufficient in amount to include the expense of issuing the license and
the cost of necessary inspection or police surveillance connected with the business or calling licensed.

The fees charged in the case at bar are undeniably to cover the expenses for supervision, inspection and
control, to ensure the smooth flow of traffic in the environs of the public market, and for the safety and
convenience of the public.

WHEREFORE, the appealed decision is hereby reversed and Ordinance No. 466, series of 1964 declared valid.
No pronouncement as to costs.

Page 4 of 43
G.R. No. 125704 August 28, 1998 90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

PHILEX MINING CORPORATION, petitioner, ========= ========= ========= =========

vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it
APPEALS, respondents. has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax
ROMERO, J.: liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-
G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16,
1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the
2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can
take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from
the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied
to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
————— ————— —————— ——————
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
————— ————— —————— ——————
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated"
debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines,
Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still
pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated
debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs. French and Unson, No. 14027,
November 8, 1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim
for taxes is not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994
until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88 Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No.
36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation.
The pertinent portion of which reads: 12
————— ————— —————— ——————

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16,
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13 1995 is AFFIRMED.

————— ————— —————— —————— Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13

Page 5 of 43
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities 15 since both had already become "due and demandable, as well as fully
liquidated;" 16 hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and
debtors of each other. 17 There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 18 We
find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes
cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on
Audit, 20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc.,
wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund
has not yet been approved by the Commissioner, 21 is no longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d)
of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was
enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was
omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still
has pending claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection
system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending
tax claim for refund or credit against the government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not
depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue
system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its
tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner
by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial
for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection
thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in
justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977,
which requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax
claim for VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has
submitted all the required documents it is the function of the BIR to assess these documents with purposeful
dispatch. After all, since taxpayers owe honestly to government it is but just that government render fair service
to the taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously
paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it
could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy
Page 6 of 43
refund of wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer from the BIR in the
latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the general
public's trust and confidence in the Government this power must be used justly and not treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule
that in the performance of governmental function, the State is not bound by the neglect of its agents and
officers. Nowhere is this more true than in the field of taxation. 37 Again, while we understand Philex's
predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees,
especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR
takes time in acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of
Tax Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of
duty, then recourse under the Civil Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an action for damages and other relief against the latter,
without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

x x x           x x x          x x x

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty
or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of
official duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to
render service to the people with utmost diligence and efficiency. Insolence and delay have no place in
government service. The BIR, being the government collecting arm, must and should do no less. It simply
cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of
hastening the country's development. We take judicial notice of the taxpayer's generally negative perception
towards the BIR; hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same
cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own
hands" should have guided Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the
Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

Page 7 of 43
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy
Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on
Audit, and CESAR E. A. VIRATA, Minister of Finance, respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of
Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of
tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net
profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof,
"he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from
the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual
taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and
capricious in character 5 For petitioner, therefore, there is a transgression of both the equal protection and due
process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May
28, 1982. 8 The facts as alleged were admitted but not the allegations which to their mind are "mere arguments,
opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and
Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's
power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set
forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative
and which the government was called upon to enter optionally, and only 'because it was better equipped to
administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-
defined boundaries and to be absorbed within activities that the government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues.
The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of
the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest
of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is
not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does
properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does,
to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion
in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as
"a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of
absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a constitutional mandate.
Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this
Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or
executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged
statutory provision — as petitioner here alleges — fails to abide by its command, then this Court must so
declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax
rate on taxable net income derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here.
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner
here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere
to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering
that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds
no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state,
or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to
attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent
domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the
common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is
that equal protection and security shall be given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated
in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same
formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble
concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is,
however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal
protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection
of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are
expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice
J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select
Page 8 of 43
the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such
particular class for taxation, or exemption infringe no constitutional limitation.'" 23 circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact,
the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of because they claim all sort of deduction justified or not I vote for dismissal.
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco,25 decided in 1940, when the tax "operates with the same force and effect in every  
place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not present
itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the
practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the
tax "applies equally to all persons, firms and corporations placed in similar situation."30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction
between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa
Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for
income tax purposes because they are in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There
is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation as regards professional and business
income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on
due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Separate Opinions

AQUINO, J., concurring:

I concur in the result. The petitioner has no cause of action for prohibition.

ABAD SANTOS, J., dissenting:

Page 9 of 43
 [G.R. No. L-31156. February 27, 1976.]
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., Plaintiff-Appellant, v. MUNICIPALITY OF
TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., Defendants-Appellees.
SYNOPSIS
Pepsi-Cola Bottling Company of the Philippines, Inc., filed a complaint with preliminary injunction before the
Court of First Instance of Leyte to declare Section 2 of R.A. No. 2264, (known as the Local Autonomy Act)
unconstitutional as an undue delegation of the taxing authority and declare null and void Municipal Ordinance
No. 23, which levies and collects from soft drinks producers and manufactures a tax of 1/16 of a centavo for
every bottle of soft drinks corked, and Municipal Ordinance No. 27 which levies and collects on soft drinks
produced or manufactured within the territorial jurisdiction a tax of one centavo on each gallon of volume
capacity. The trial court dismissed the complaint and upheld the constitutionality of Sec. 2 of R.A. No. 2264 and
declared Municipal Ordinances Nos. 27 valid and constitutional. Appealed to the Court of Appeals, the case was
certified to the Supreme Court as involving pure question of law.
The Supreme Court upheld the validity of the delegation to Municipal Corporation or authority to tax and
likewise the validity of Municipal Ordinance No. 27, which repealed Municipal Ordinance No. 23.
SYLLABUS
1. TAXATION; NATURE; NON-DELEGATION OF POWER, EXCEPTION. — The power of taxation is an
essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government,
without being expressly conferred by the people. It is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial department of government without infringing
upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in respect of
matters of local concern. This is sanctioned by immemorial. By necessary implication, the legislative power to
create political corporations for purpose of local self-government carries with it the power to confer on such local
government agencies the power to tax.
2. ID.; ID.; ID.; SCOPE OF LOCAL GOVERNMENT’S POWER TO TAX. — The taxing authority conferred on
local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything,
excepting those which are mentioned therein." As long as the tax levied under the authority of a city or
municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of
the general rule, pursuant to the rules of expresio unius est exclusio alterius, and exceptio firmat regulum in
casibus non excepti. Municipalities are empowered to impose not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes.
3. ID.; ID.; ID.; LIMITATION. — Municipalities and municipal districts are prohibited to impose "any percentage
tax on sales or other in any form based thereon nor impose taxes on articles subject to specific tax, except
gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation,
a municipal ordinance which prescribes a set of radio between the amount of the tax and the volume of sales of
the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact.
4. ID.; ID.; ID.; DELEGATION OF POWER TO TAX UNDER NEW CONSTITUTION. — Under the New
Constitution, local governments are granted autonomous authority to create their own sources of revenue and
to levy taxes. Section 5, Article XI Provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot
be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to
enact and vest in local governments the power of local taxation.
5. ID.; ID.; ID.; VALIDITY THEREOF. — The plenary nature of the delegated power of local governments under
Section 2, of R.A. No. 2264 would not suffice to invalidate the law as confiscatory and oppressive. In delegating
the authority, the State is not limited to the measure of that which is exercised by itself. When it is said that the
taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes the legislature may deem expedient. Thus, municipalities may be
permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more
general purposes.
6. ID.; REQUISITES FOR LAWFUL EXERCISE OF TAXING POWER. — Constitutional injunction against
deprivation of property without due process of law may not be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing power, as when, (1) the tax is for a
public purpose; (2) the rule on uniformity of taxation observed; (3) either the person or property taxed is within
the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of
taxes, notice and opportunity for hearing are provided.
7. ID.; ID.; INSTANCES WHERE DUE PROCESS IS VIOLATED. — Due process is usually violated where the
tax imposed is for a private as distinguished from the public purposes; a tax a imposed on property outside the
State, i.e., extra-territorial taxation; and arbitrary or oppressive methods are used in assessing and collecting
taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the
purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require
that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry,
and a notice and hearing as to the amount of tax and the manner in which it shall be apportioned are generally
not necessary to due process of law.
8. ID.; DOUBLE TAXATION; GENERALLY NOT FORBIDDEN. — The delegated authority under Section 2 of
the Local Autonomy Act cannot be declared unconstitutional on the theory of double taxation. It must be
observed that the delegating authority specifies the limitations and enumerates the taxes over local taxation
may not be exercised. The reason is that the State has exclusively reversed the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by the fundamental law, since the injunction against
double taxation found in the Constitution of the United States and some states of the Union has not been
adopted as part thereof.
9. ID.; ID.; ID.; EXCEPTION. — Double taxation becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case
where one tax is imposed by the State and the other by the city or municipality.
10. ID.; ID.; ID.; INSTANT CASE. — Where, as in the case at bar, the municipality of Tanauan enacted
Ordinance No. 27 imposing a tax of one centavo on each gallon of volume capacity while in the previous
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked, it is clear that the intention of the municipal
council was to substitute Ordinance No. 27 to that of Ordinance No. 23, repealing the latter.
11. ID.; TAX LEVIED ON PRODUCE, NOT PERCENTAGE TAX. — The imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of a nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity
of the taxpayer’s production of soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is no set ratio between the volume of sales and the amount of tax.
12. ID.; ID.; ID.; MUNICIPALITY ALLOWED TO INCREASE TAX AS LONG AS AMOUNT IS REASONABLE. —
The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity of all soft drinks,
Page 10 of 43
produced or manufactured or an equivalent of 1-1/2 centavos per case, cannot be considered unjust and unfair.
An increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the rates of impossible taxes. This is in line
with the constitutional policy of according the widest possible autonomy to local government in matters of
taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973).
13. ID.; SPECIFIC TAXES; ARTICLES SUBJECT TO SPECIFIC TAX. — Specific taxes are those imposed on
specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches, firecrackers, manufactured oils and other fuels, coal bunker fuel oil cinematographic films,
playing cards, saccharine, opium and other habit forming drugs.
FERNANDO, J., concurring:chanrob1es virtual 1aw library
1. CONSTITUTIONAL LAW; TAXATION; POWER OF MUNICIPAL CORPORATION TO TAX UNDER THE
NEW CONSTITUTION. — The present Constitution is quite explicit as to the power of taxation vested in local
and municipal corporations. It is therein specifically provided: "Each local government unit shall have the power
to create its own sources to revenue and to levy taxes, subject to such limitations as may be provided by law."
2. ID.; ID.; LIMITATION ON POWER TO TAX UNDER THE 1935 CONSTITUTION. — The only limitation on the
authority to tax under the 1935 Constitution was that while the President of the Philippines was vested with the
power of control over all executive departments, bureaus, or offices, he could only "exercise general supervision
over all local governments as may be provided by law." As far as legislative power over local government was
concerned, no restriction whatsoever was placed in the Congress of the Philippines. It would appear therefore
that the extent of the taxing power was solely for the legislative body to decide.
3. ID.; ID.; MUNICIPAL CORPORATION’S POWER TO TAX MUST BE CLEARLY SHOWN. — Although the
scope of municipal taxing power had been enlarged by subsequent legislations, the Court, in Golden Ribbon
Lumber Co. v. City of Butuan, L-18534, December 24, 1964, reaffirmed the traditional concept, thus: "The rule is
well-settled that municipal corporations, unlike sovereign states, are clothed with no power of taxation; that its
charter or a statute must clearly show an intent to confer that power of the municipal corporation cannot assume
and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from
the terms of the grant to be resolved against the municipality."
4. ID.; ID.; DOUBLE TAXATION. — The objection to the taxation as double may be laid down on one side. The
14th Amendment (the due process clause) no more forbids double taxation than it does doubling the amount of
a tax, short of confiscation or proceedings unconstitutional on other grounds.
DECISION
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced
a complaint with preliminary injunction before the Court of First Instance of Leyte for that Court to declare
Section 2 of Republic Act No. 2264, 1 otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the
Municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first,
both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates
imposed therein are practically the same, and second that on January 17, 1963, the acting Municipal Treasurer
of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of
1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle
of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of bottles
produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects
"on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, firm, company, partnership, corporation or plant producing soft drinks shall submit to
the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the
month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax."
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264]; declaring Ordinances Nos. 23 and 27 valid,
legal and constitutional; ordering the plaintiff to pay the taxes due under the oft-said Ordinances; and to pay the
costs."cralaw virtua1aw library
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:chanrob1es virtual 1aw library
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the executive or judicial department
of the government without infringing upon the theory of separation of powers. The exception, however, lies in
the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated
to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By
necessary implication, the legislative power to create political corporations for purposes of local self-government
carries with it the power to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot
be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to
enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant’s pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be
Page 11 of 43
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. 10
This is not to say though that the constitutional injunction against deprivation of property without due process of
law may be passed over under the guise of the taxing power, except when the taking of the property is in the
lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying
the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a
public purpose; a tax is imposed on property outside the State, i.e., extra-territorial taxation; and arbitrary or
oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process
clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a
benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax
to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and
the manner in which it shall be apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the
taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved
the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental
law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution
of the United States and some states of the Union. 14 Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the
same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance Nos. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the
volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal
Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant
in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962.
Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought to
compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264,
is broad enough as to extend to almost "everything, excepting those which are mentioned therein." As long as
the tax levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in
the law, the same comes within the ambit of the general rule, pursuant to the rules of expresio unius est
exclusio alterius, and exceptio firmat regulum in casibus non excepti. 19 The limitation applies, particularly, to
the prohibition against municipalities and municipal districts to impose "any percentage tax on sales or other
taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal
ordinance which prescribes a set ratio between the amount of the tax and the volume of sales of the taxpayer
imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the
imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all
soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage
tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not)
and not on the sales. The volume capacity of the taxpayers production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is no set ratio between the volume of sales and
the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches,
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified
3. The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft drinks,
produced or manufactured, or an equivalent of 1-1/2 centavos per case, 23 cannot be considered unjust and
unfair. 24 An increase in the tax alone would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. 25
This is in line with the constitutional policy of according the widest possible autonomy to local governments in
matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973).
26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or
P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and
dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,
Leyte, series of 1962, repealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.
SO ORDERED.
Separate Opinions
FERNANDO, J., concurring:chanrob1es virtual 1aw library
The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am certainly in
agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local
Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a
different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless, it is
well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications
Page 12 of 43
that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny
question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes, subject to such limitations as may be provided by law. "2 That was
not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the
national government, was that while the President of the Philippines was vested with the power of control over
all executive departments, bureaus, or offices, he could only "exercise general supervision over all local
governments as may be provided by law . . ." 3 As far as legislative power over local government was
concerned, no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore
that the extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was
a statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was
further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its
enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal corporations,
unlike sovereign states, are clothed with no power of taxation; that its charter or a statute must clearly show an
intent to confer that power or the municipal corporation cannot assume and exercise it; and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved
against the municipality." 7 Taxation, according to Justice Paredes in the earlier case of Tan v. Municipality of
Pagbilao, 8 "is an attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt
either as to weakness of a claim "based merely by inferences, implications and deductions [as they] have no
place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result.
2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine
announced by this Court in City of Baguio v. De Leon. 11 Thus "As to why double taxation is not violative of due
process, Justice Holmes made clear in this language: ‘The objection to the taxation as double may be laid down
on one side. . . . The 14th Amendment [the due process clause] no more forbids double taxation than it does
doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds.’ With that
decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more
than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a
constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us,
its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947 decision, however, we quoted
with approval this excerpt from a leading American decision: ‘Where, as here, Congress has clearly expressed
its intention, the statute must be sustained even though double taxation results.’" 12
So I would view the issues in this suit and accordingly concur in the result.
[G.R. No. L-10405. December 29, 1960.]
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner and
appellant, v. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents and
appellees.
SYLLABUS
1. CONSTITUTIONAL LAW; LEGISLATIVE POWERS; APPROPRIATION OF PUBLIC REVENUES ONLY FOR
PUBLIC PURPOSES; WHAT DETERMINES VALIDITY OF A PUBLIC EXPENDITURE. — "It is a general rule
that the legislature is without power to appropriate public revenues for anything but a public purpose. . . . It is the
essential character of the direct object of the expenditure which must determine its validity as justifying a tax
and not the magnitude of the interests to be affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to
the public or to the state, which results from the promotion of private interests, and the prosperity of private
enterprises or business, does not justify their aid by the use of public money." (23 R. L. C. pp. 398-450).
2. ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE. — Generally, under the express or implied provisions
of the constitution, public funds may be used only for a public purpose. The right of the legislature to appropriate
public funds is correlative with its right to tax, and, under constitutional provisions against taxation except for
public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another
purpose, no appropriate of state funds can be made for other than a public purpose. (81 C.J.S. p. 1147).
3. ID.; ID.; ID.; TEST OF CONSTITUTIONALITY. — The test of the constitutionality of a statute requiring the
use of public funds is whether the statute is designed to promote the public interests, as opposed to the
furtherance of the advantage of individuals, although such advantage to individuals might incidentally serve the
public. (81 C.J.S. p. 1147).
4. ID.; ID.; ID.; ID.; POWERS OF CONGRESS AT THE TIME OF PASSAGE OF A STATUTE SHOULD BE
CONSIDERED. — The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consist of an
amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by
said statute.
5. ID.; ID.; ID.; APPROPRIATION FOR A PRIVATE PURPOSE NULL AND VOID; SUBSEQUENT DONATION
TO GOVERNMENT NOT CURATIVE OF DEFECT. — Where the land on which projected feeder roads are to
be constructed belongs to a private person, an appropriation made by Congress for that purpose is null and
void, and a donation to the Government, made over five (5) months after the approval and effectivity of the Act
for the purpose of giving a "semblance of legality" to the appropriation, does not cure the basic defect.
Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of
said appropriation.
6. ID.; ID.; ID.; ID.; RIGHT OF TAXPAYERS TO CONTEST CONSTITUTIONALITY OF A LEGISLATION. —
The relation between the people of the Philippines and its taxpayers, on the one hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers
of each state and the government thereof, except that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and
unitary type of our national government is not subject to limitations analogous to those imposed by the Federal
Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of
the states of the Union. For this reason, the rule recognizing the right of taxpayers to assailed the
constitutionality of a legislation appropriating local or state public funds - which has been upheld by the Federal
Supreme Court (Crampton v. Zabriskie, 101 U.S. 601) - has greater application in the Philippines than that
adopted with respect to acts of Congress of the United States appropriating federal funds.
7. CONTRACTS; DEFENSE OF ILLEGALITY; EXCEPTIONS TO ARTICLE 1421 OF THE CIVIL CODE. —
Article 1421 of the Civil Code is subject to exceptions. For instance, the creditors of a party to an illegal contract
may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter,
except only those which are inherent in his person, including his right to the annulment of said contract, even
though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.
DECISION
CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the
above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for
declaratory relief, with injunction upon the ground that Republic Act No. 920, entitled An Act Appropriating
Page 13 of 43
Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of
P85,000.00, "for the construction, reconstruction, repair, extension and improvement" of "Pasig feeder road
terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen. Capinpin — Gen. Segundo — Gen. Delgado
— Gen. Malvar — Gen. Lim)" ; that, at the time of the passage and approval of said Act, the aforementioned
feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the
Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, nor far away from the intersection between the latter and Highway 54),
which projected feeder roads "do not connect any government property or any important premises to the main
highway" ; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were
to be constructed) were private respondent Jose C. Zulueta, who, at the time of the passage and approval of
said Act, was a member of the Senate of the Philippines; that on May 29, 1953, respondent Zulueta, addressed
a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to change the names of two of them" ;
that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953,
respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act No.
920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder reads in
question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer
of Rizal, who, up to the present "has not made any endorsement thereon" ; that inasmuch as the projected
feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920,
the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and
improvement of said projected feeder roads, was "illegal and, therefore, void ab initio" ; that said appropriation
of P85,000.00 was made by Congress because its members were made to believe that the projected feeder
roads in question were "public roads and not private streets of a private subdivision" ; that, "in order to give a
semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondent Zulueta
executed, on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation — copy of which is annexed to the petition — of the four (4) parcels of land constituting said project
feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation
was on the same date, accepted by the ten Executive Secretary; that being subject to an onerous condition,
said donation partook of the nature of a contract; that, such, said donation violated the provision of our
fundamental law prohibition members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the
construction of the projected feeder roads in question with public funds would greatly enhance or increase the
value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of
constructing his subdivision streets or roads at his own expense" ; that the construction of said projected feeder
roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court,
the respondents would continue to execute, comply with, follow and implement the aforementioned illegal
provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino
nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the
alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefore, illegal" ;
that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of
the Bureau of Public Works, the Commissioner of the Bureau of Public Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and
securing any new and further releases on the aforementioned item of Republic Act No. 926 and the disbursing
officers of the Department of Public Works and Communications, the Bureau of Public Works and the Bureau of
Public Highways from making any further payments out of said funds provided for in Republic Act No. 920; and
that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned
parties respondent from making and securing any new and further releases on the aforesaid item of Republic
Act No. 920 and from making any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and
that the petition did "not state a cause of action." In support to this motion, respondent Zulueta alleged that the
Provincial Fiscal of Rizal, not its provincial governor, should represent the Province Administrative Code; that
said respondent "not aware of any law which makes illegal the appropriation of public funds for the improvement
of . . . private proper" ; and that, the constitutional provision invoked by petitioner inapplicable to the donation in
question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that
petitioner could not assail the appropriation in question because "there is no actual bona fide case . . . in which
the validity of Republic Act No. 920 is necessarily involved and petitioner "has not shown that he has a personal
and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motion to dismiss, the lower court rendered the aforementioned decision, dated October 29,
1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the
provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power to
appropriate public revenues for anything but a public purpose", that the construction and improvement of the
feeder roads in question, if such roads were private property, would not be a public purpose; that, being subject
to the following condition:
"The within donation is hereby made upon the condition that the Government of the Republic of the Philippines
will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it
being expressly understood that should the Government of the Republic of the Philippines violate the condition
hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the
DONOR, JOSE C. ZULUETA." (Italics supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden
by the Constitution" and consequently illegal", for Article 1409 of the Civil Code of the Philippines, declares in
existent and void from the very beginning contracts "whose cause, object or purpose is contrary to law,
morals . . . or public policy" ; that the legality of said donation may not be contested, however, by petitioner
herein, because his "interests are not directly affected" thereby; and that, accordingly, the appropriation in
question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to
dismiss, which as such, are deemed to have admitted hypothetically the allegations of fact made in the petition
of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential
land, situated in Pasig Rizal, and known as the Antonio Subdivision, certain portions of which had been
reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said
respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said feeder roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent
Zulueta of the burden of constructing its subdivision streets or roads at his own expenses, 1 and would greatly
enhance or increase the value of the subdivision" of said Respondent. The lower court held that under these
circumstances, the appropriation in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2 However, respondent Zulueta
contended, in his motion to dismiss that:
"A law passed by Congress and approved by the President can never be illegal because Congress is the source
of all laws . . . . Aside from the fact that the movant is not aware of any law which makes illegal the appropriation
of public funds for the improvement of what we, in the meantime, may assume as private property . . . ." (Record
on Appeal, pp. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government
established under the Constitution of the Philippines and the system of checks and balances underlying our
Page 14 of 43
political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative enactments
deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a private purpose the principle according to
Ruling Case Law, is this:
"It is a general rule that the legislature is without power to appropriate public revenue for anything but a public
purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity
as justifying a tax, and not the magnitude of the interests to be affected nor the degree to which the general
advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.
Incidental advantage to the public or to the state, which results from the promotion of private interests and the
prosperity of private enterprises or business, does not justify their aid by the use of public money." (25 R.L.C.
pp. 398-400; Italics supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
"In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra
sec. 14, money raised by taxation can be expanded only for public purposes and not for the advantage of
private individuals." (85 C.J.S. pp. 645-646; Italics supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
"Generally, under the express or implied provisions of the constitution, public funds may be used for a public
purpose. The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional
provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and
the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public
purpose. . .
x       x       x
"The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed
to promote the public interests, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. . . ." (81 C.J.S. p. 1147; Italics supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound,
are a necessary corollary to our democratic system of government, which, as such, exists primarily for the
promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United
States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise,
part and parcel of our own constitutional law.
This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground
that petitioner may not contest the legality of the donation above referred to because the same does not affect
him directly. This conclusion is, presumably, based upon the following premises namely: (1) that, if valid, said
donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be
annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth
in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon
events occupying, or acts performed, subsequently thereto, unless the latter consist of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof
depended upon whether said roads were public or private property when the bill, which, later on, became
Republic Act No. 920, was passed by Congress, or when said bill was approved by the President and the
disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the
land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the
result is that said appropriation sought a private purpose, and, hence, was null and void. 4 The donation to the
Government, over five (5) months after the approval and effectivity of said Act, made according to the petition,
for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For
instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said
Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including,
therefore, his right to the annulment of said contract, even though such creditors are not affected by the same,
except indirectly, in the manner indicated in said legal provision.
Again, it is well settled that the validity of a statute may be contested only by one who will sustain a direct injury
in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws
providing for the disbursement of public funds, 5 upon the theory that "the expenditure of public funds by an
officer of the State for the purpose of administering an unconstitutional act constitutes an misapplication of such
funds," which may be enjoined at the request of a taxpayer. 6 Although there are some decisions to the
contrary, 7 the prevailing view in the United States is stated in the American Jurisprudence as follows:j
"In the determination of the degree of interest essential to give the requisite standing to attack the
constitutionality of a statute the general rule is that only persons individually affected, but also taxpayers, have
sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question
the constitutionality of statutes requiring expenditure of public moneys." (11 Am. Jur. 761; Italics supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham v. Mellon (262 U.S. 447),
insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its
Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed,
under the composite system of government existing in the U.S., states of the Union are integral part of the
Federation from an international viewpoint, but, each state enjoys internally a substantial measure of
sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the former
represented the people of the respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become
binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between said people and the
Federal Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the
people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct
(Article II, section 2, of the Federal Constitution).
The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its
Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers
of each state and the government thereof, except that the authority of the Republic of the Philippines over the
people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and
unitary type of our national government is not subject to limitations analogous to those imposed by the Federal
Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of
the states of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality
of a legislation appropriating local or state public funds — which has been upheld by the Federal Supreme Court
(Crampton v. Zabriskie, 101 U.S. 601) — has greater application in the Philippines than that adopted with
Page 15 of 43
respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas v. Perez (56 Phil., 257), involving the expropriation of a land by the Province
of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being
paid to the owner thereof, as unduly exorbitant. It is true that in Custodio v. President of the Senate (42 Off.
Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of
an appropriation for backpay of members of Congress. However, in Rodriguez v. Treasurer of the Philippines
and Barredo v. Commission on Election (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover,
the reason that impelled this Court to take such position in said two (2) cases — the importance of the issues
therein raised — is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases,
petitioner herein is not merely a taxpayer. The province of Rizal, which he represents officially as it Provincial
Governor, is our most populated political subdivision, 7 and, the taxpayers therein bear a substantial portion of
the burden of taxation, in the Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioner’s
action in contesting the appropriation and donation in question; that this action should not have been dismissed
by the lower court; and that the writ of preliminary injunction should have been maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for
further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose
C. Zulueta. It is so ordered.

Page 16 of 43
G.R. No. L-7859        December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to
our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and
the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar,
on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in
control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or
otherwise —
a tax equivalent to the difference between the money value of the rental or consideration collected and the
amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law —
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be
known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following
purposes or to attain any or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial
position of the Philippine sugar in the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets
of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof — the
mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field — so that all
might continue profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions:
Provided, That the President of the Philippines may, until the adjourment of the next regular session of the
National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the
recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the
Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol
from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f)
to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on
other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the
improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize
the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the
purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of
the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes,
under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act,
section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No.
567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in
full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation,
sugar occupying a leading position among its export products; that it gives employment to thousands of laborers
in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign
exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State
ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —
The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such
an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject
only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law
(above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for
Page 17 of 43
their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. &
Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477;
M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint;
indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out
of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern
Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most
felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that
"the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R.
B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of
allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations,
without any part of such money being channeled directly to private persons, constitutes expenditure of tax
money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Page 18 of 43
G.R. No. L-23645            October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity
as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act 2631,2 which
provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period from
August nineteen to September thirty every year the printing and issue of semi-postal stamps of different
denominations with face value showing the regular postage charge plus the additional amount of five centavos
for the said purpose, and during the said period, no mail matter shall be accepted in the mails unless it bears
such semi-postal stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall constitute a special
fund and be deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative
orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September 30, 1957,
for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and another at "10 + 5"
centavos, will soon be released for use by the public on their mails to be posted during the same period starting
with the year 1958.
xxx           xxx           xxx
During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever class,
and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in this country
or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp showing the
additional value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage
meters, each piece of such mail shall bear at least one such semi-postal stamp if posted during the period
above stated starting with the year 1958, in addition to being charged the usual postage prescribed by existing
regulations. In the case of business reply envelopes and cards mailed during said period, such stamp should be
collected from the addressees at the time of delivery. Mails entitled to franking privilege like those from the office
of the President, members of Congress, and other offices to which such privilege has been granted, shall each
also bear one such semi-postal stamp if posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes without
the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling for the affixing
of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable and forwarded to the
Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such extra
charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued, instead of
affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. — Aside from the postage at the second-class rate, the extra charge of five centavos for
the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of second-class mail
matter, and the total sum thus collected shall be entered in the same official receipt to be issued for the postage
at the second-class rate. In making such entry, the total number of pieces of second-class mail posted shall be
stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered separate
from the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. — Mails to be posted without postage affixed under permits issued by
this Bureau shall each be charged the usual postage, in addition to the five-centavo extra charge intended for
said society. The total extra charge thus received shall be entered in the same official receipt to be issued for
the postage collected, as in subparagraph 1.
3. Metered mail. — For each piece of mail matter impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an official
receipt issued for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. — Upon delivery of business reply cards and envelopes to holders of
business reply permits, the five-centavo charge intended for said society shall be collected in cash on each
reply card or envelope delivered, in addition to the required postage which may also be paid in cash. An official
receipt shall be issued for the total postage and total extra charge received, in the manner shown in
subparagraph 1.
5. Mails entitled to franking privilege. — Government agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash such extra charge intended for said society, instead of
affixing the semi-postal stamps to their mails, provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be collected on each piece of such mail matter. In
such case, an official receipt shall be issued for the total sum thus collected, in the manner stated in
subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be affixed
with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be treated in the
same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended,
Page 19 of 43
exempts "copies of periodical publications received for mailing under any class of mail matter, including
newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the
petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and
equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by
the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory
relief is unavailing because this suit was filed after the petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of
Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that
under section 6 of Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation
of ... a statute ... should take place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of
the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the
court to treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs
after the filing of the action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action,
then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an
ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach
of the statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in
terms provides that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It
does not follow, however, that only postal authorities can be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are people
who use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a
breach of the law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not
only with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail
that he might send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other
mails without the semi-postal stamps which he may deliver for mailing ... if any, during the period covered by
Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to other mailers which bear
the required postage, without collection of additional charge of five centavos prescribed by the same Republic
Act." As one whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the
statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the
claim is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest
of the population and that even among postal patrons the statute discriminatorily grants exemption to
newspapers while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to
offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon
the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it
must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to
grant exemptions.4 This power has aptly been described as "of wide range and flexibility."5 Indeed, it is said that
in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some reasonable relationship to the end sought to be attained,
and that absent such relationship the selection of mail users is constitutionally impermissible. This is altogether
a different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the legislation
and its purpose is undoubtedly true in some contexts, it has no application to a measure whose sole purpose is
to raise revenue ... So long as the classification imposed is based upon some standard capable of reasonable
comprehension, be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527,
79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that
it sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation
must be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on
ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the
tax burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by those
whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled
principle of law that "consideration of practical administrative convenience and cost in the administration of tax
laws afford adequate ground for imposing a tax on a well recognized and defined class." 9 In the case of the anti-
TB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select
mail users as subjects of the tax is the relative ease and convenienceof collecting the tax through the post
offices. The small amount of five centavos does not justify the great expense and inconvenience of collecting
through the regular means of collection. On the other hand, by placing the duty of collection on postal authorities
the tax was made almost self-enforcing, with as little cost and as little inconvenience as possible.
Page 20 of 43
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were
already a class by themselves even before the enactment of the statue and all that the legislature did was
merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than
reflects a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact
is living law; to disregard [them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been thought
of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law
and administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The
application of the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable
in the light of differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to
foster what it conceives to be a beneficent enterprise. 11 This is the case of newspapers which, under the
amendment introduced by Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty,
is to be strictly construed. 12 Administrative Order 9 of the respondent Postmaster General, which lists the
various offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal
protection that all evils of the same genus be eradicated or none at all.13 As this Court has had occasion to say,
"if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public
purpose as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of
uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit
to a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the
taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes to public purposes. Any other view would
preclude the levying of taxes except as they are used to compensate for the burden on those who pay them and
would involve the abandonment of the most fundamental principle of government — that it exists primarily to
provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We
have said that considerations of administrative convenience and cost afford an adequate ground for
classification. The same considerations may induce the legislature to impose a flat tax which in effect is a
charge for the transaction, operating equally on all persons within the class regardless of the amount
involved.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two
cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of the tax,
so far as actual values are concerned, is manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of ascertaining a stamp tax. In another
sense, moreover, there is equality. When the taxes on two sales are equal, the same number of shares is sold
in each case; that is to say, the same privilege is used to the same extent. Valuation is not the only thing to be
considered. As was pointed out by the court of appeals, the familiar stamp tax of 2 cents on checks, irrespective
of income or earning capacity, and many others, illustrate the necessity and practice of sometimes substituting
count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor
General points out, the Society is not really the beneficiary but only the agency through which the State acts in
carrying out what is essentially a public function. The money is treated as a special fund and as such need not
be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid
in cash instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period
August 19 to September 30 of each year in mail boxes without the stamp should be returned to the sender, if
known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of anti-
TB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster General to raise funds through the mails must be liberally
construed, consistent with the principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge
but also that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their cards would be to make them pay much more because the cards
likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB
stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semi-
postal stamp" is a declaration that such mail matter is nonmailable within the meaning of section 1952 of the
Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9, we have already said that in listing
the offices and entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to
costs.
Separate Opinions
FERNANDO, J., concurring:
Page 21 of 43
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by Republic
Act No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and lucidity subject to one
qualification. With all due recognition of its inherently persuasive character, it would seem to me that the same
result could be achieved if reliance be had on police power rather than the attribute of taxation, as the
constitutional basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the performance of the
public service. I refer of course to the government postal function, one of respectable and ancient lineage. The
United States Constitution of 1787 vests in the federal government acting through Congress the power to
establish post offices.1 The first act providing for the organization of government departments in the Philippines,
approved Sept. 6, 1901, provided for the Bureau of Post Offices in the Department of Commerce and Police. 2 Its
creation is thus a manifestation of one of the many services in which the government may engage for public
convenience and public interest. Such being the case, it seems that any legislation that in effect would require
increase cost of postage is well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the mails, the
broad discretion that it enjoys is undeniable. In that sense, the principle announced in Esteban v. Cabanatuan
City,3 in an opinion by our Chief Justice, while not precisely controlling furnishes for me more than ample
support for the validity of the challenged legislation. Thus: "Certain exactions, imposable under an authority
other than police power, are not subject, however, to qualification as to the amount chargeable, unless the
Constitution or the pertinent laws provide otherwise. For instance, the rates of taxes, whether national or
municipal, need not be reasonable, in the absence of such constitutional or statutory limitation. Similarly, when
a municipal corporation fixes the fees for the use of its properties, such as public markets, it does not wield the
police power, or even the power of taxation. Neither does it assert governmental authority. It exercises merely a
proprietary function. And, like any private owner, it is — in the absence of the aforementioned limitation, which
does not exist in the Charter of Cabanatuan City (Republic Act No. 526) — free to charge such sums as it may
deem best, regardless of the reasonableness of the amount fixed, for the prospective lessees are free to enter
into the corresponding contract of lease, if they are agreeable to the terms thereof or, otherwise, not enter into
such contract."
2. It would appear likewise that an expression of one's personal view both as to the attitude and awareness that
must be displayed by inferior tribunals when the "delicate and awesome" power of passing on the validity of a
statute would not be inappropriate. "The Constitution is the supreme law, and statutes are written and enforced
in submission to its commands."4 It is likewise common place in constitutional law that a party adversely
affected could, again to quote from Cardozo, "invoke, when constitutional immunities are threatened, the
judgment of the courts."5
Since the power of judicial review flows logically from the judicial function of ascertaining the facts and applying
the law and since obviously the Constitution is the highest law before which statutes must bend, then inferior
tribunals can, in the discharge of their judicial functions, nullify legislative acts. As a matter of fact, in clear
cases, such is not only their power but their duty. In the language of the present Chief Justice: "In fact,
whenever the conflicting claims of the parties to a litigation cannot properly be settled without inquiring into the
validity of an act of Congress or of either House thereof, the courts have, not only jurisdiction to pass upon said
issue but, also, the duty to do so, which cannot be evaded without violating the fundamental law and paving the
way to its eventual destruction."6
Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in mind.
Thus: "It must be evident to any one that the power to declare a legislative enactment void is one which the
judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case, to
paraphrase Freund, when the challenged legislation imperils freedom of the mind and of the person, for given
such an undesirable situation, "it is freedom that commands a momentum of respect." Here then, fidelity to the
great ideal of liberty enshrined in the Constitution may require the judiciary to take an uncompromising and
militant stand. As phrased by us in a recent decision, "if the liberty involved were freedom of the mind or the
person, the standard of its validity of governmental acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the controlling constitutional
doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found in the majority
opinion. It may not be amiss to recall to mind, however, the language of Justice Laurel in the leading case
of People v. Vera,9 to the effect that the basic individual right of equal protection "is a restraint on all the three
grand departments of our government and on the subordinate instrumentalities and subdivisions thereof, and on
many constitutional powers, like the police power, taxation and eminent domain." 10 Nonetheless, no jurist was
more careful in avoiding the dire consequences to what the legislative body might have deemed necessary to
promote the ends of public welfare if the equal protection guaranty were made to constitute an insurmountable
obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from the various
citations from his pen found in the majority opinion. For him, it would be a misreading of the equal protection
clause to ignore actual conditions and settled practices. Not for him the at times academic and sterile approach
to constitutional problems of this sort. Thus: "It would be a narrow conception of jurisprudence to confine the
notion of 'laws' to what is found written on the statute books, and to disregard the gloss which life has written
upon it. Settled state practice cannot supplant constitutional guaranties, but it can establish what is state law.
The Equal Protection Clause did not write an empty formalism into the Constitution. Deeply embedded
traditional ways of carrying out state policy, such as those of which petitioner complains, are often tougher and
truer law than the dead words of the written text." 11 This too, from the same distinguished jurist: "The
Constitution does not require things which are different in fact or opinion to be treated in law as though they
were the same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative power at times
occasions difficulties. Its strict view has been announced by Justice Laurel in the aforecited case of People v.
Vera in this language. Thus: "In testing whether a statute constitutes an undue delegation of legislative power or
not, it is usual to inquire whether the statute was complete in all its terms and provisions when it left the hands
of the legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature. .... In United States v. Ang Tang Ho ..., this court adhered to the foregoing rule; it held an act of the
legislature void in so far as it undertook to authorize the Governor-General, in his discretion, to issue a
proclamation fixing the price of rice and to make the sale of it in violation of the proclamation a crime."13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor General,14 specially
where the delegation deals not with an administrative function but one essentially and eminently legislative in
character. What could properly be stigmatized though to quote Justice Cardozo, is delegation of authority that is
"unconfined and vagrant, one not canalized within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not legislative in character.
Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted that within certain limits, there being a
need for coping with the more intricate problems of society, the principle of "subordinate legislation" has been
accepted, not only in the United States and England, but in practically all modern governments. This view was
reiterated by him in a 1940 decision, Pangasinan Transportation Co., Inc. v. Public Service Commission.17 Thus:
"Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental
Page 22 of 43
regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward
the delegation of greater powers by the legislature, and toward the approval of the practice by the courts."

In the light of the above views of eminent jurists, authoritative in character, of both the equal protection clause
and the non-delegation principle, it is apparent how far the lower court departed from the path of constitutional
orthodoxy in nullifying Republic Act No. 1635 as amended. Fortunately, the matter has been set right with the
reversal of its decision, the opinion of the Court, manifesting its fealty to constitutional law precepts, which have
been reiterated time and time again and for the soundest of reasons.

Page 23 of 43
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, respondents.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other
videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram
industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and
took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No.
1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection of their rights and
that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The
Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes,
discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of
moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent
(40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes,
thereby resulting in substantial losses estimated at P450 Million annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales
and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the
movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and
theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an
environment conducive to growth and development of all business industries, including the movie industry which
has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for
their livelihood, but also provide an additional source of revenue for the Government, and at the same time
rationalize the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and
present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for
the State to support the rearing of the youth for civic efficiency and the development of moral character and
promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying
the national economic recovery program, bold emergency measures must be adopted with dispatch; ...
(Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a
RIDER and the same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due
process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by
Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the
title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to
the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general
subject and title. 2 An act having a single general subject, indicated in the title, may contain any number of
Page 24 of 43
provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the method and means
of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given
practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without
merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
x x x           x x x          x x x
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and
title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the
DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and
rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra.
Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE,
which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes
expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in
restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a
tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any
reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve
resolution of the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other
agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control
of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize
the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without
adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories,
one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the
law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the
DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including videotapes,
discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the
videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for private showing and/or public
exhibition.
Page 25 of 43
raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of WHEREFORE, the instant Petition is hereby dismissed.
any videogram cannot be presented and thus partakes of the nature of an ex post facto law.
No costs.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15
SO ORDERED.
... it is now well settled that "there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of human
conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People
vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved that they
shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof provided
there be a rational connection between the facts proved and the ultimate facts presumed so that the inference of
the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the
two in common experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the
fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are
required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On
the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax
imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the
DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a
statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender
should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired
the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise
insofar as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find
no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.

Page 26 of 43
 [ G.R. No. 168056, September 01, 2005 ]
ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS SAMSON S. ALCANTARA AND ED
VINCENT S. ALBANO, PETITIONERS, VS. THE HONORABLE EXECUTIVE SECRETARY EDUARDO
ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; AND
HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., RESPONDENTS.
[G.R. NO. 168207]
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, PETITIONERS, VS.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE,
RESPONDENTS.
[G.R. NO. 168461]
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. REPRESENTED BY ITS PRESIDENT, ROSARIO
ANTONIO; PETRON DEALERS’ ASSOCIATION REPRESENTED BY ITS PRESIDENT, RUTH E. BARBIBI;
ASSOCIATION OF CALTEX DEALERS’ OF THE PHILIPPINES REPRESENTED BY ITS PRESIDENT,
MERCEDITAS A. GARCIA; ROSARIO ANTONIO DOING BUSINESS UNDER THE NAME AND STYLE OF
“ANB NORTH SHELL SERVICE STATION”; LOURDES MARTINEZ DOING BUSINESS UNDER THE NAME
AND STYLE OF “SHELL GATE – N. DOMINGO”; BETHZAIDA TAN DOING BUSINESS UNDER THE NAME
AND STYLE OF “ADVANCE SHELL STATION”; REYNALDO P. MONTOYA DOING BUSINESS UNDER THE
NAME AND STYLE OF “NEW LAMUAN SHELL SERVICE STATION”; EFREN SOTTO DOING BUSINESS
UNDER THE NAME AND STYLE OF “RED FIELD SHELL SERVICE STATION”; DONICA CORPORATION
REPRESENTED BY ITS PRESIDENT, DESI TOMACRUZ; RUTH E. MARBIBI DOING BUSINESS UNDER
THE NAME AND STYLE OF “R&R PETRON STATION”; PETER M. UNGSON DOING BUSINESS UNDER
THE NAME AND STYLE OF “CLASSIC STAR GASOLINE SERVICE STATION”; MARIAN SHEILA A. LEE
DOING BUSINESS UNDER THE NAME AND STYLE OF “NTE GASOLINE & SERVICE STATION”; JULIAN
CESAR P. POSADAS DOING BUSINESS UNDER THE NAME AND STYLE OF “STARCARGA
ENTERPRISES”; ADORACION MAÑEBO DOING BUSINESS UNDER THE NAME AND STYLE OF “CMA
MOTORISTS CENTER”; SUSAN M. ENTRATA DOING BUSINESS UNDER THE NAME AND STYLE OF
“LEONA’S GASOLINE STATION AND SERVICE CENTER”; CARMELITA BALDONADO DOING BUSINESS
UNDER THE NAME AND STYLE OF “FIRST CHOICE SERVICE CENTER”; MERCEDITAS A. GARCIA
DOING BUSINESS UNDER THE NAME AND STYLE OF “LORPED SERVICE CENTER”; RHEAMAR A.
RAMOS DOING BUSINESS UNDER THE NAME AND STYLE OF “RJRAM PTT GAS STATION”; MA. ISABEL
VIOLAGO DOING BUSINESS UNDER THE NAME AND STYLE OF “VIOLAGO-PTT SERVICE CENTER”;
MOTORISTS’ HEART CORPORATION REPRESENTED BY ITS VICE-PRESIDENT FOR OPERATIONS,
JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION REPRESENTED BY ITS VICE-
PRESIDENT FOR OPERATIONS, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION
REPRESENTED BY ITS VICE-PRESIDENT FOR OPERATIONS, JOSELITO F. FLORDELIZA; PHILIPPINE
STANDARD OIL CORPORATION REPRESENTED BY ITS VICE-PRESIDENT FOR OPERATIONS,
JOSELITO F. FLORDELIZA; ROMEO MANUEL DOING BUSINESS UNDER THE NAME AND STYLE OF
“ROMMAN GASOLINE STATION”; ANTHONY ALBERT CRUZ III DOING BUSINESS UNDER THE NAME
AND STYLE OF “TRUE SERVICE STATION”, PETITIONERS, VS. CESAR V. PURISIMA, IN HIS CAPACITY
AS SECRETARY OF THE DEPARTMENT OF FINANCE AND GUILLERMO L. PARAYNO, JR., IN HIS
CAPACITY AS COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. NO. 168463]
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO
G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI AND TEODORO A. CASIÑO, PETITIONERS, VS. CESAR V. PURISIMA, IN HIS
CAPACITY AS SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., IN HIS CAPACITY AS
COMMISSIONER OF INTERNAL REVENUE, AND EDUARDO R. ERMITA, IN HIS CAPACITY AS
EXECUTIVE SECRETARY, RESPONDENTS.
[G.R. NO. 168730]
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. PETITIONER, VS. HON. EDUARDO R. ERMITA, IN HIS
CAPACITY AS THE EXECUTIVE SECRETARY; HON. MARGARITO TEVES, IN HIS CAPACITY AS
SECRETARY OF FINANCE; HON. JOSE MARIO BUNAG, IN HIS CAPACITY AS THE OIC COMMISSIONER
OF THE BUREAU OF INTERNAL REVENUE; AND HON. ALEXANDER AREVALO, IN HIS CAPACITY AS
THE OIC COMMISSIONER OF THE BUREAU OF CUSTOMS, RESPONDENTS.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments
for health workers, and wider coverage for full value-added tax benefits … these are the reasons why Republic
Act No. 9337 (R.A. No. 9337)[1] was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate
Bill No. 1950.
House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its “mother bill” is House Bill No. 3555.
The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified
it as urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading
on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on March 7, 2005, “in
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705.”
Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the
Page 27 of 43
bill on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No.
3705, and Senate Bill No. 1950, “after having met and discussed in full free and conference,” recommended the
approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing
thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court issued a temporary
restraining order, effective immediately and continuing until further orders, enjoining respondents from enforcing
and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1,
2005, to wit:
: . . . But before I go into the details of your presentation, let me just tell you a little
background. You know when the law took effect on July 1, 2005, the Court issued a TRO
at about 5 o’clock in the afternoon. But before that, there was a lot of complaints aired on
television and on radio. Some people in a gas station were complaining that the gas
J. PANGANIBAN prices went up by 10%. Some people were complaining that their electric bill will go up
by 10%. Other times people riding in domestic air carrier were complaining that the
prices that they’ll have to pay would have to go up by 10%. While all that was being
aired, per your presentation and per our own understanding of the law, that’s not true. It’s
not true that the e-vat law necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
: It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
ATTY. BANIQUED
companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
: As a matter of fact a part of the mitigating measures would be the elimination of the
J. PANGANIBAN Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to
petroleum dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the
E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would
probably be in the neighborhood of 7%? We are not going into exact figures I am just
trying to deliver a point that different industries, different products, different services are
hit differently. So it’s not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
: Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a
J. PANGANIBAN
mitigating measure. So, therefore, there is no justification to increase the fares by 10% at
best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
: There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And that’s one reason among many others this Court had to
issue TRO because of the confusion in the implementation. That’s why we added as an
issue in this case, even if it’s tangentially taken up by the pleadings of the parties, the
J. PANGANIBAN confusion in the implementation of the E-vat. Our people were subjected to the mercy of
that confusion of an across the board increase of 10%, which you yourself now admit
and I think even the Government will admit is incorrect. In some cases, it should be 3%
only, in some cases it should be 6% depending on these mitigating measures and the
location and situation of each product, of each service, of each company, isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
: Alright. So that’s one reason why we had to issue a TRO pending the clarification of all
J. PANGANIBAN these and we wish the government will take time to clarify all these by means of a more
detailed implementing rules, in case the law is upheld by this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on
May 27, 2005. They question 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 uniform
proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to
12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has 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 (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
Page 28 of 43
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in
the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the
people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are
unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to
be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year,
should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the “no-amendment rule” upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable
goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT
components, exceeds One Million Pesos (P1, 000,000.00);
Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax
2)
to be credited against the output tax; and
Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
3) withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process
of law. Petitioners further contend that like any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is
not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of
the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition for
certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation
1)
of Article VI, Section 28(2) of the Constitution;
The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions
2)
present in Senate Bill No. 1950 and House Bill No. 3705; and
Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,
[7]
 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI,
3)
Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows
VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax
collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further
claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA 630 (1994), respondents argue that the
procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of
revenue measures and the power of the Senate concomitant thereto, have already been settled. With regard to
the issue of undue delegation of legislative power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to increase the rate to 12% once any of the two
conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A
reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
1. Article VI, Section 24, and
2. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
Page 29 of 43
 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
the NIRC, violate the following provisions of the Constitution: authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No.
1. Article VI, Section 28(1), and 9337;
2. Article VI, Section 28(2)
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate
against the output tax; and
the following provisions of the Constitution:
1. Article VI, Section 28(1), and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds
2. Article III, Section 1
of taxes in addition to the value-added tax.
RULING OF THE COURT
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body
the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
for, as unerringly elucidated by Justice Story, “[i]f the power did not exist, it would be utterly impracticable
to transact the business of the nation, either at all, or at least with decency, deliberation, and
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
order.”[19] Thus, Article VI, Section 16 (3) of the Constitution provides that “each House may determine the rules
properties and services.[8] Being an indirect tax on expenditure, the seller of goods or services may pass on the
of its proceedings.” Pursuant to this inherent constitutional power to promulgate and implement its own rules of
amount of tax paid to the buyer,[9] with the seller acting merely as a tax collector.[10] The burden of VAT is
procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
intended to fall on the immediate buyers and ultimately, the end-consumers.
Committee.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
in, without transferring the burden to someone else.[11] Examples are individual and corporate income taxes,
Sec. 88. Conference Committee. – In the event that the House does not agree with the
transfer taxes, and residence taxes.[12]
Senate on the amendment to any bill or joint resolution, the differences may be settled by the
conference committees of both chambers.
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax computed under the “cost deduction method” and was
In resolving the differences with the Senate, the House panel shall, as much as possible,
payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the
adhere to and support the House Bill. If the differences with the Senate are so substantial
“cost deduction method” and “tax credit method” was used to determine the value-added tax payable.[13] Under
that they materially impair the House Bill, the panel shall report such fact to the House for the
the “tax credit method,” an entity can credit against or subtract from the VAT charged on its sales or outputs the
latter’s appropriate action.
VAT paid on its purchases, inputs and imports.[14]
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed,
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system
sufficiently explicit statement of the changes in or amendments to the subject measure.
was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the “tax credit method.”[15]
...
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No. 8241 or the Improved VAT
Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997,[18] and finally, the presently beleaguered R.A. No. 9337,
The Chairman of the House panel may be interpellated on the Conference Committee
also referred to by respondents as the VAT Reform Act.
Report prior to the voting thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill on third and final reading.
The Court will now discuss the issues in logical sequence.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on
PROCEDURAL ISSUE the provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10) days after their composition. The
I. President shall designate the members of the Senate Panel in the conference committee
with the approval of the Senate.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
Each Conference Committee Report shall contain a detailed and sufficiently explicit
a. Article VI, Section 24, and statement of the changes in, or amendments to the subject measure, and shall be signed by
b. Article VI, Section 26(2) a majority of the members of each House panel, voting separately.

A. The Bicameral Conference Committee A comparative presentation of the conflicting House and Senate provisions and a reconciled
version thereof with the explanatory statement of the conference committee shall be

Page 30 of 43
 attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the
rules of both houses creating the bicameral conference committee are unconstitutional, but whether the
bicameral conference committee has strictly complied with the rules of both houses, thereby remaining
within the jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,[20] the Court En Banc, unanimously reiterated and
emphasized its adherence to the “enrolled bill doctrine,” thus, declining therein petitioners’ plea for the Court to
go behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of bicameral
conference committees, the lack of records of said committees’ proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
and the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the
internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,
[23]
 the Court already made the pronouncement that “[i]f a change is desired in the practice [of the Bicameral
Conference Committee] it must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house.” [24] To date, Congress has not seen it fit
to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the
bicameral conference committee to be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was
a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and
3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As
pointed out in the petitions, said disagreements were as follows:

Striking down such argument, the Court held thus: House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
Under the “enrolled bill doctrine,” the signing of a bill by the Speaker of the House and the With regard to “Stand-By Authority” in favor of President
Senate President and the certification of the Secretaries of both Houses of Congress that it
was passed are conclusive of its due enactment. A review of cases reveals the Court’s
consistent adherence to the rule. The Court finds no reason to deviate from the salutary Provides for 12% VAT in
rule in this case where the irregularities alleged by the petitioners mostly involved the general on sales of goods or
internal rules of Congress, e.g., creation of the 2 nd or 3rd Bicameral Conference properties and reduced rates
Committee by the House. This Court is not the proper forum for the enforcement of for sale of certain locally
these internal rules of Congress, whether House or Senate. Parliamentary rules are manufactured goods and
merely procedural and with their observance the courts have no concern. Whatever petroleum products and raw Provides for a single rate of 10%
Provides for 12% VAT on every
doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in materials to be used in the VAT on sale of goods or
sale of goods or properties
its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: manufacture thereof (amending properties (amending Sec. 106 of
(amending Sec. 106 of NIRC);
But the cases, both here and abroad, in varying forms of expression, Sec. 106 of NIRC); 12% VAT NIRC), 10% VAT on sale of
12% VAT on importation of
all deny to the courts the power to inquire into allegations that, in on importation of goods and services including sale of
goods (amending Sec. 107 of
enacting a law, a House of Congress failed to comply with its own reduced rates for certain electricity by generation
NIRC); and 12% VAT on sale of
rules, in the absence of showing that there was a violation of a imported products including companies, transmission and
services and use or lease of
constitutional provision or the rights of private petroleum products (amending distribution companies, and use or
properties (amending Sec. 108
individuals. In Osmeña v. Pendatun, it was held: “At any rate, courts Sec. 107 of NIRC); and 12% lease of properties (amending
of NIRC)
have declared that ‘the rules adopted by deliberative bodies are subject VAT on sale of services and Sec. 108 of NIRC)
to revocation, modification or waiver at the pleasure of the body adopting use or lease of properties and a
them.’ And it has been said that “Parliamentary rules are merely reduced rate for certain
procedural, and with their observance, the courts have no concern. services including power
They may be waived or disregarded by the legislative body.” generation (amending Sec. 108
Consequently, “mere failure to conform to parliamentary usage will of NIRC)
not invalidate the action (taken by a deliberative body) when the
With regard to the “no pass-on” provision
requisite number of members have agreed to a particular
measure.”[21] (Emphasis supplied) No similar provision Provides that the VAT imposed Provides that the VAT imposed on
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities on power generation and on the sales of electricity by generation
committed by the conference committee in introducing changes or deleting provisions in the House and Senate sale of petroleum products shall companies and services of
bills. Akin to the Fariñas case,[22] the present petitions also raise an issue regarding the actions taken by the be absorbed by generation transmission companies and
conference committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier, companies or sellers, distribution companies, as well as
one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings respectively, and shall not be those of franchise grantees of

Page 31 of 43
 electric utilities shall not apply to 3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
residential end-users. VAT shall Conference Committee decided to adopt the position of the House by putting a limitation on the amount
passed on to consumers be absorbed by generation, of input tax that may be credited against the output tax, although it crafted its own language as to the
transmission, and distribution amount of the limitation on input tax credits and the manner of computing the same by providing thus:
companies. (A) Creditable Input Tax. – . . .
With regard to 70% limit on input tax credit ...
Provides that the input tax credit
for capital goods on which a VAT Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
has been paid shall be equally business for which deduction for depreciation is allowed under this Code, shall be spread evenly
distributed over 5 years or the Provides that the input tax credit over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
depreciable life of such capital for capital goods on which a VAT acquisition cost for such goods, excluding the VAT component thereof, exceeds one million Pesos
goods; the input tax credit for has been paid shall be equally (P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less
goods and services other than distributed over 5 years or the than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over
capital goods shall not exceed No similar provision depreciable life of such capital such shorter period: . . .
5% of the total amount of such goods; the input tax credit for
goods and services; and for goods and services other than (B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the
persons engaged in retail trading capital goods shall not exceed input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
of goods, the allowable input tax 90% of the output VAT. output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that
credit shall not exceed 11% of the input tax inclusive of input VAT carried over from the previous quarter that may be credited in
the total amount of goods every quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER,
purchased. THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, . . .
With regard to amendments to be made to NIRC provisions regarding income and excise taxes 4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and
Provided for amendments to basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
several NIRC provisions regarding tax to be imposed.
No similar provision No similar provision
corporate income, percentage, 5.
franchise and excise taxes Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what Conference Committee is mandated to settle the differences between the disagreeing provisions in the House
rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and bill and the Senate bill. The term “settle” is synonymous to “reconcile” and “harmonize.”[25] To reconcile or
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner provisions in the Senate bill would be carried into the final form of the bill, and/or (c) try to arrive at a
input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, compromise between the disagreeing provisions.
franchise and excise taxes should be amended.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by is wholly foreign to the subject embraced by the original provisions.
settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes: The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two
difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should
highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate be imposed on taxpayers.
would be retained until certain conditions arise, i.e., the value-added tax collection as a percentage of gross
domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
percentage of GDP of the previous year exceeds 1½%, when the President, upon recommendation of the Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006. reason for deleting the no pass-on provision in this wise:
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, . . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking
transmission and distribution companies should not be passed on to consumers or whether both the VAT that no sector should be a beneficiary of legislative grace, neither should any sector be
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of discriminated on. The VAT is an indirect tax. It is a pass on-tax. And let’s keep it plain and
petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to settle simple. Let’s not confuse the bill and put a no pass-on provision. Two-thirds of the world
such disagreement by altogether deleting from its Report any no pass-on provision.
Page 32 of 43
 have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no end to negotiation since each house may seek modification of the compromise bill. . . .
pass-though provision. So, the thinking of the Senate is basically simple, let’s keep the VAT
simple.[26] (Emphasis supplied) Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision “never really enjoyed the the first time in either house of Congress, not to the conference committee report.
support of either House.”[27] [32]
 (Emphasis supplied)
The Court reiterates here that the “no-amendment rule” refers only to the procedure to be followed by
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee each house of Congress with regard to bills initiated in each of said respective houses, before said bill
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the is transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this
cap on input tax that may be redited against the output tax. From the inception of the subject revenue bill in the would mean that the other house of Congress would be deprived of its constitutional power to amend or
House of Representatives, one of the major objectives was to “plug a glaring loophole in the tax policy and introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the
administration by creating vital restrictions on the claiming of input VAT tax credits . . .” and “[b]y introducing introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing
limitations on the claiming of tax credit, we are capping a major leakage that has placed our collection efforts at provisions in bills that have been acted upon by both houses of Congress is prohibited.
an apparent disadvantage.”[28]
C. R.A. No. 9337 Does Not Violate Article VI,
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. Section 24 of the Constitution on Exclusive
1950, since said provisions were among those referred to it, the conference committee had to act on the same Origination of Revenue Bills
and it basically adopted the version of the Senate.
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
subjects of the provisions referred
Section 27 Rates of Income Tax on Domestic Corporation
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to
lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases 28(A)(1) Tax on Resident Foreign Corporation
of Philippine Judges Association vs. Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized
the long-standing legislative practice of giving said conference committee ample latitude for compromising 28(B)(1) Inter-corporate Dividends
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new
34(B)(1) Inter-corporate Dividends
provision that is not found either in the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an “amendment in the nature of a 116 Tax on Persons Exempt from VAT
substitute,” so long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of Percentage Tax on domestic carriers and keepers of
117
Congress to become valid as an act of the legislative department. The charge that in this Garage
case the Conference Committee acted as a third legislative chamber is thus without 119 Tax on franchises
any basis.[31] (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI,
Section 26(2) of the Constitution on the 121 Tax on banks and Non-Bank Financial Intermediaries
“No-Amendment Rule”
148 Excise Tax on manufactured oils and other fuels
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on 151 Excise Tax on mineral products
separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity
of its immediate enactment to meet a public calamity or emergency. Upon the last reading of 236 Registration requirements
a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal. 237 Issuance of receipts or sales or commercial invoices
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete
Disposition of Incremental Revenue
provisions in the House bill and the Senate bill after these had passed three readings is in effect a 288
circumvention of the “no amendment rule” (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the
Court to deviate from its ruling in the Tolentino case that: Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House.
Nor is there any reason for requiring that the Committee’s Report in these cases must have They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114
undergone three readings in each of the two houses. If that be the case, there would be no of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111

Page 33 of 43
of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not
found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue
that since the proposed amendments did not originate from the House, such amendments are a violation of
Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of
tax being amended in the House bills, still within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the
Constitution to “originate exclusively” in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what
is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute – and not only the bill which initiated the
legislative process culminating in the enactment of the law – must substantially be the
same as the House bill would be to deny the Senate’s power not only to “ concur with
amendments” but also to “propose amendments.” It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the House superior to the
Senate.
… All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion
…Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is 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 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 other hand, the senators, who are elected at large,
are expected to approach the same problems from the national perspective. Both
views are thereby made to bear on the enactment of such laws.[33] (Emphasis supplied)
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, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the
amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in
the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of
solving the country’s serious financial problems. To do this, government expenditures must
be strictly monitored and controlled and revenues must be significantly increased. This may
be easier said than done, but our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the administration. It is supported
with a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our fiscal
system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a
balanced budget by the year 2009, we need to seize windows of opportunities which
might seem poignant in the beginning, but in the long run prove effective and
beneficial to the overall status of our economy. One such opportunity is a review of
existing tax rates, evaluating the relevance given our present conditions. [34] (Emphasis
supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in
sizeable revenues for the government to supplement our country’s serious financial problems, and improve tax
administration and control of the leakages in revenues from income taxes and value-added taxes. As these
house bills were transmitted to the Senate, the latter, approaching the measures from the point of national
perspective, can introduce amendments within the purposes of those bills. It can provide for ways that would
soften the impact of the VAT measure on the consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph Recto on
why the provisions on income tax on corporation were included is worth quoting:
in additional revenues annually even while by mitigating prices of power, services and
petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from
the VAT on twelve goods and services. The rest of the tab – P10.5 billion- will be picked by
corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal salvation be only
on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to
35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will
slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of
Page 34 of 43
 their sacrifice brief. We would like to assure them that not because there is a light at the end
of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business
will be there to share the burden.[35]
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions
in the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for
the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on
bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy
the VAT chain, we will however bring down the excise tax on socially sensitive products such
as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand
what was taken from the right. Rather, these sprang from our concern of softening the
impact of VAT, so that the people can cushion the blow of higher prices they will have to pay
as a result of VAT.[36]
The other sections amended by the Senate pertained to matters of tax administration which are necessary for
the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the
house bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate acted within its
power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met,
constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling price
or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor: provided, that
the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
(i)
year exceeds two and four-fifth percent (2 4/5%) or
national government deficit as a percentage of GDP of the previous year exceeds one and one-
(ii)
half percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the goods,
the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%) after any of the following conditions has been satisfied.
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
(i)
year exceeds two and four-fifth percent (2 4/5%) or
national government deficit as a percentage of GDP of the previous year exceeds one and
(ii)
one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services: provided, that
the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-
Page 35 of 43
 added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
(i)
year exceeds two and four-fifth percent (2 4/5%) or
national government deficit as a percentage of GDP of the previous year exceeds one and
(ii)
one-half percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services, which cannot be included within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They
also argue that the law also effectively nullified the President’s power of control, which includes the authority to
set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax
rate by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the
12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that no
guiding standards are provided in the law on what basis and as to how he will make his recommendation. They
claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.[37] A
logical corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means “what has been delegated,
cannot be delegated.”[38] This doctrine is based on the ethical principle that such as delegated power constitutes
not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and
not through the intervening mind of another.[39]
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that “the Legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of
Representatives.” The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law – complete as to the time when it shall take effect and
as to whom it shall be applicable – and to determine the expediency of its enactment. [40] Thus, the rule is
that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely legislative in nature – that is, one appertaining
exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
(2)
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
/(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only
if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by
the delegate;[41] and (b) fixes a standard — the limits of which are sufficiently determinate and determinable —
to which the delegate must conform in the performance of his functions.[42] A sufficient standard is one which
defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected.[43] Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of
the legislature and exercise a power essentially legislative.[44]
In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent
of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is
usual to inquire whether the statute was complete in all its terms and provisions when it left
the hands of the legislature so that nothing was left to the judgment of any other appointee or
delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution, to be exercised under and in
pursuance of the law. The first cannot be done; to the latter no valid objection can be
made.’
...
It is contended, however, that a legislative act may be made to the effect as law after it
leaves the hands of the legislature. It is true that laws may be made effective on certain
contingencies, as by proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of the United States
ruled that the legislature may delegate a power not legislative which it may itself rightfully
exercise. The power to ascertain facts is such a power which may be delegated. There
is nothing essentially legislative in ascertaining the existence of facts or conditions as
the basis of the taking into effect of a law. That is a mental process common to all
branches of the government. Notwithstanding the apparent tendency, however, to relax
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 the rule prohibiting delegation of legislative authority on account of the complexity arising
from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement
in Prof. Willoughby's treatise on the Constitution of the United States in the following
language — speaking of declaration of legislative power to administrative agencies: The
principle which permits the legislature to provide that the administrative agent may
determine when the circumstances are such as require the application of a law is
defended upon the ground that at the time this authority is granted, the rule of public
policy, which is the essence of the legislative act, is determined by the legislature. In
other words, the legislature, as it is its duty to do, determines that, under given
circumstances, certain executive or administrative action is to be taken, and that,
under other circumstances, different or no action at all is to be taken. What is thus left
to the administrative official is not the legislative determination of what public policy
demands, but simply the ascertainment of what the facts of the case require to be
done according to the terms of the law by which he is governed. The efficiency of an
Act as a declaration of legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall take effect may be left to
such agencies as it may designate. The legislature, then, may provide that a law shall
take effect upon the happening of future specified contingencies leaving to some
other person or body the power to determine when the specified contingency has
arisen. (Emphasis supplied).[46]
In Edu vs. Ericta,[47] the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter
and repeal them; the test is the completeness of the statute in all its terms and provisions
when it leaves the hands of the legislature. To determine whether or not there is an undue
delegation of legislative power, the inquiry must be directed to the scope and definiteness of
the measure enacted. The legislative does not abdicate its functions when it describes
what job must be done, who is to do it, and what is the scope of his authority.  For a
complex economy, that may be the only way in which the legislative process can go
forward. A distinction has rightfully been made between delegation of power to make
the laws which necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the law, to which no valid
objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability. (Emphasis
supplied).[48]
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority.[49] While
the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of
an exercise of such power may be left to them, including the power to determine the existence of facts on which
its operation depends.[50]
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not
of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and
making recommendations is the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.[51] The Constitution as a continuously operative
charter of government does not require that Congress find for itself every fact upon which it desires to base
legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and circumstances impossible for Congress itself properly to
investigate.[52]
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6
which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has 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 (1 ½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact
or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion.[53] Where the law is clear
and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.[54]
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the Secretary of Finance by mandating the fixing of the
tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase “upon the
recommendation of the Secretary of Finance.” Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside
by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of
the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General Cushing, is “subject to the direction of
the President."[55]
In the present case, 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 President or even her subordinate. In
Page 37 of 43
such instance, he is not subject to the power of control and direction of the President. He is acting as the agent
of the legislative department, to determine and declare the event upon which its expressed will is to take effect.
[56]
 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
broader perspective to properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in
such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1½%). If either of these two
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. There is no
undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible.[57] 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.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.[59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as
these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court
acts on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not
Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax
burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set
forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to
the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth
therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It
does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is
increased to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds
none, petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a fluctuating
VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided
in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as
it is, devoid of judicial addition or subtraction.[61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If
VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the
direction of a balanced budget position. Therefore, there is no need to increase the VAT
rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio
is more than 1.5%, there is indeed a need to increase the VAT rate.[62]
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly
to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith
in his Canons of Taxation (1776), as:
Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people
IV.
as little as possible over and above what it brings into the public treasury of the state.[63]
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.[64]
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the country’s
gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a
position where 90 percent of our revenue is used for debt service. So, for every peso of
revenue that we currently raise, 90 goes to debt service. That’s interest plus amortization of
our debt. So clearly, this is not a sustainable situation. That’s the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer
countries that borrow money from that international financial markets. Our debt to GDP is
approximately equal to our GDP. Again, that shows you that this is not a sustainable
situation.
Page 38 of 43
 The third thing that I’d like to point out is the environment that we are presently operating in
is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically
global growth and low interest rates. The past few months, we have seen an inching up, in
fact, a rapid increase in the interest rates in the leading economies of the world. And,
therefore, our ability to borrow at reasonable prices is going to be challenged. In fact,
ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it
is now, at least based on the forecast of most financial institutions. So, we were assuming
that raising 80 billion would put us in a position where we can then convince them to improve
our ability to borrow at lower rates. But conditions have changed on us because the interest
rates have gone up. In fact, just within this room, we tried to access the market for a billion
dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of
that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7
percent cost. We were trying to access last week and the market was not as favorable and
up to now we have not accessed and we might pull back because the conditions are not very
good.
So given this situation, we at the Department of Finance believe that we really need to front-
end our deficit reduction. Because it is deficit that is causing the increase of the debt and we
are in what we call a debt spiral. The more debt you have, the more deficit you have
because interest and debt service eats and eats more of your revenue. We need to get out
of this debt spiral. And the only way, I think, we can get out of this debt spiral is really have a
front-end adjustment in our revenue base.[65]
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the Court to judge. In
the Fariñas case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom
of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the
wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to
achieve the desired results, whether, in short, the legislative discretion within its prescribed
limits should be exercised in a particular manner are matters for the judgment of the
legislature, and the serious conflict of opinions does not suffice to bring them within the
range of judicial cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy,
given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation.”[67]
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are
not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion. Absent such a showing, the presumption of validity must prevail.[68]
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input
tax that may be credited against the output tax. It states, in part: “[P]rovided, that the input tax inclusive of the
input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: …”
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by
a VAT-registered person on the importation of goods or local purchase of good and services, including lease or
use of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-
added tax due on the sale or lease of taxable goods or properties or services by any person registered or
required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed.
In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less
than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that “if the
input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters.” In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Page 39 of 43
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to
be paid to the Bureau of Internal Revenue (BIR);[69] and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over
the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at
the taxpayer’s option.[70]
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. The party directly liable for the payment of the tax is the seller.[71] What only needs to be
done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of
a property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested by virtue of such rights.[72]
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of
the input tax paid on purchase or importation of goods and services by VAT-registered persons against the
output tax was introduced.[73] This was adopted by the Expanded VAT Law (R.A. No. 7716),[74] and The Tax
Reform Act of 1997 (R.A. No. 8424).[75] The right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of
the capital goods is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally, That in the case of
purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase
or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is without basis because
the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts
to a 4-year interest-free loan to the government.[76] In the same breath, Congress also justified its move by
saying that the provision was designed to raise an annual revenue of 22.6 billion.[77] The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign
investments were not deterred.[78] Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties or property rights
to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of
payment. For purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on
gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other than
by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10%
on payment for the lease or use of properties or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents,
were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): “final value-added tax at the rate of five percent (5%).”
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of
final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as full and final payment of the income tax
due from the payee on the said income. The liability for payment of the tax rests primarily on
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 the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes
withheld on certain income payments are intended to equal or at least approximate the tax
due of the payee on said income. … Taxes withheld on income payments covered by the
expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation
income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5%
rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu
of the actual input VAT directly or attributable to the taxable transaction.[79]
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government.[80] This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to
wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods
from sellers and services rendered by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due
at the rate of three percent (3%) of the gross payment for the purchase of goods and six
percent (6%) on gross receipts for services rendered by contractors on every sale or
installment payment which shall be creditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public works
contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to
treat transactions with the government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners,
as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No.
14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the
actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual
input tax be less than 5%, the difference is treated as income.[81]
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a
profit or value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth,[82] “full of sound and fury, signifying
nothing.”
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not
take an astute businessman to know that it is a matter of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that “no person or class of persons shall be deprived
of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances.”[83]
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.[84]
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in 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. Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results depending on one’s profit
margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the grouping
of persons or things similar to each other in certain particulars and different from all others in these same
particulars.[85]
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III
and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to
say that these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis
for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same
class everywhere with all people at all times.[86]
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services
and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction.
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Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive
Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.
[87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or
12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000.00.[88] Also, basic marine and agricultural food products in their original state are still not subject to
the tax,[89] thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90]
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected to be relatively
lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those
with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law
entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand
on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
previously exempt. Excise taxes on petroleum products[91] and natural gas[92] were reduced. Percentage tax on
domestic carriers was removed.[93] Power producers are now exempt from paying franchise tax.[94]
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate,
from a previous 32%.[95] Intercorporate dividends of non-resident foreign corporations are still subject to 15%
final withholding tax but the tax credit allowed on the corporation’s domicile was increased to 20%.[96] The
Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.[97] Even
the sale by an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest
largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from
Adam Smith’s Canons of Taxation, and it states:
1. The subjects of every state ought to contribute towards the support of the government,
as nearly as possible, in proportion to their respective abilities; that is, in proportion to
the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.[98]
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the
same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the
income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that
the VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in
the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT,
are regressive. What it simply provides is that Congress shall ‘evolve a progressive system
of taxation.’ The constitutional provision has been interpreted to mean simply that ‘direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.’
(E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973 Constitution from
which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if
not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to
pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4 amending §103
of the NIRC)[99]
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other
cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that
the judiciary should stand ready to afford relief. There are undoubtedly many wrongs the
judicature may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of
remedies for all political or social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct and separate compartments;
and that judicial interpretation has tended to the preservation of the independence of the
three, and a zealous regard of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may be brought to account,
either by impeachment, trial or by the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All things considered,
there is no raison d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
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