G.R. No. 132527.
July 29, 2005 the Subic Special Economic Zone (SSEZ) and the
COCONUT OIL REFINERS ASSOCIATION, INC.
represented by its President, JESUS L.
ARRANZA, PHILIPPINE ASSOCIATION OF MEAT
PROCESSORS, INC. (PAMPI), represented by its
Secretary, ROMEO G. HIDALGO, FEDERATION
OF FREE FARMERS (FFF), represented by its
President, JEREMIAS U. MONTEMAYOR, and
BUKLURAN NG MANGGAGAWANG PILIPINO
(BMP), represented by its Chairperson,
FELIMON C. LAGMAN, Petitioners,
vs.
HON. RUBEN TORRES, in his capacity as
Executive Secretary; BASES CONVERSION AND
DEVELOPMENT AUTHORITY, CLARK
DEVELOPMENT CORPORATION, SUBIC BAY
METROPOLITAN AUTHORITY, 88 MART DUTY
FREE, FREEPORT TRADERS, PX CLUB,
AMERICAN HARDWARE, ROYAL DUTY FREE
SHOPS, INC., DFS SPORTS, ASIA PACIFIC, MCI
DUTY FREE DISTRIBUTOR CORP. (formerly MCI
RESOURCES, CORP.), PARK & SHOP, DUTY FREE
COMMODITIES, L. FURNISHING, SHAMBURGH,
SUBIC DFS, ARGAN TRADING CORP., ASIPINE
CORP., BEST BUY, INC., PX CLUB, CLARK
TRADING, DEMAGUS TRADING CORP., D.F.S.
SPORTS UNLIMITED, INC., DUTY FREE FIRST
SUPERSTORE, INC., FREEPORT, JC MALL DUTY
FREE INC. (formerly 88 Mart [Clark] Duty Free
Corp.), LILLY HILL CORP., MARSHALL,
PUREGOLD DUTY FREE, INC., ROYAL DFS and
ZAXXON PHILIPPINES, INC., Respondents.
DECISION
AZCUNA, J.:
This is a Petition for Prohibition and Injunction
seeking to enjoin and prohibit the Executive
Branch, through the public respondents Ruben
Torres in his capacity as Executive Secretary, the
Bases Conversion Development Authority
(BCDA), the Clark Development Corporation
(CDC) and the Subic Bay Metropolitan Authority
(SBMA), from allowing, and the private
respondents from continuing with, the
operation of tax and duty-free shops located at
Clark Special Economic Zone (CSEZ), and to
declare the following issuances as
unconstitutional, illegal, and void:
1. Section 5 of Executive Order No. 80,1 dated
April 3, 1993, regarding the CSEZ.
2. Executive Order No. 97-A, dated June 19,
1993, pertaining to the SSEZ.
3. Section 4 of BCDA Board Resolution No. 93-
05-034,2 dated May 18, 1993, pertaining to the
CSEZ.
Petitioners contend that the aforecited
issuances are unconstitutional and void as they
constitute executive lawmaking, and that they
are contrary to Republic Act No. 72273 and in
violation of the Constitution, particularly
Section 1, Article III (equal protection clause),
Section 19, Article XII (prohibition of unfair
competition and combinations in restraint of
trade), and Section 12, Article XII (preferential
use of Filipino labor, domestic materials and
locally produced goods).
The facts are as follows:
On March 13, 1992, Republic Act No. 7227 was
enacted, providing for, among other things, the
sound and balanced conversion of the Clark and
Subic military reservations and their extensions
into alternative productive uses in the form of
special economic zones in order to promote the
economic and social development of Central
Luzon in particular and the country in general.
Among the salient provisions are as follows:
SECTION 12. Subic Special Economic Zone. —
...
The abovementioned zone shall be subject to
the following policies:
(a) Within the framework and subject to the
mandate and limitations of the Constitution and
the pertinent provisions of the Local
Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment
center to generate employment opportunities
in and around the zone and to attract and
promote productive foreign investments;
(b) The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of
goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free
importations of raw materials, capital and
equipment. However, exportation or removal of
goods from the territory of the Subic Special
Economic Zone to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the
Philippines;4
(c) The provision of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed
within the Subic Special Economic Zone. In lieu
of paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprises
within the Subic Special Ecoomic Zone shall be
remitted to the National Government, one
percent (1%) each to the local government units
affected by the declaration of the zone in
proportion to their population area, and other
factors. In addition, there is hereby established
a development fund of one percent (1%) of the
gross income earned by all businesses and
enterprises within the Subic Special Economic
Zone to be utilized for the development of
municipalities outside the City of Olangapo and
the Municipality of Subic, and other
municipalities contiguous to the base areas.
...
SECTION 15. Clark and Other Special Economic
Zones. — Subject to the concurrence by
resolution of the local government units directly
affected, the President is hereby authorized to
create by executive proclamation a Special
Economic Zone covering the lands occupied by
the Clark military reservations and its
contiguous extensions as embraced, covered
and defined by the 1947 Military Bases
Agreement between the Philippines and the
United States of America, as amended, located
within the territorial jurisdiction of Angeles City,
Municipalities of Mabalacat and Porac, Province
of Pampanga and the Municipality of Capas,
Province of Tarlac, in accordance with the
policies as herein provided insofar as applicable
to the Clark military reservations.
The governing body of the Clark Special
Economic Zone shall likewise be established by
executive proclamation with such powers and
functions exercised by the Export Processing
Zone Authority pursuant to Presidential Decree
No. 66 as amended.
The policies to govern and regulate the Clark
Special Economic Zone shall be determined
upon consultation with the inhabitants of the
local government units directly affected which
shall be conducted within six (6) months upon
approval of this Act.
Similarly, subject to the concurrence by
resolution of the local government units directly
affected, the President shall create other
Special Economic Zones, in the base areas of
Wallace Air Station in San Fernando, La Union
(excluding areas designated for
communications, advance warning and radar
requirements of the Philippine Air Force to be
determined by the Conversion Authority) and
Camp John Hay in the City of Baguio.
Upon recommendation of the Conversion
Authority, the President is likewise authorized
to create Special Economic Zones covering the
Municipalities of Morong, Hermosa,
Dinalupihan, Castillejos and San Marcelino.
On April 3, 1993, President Fidel V. Ramos
issued Executive Order No. 80, which declared,
among others, that Clark shall have all the
applicable incentives granted to the Subic
Special Economic and Free Port Zone under
Republic Act No. 7227. The pertinent provision
assailed therein is as follows:
SECTION 5. Investments Climate in the CSEZ. —
Pursuant to Section 5(m) and Section 15 of RA
7227, the BCDA shall promulgate all necessary
policies, rules and regulations governing the
CSEZ, including investment incentives, in
consultation with the local government units
and pertinent government departments for
implementation by the CDC.
Among others, the CSEZ shall have all the
applicable incentives in the Subic Special
Economic and Free Port Zone under RA 7227
and those applicable incentives granted in the
Export Processing Zones, the Omnibus
Investments Code of 1987, the Foreign
Investments Act of 1991 and new investments
laws which may hereinafter be enacted.
The CSEZ Main Zone covering the Clark Air Base
proper shall have all the aforecited investment
incentives, while the CSEZ Sub-Zone covering
the rest of the CSEZ shall have limited
incentives. The full incentives in the Clark SEZ
Main Zone and the limited incentives in the
Clark SEZ Sub-Zone shall be determined by the
BCDA.
Pursuant to the directive under Executive Order
No. 80, the BCDA passed Board Resolution No.
93-05-034 on May 18, 1993, allowing the tax
and duty-free sale at retail of consumer goods
imported via Clark for consumption outside the
CSEZ. The assailed provisions of said resolution
read, as follows:
Section 4. SPECIFIC INCENTIVES IN THE CSEZ
MAIN ZONE. – The CSEZ-registered
enterprises/businesses shall be entitled to all
the incentives available under R.A. No. 7227,
E.O. No. 226 and R.A. No. 7042 which shall
include, but not limited to, the following:
I. As in Subic Economic and Free Port Zone:
A. Customs:
...
4. Tax and duty-free purchase and consumption
of goods/articles (duty free shopping) within
the CSEZ Main Zone.
5. For individuals, duty-free consumer goods
may be brought out of the CSEZ Main Zone into
the Philippine Customs territory but not to
exceed US$200.00 per month per CDC-
registered person, similar to the limits imposed
in the Subic SEZ. This privilege shall be enjoyed
only once a month. Any excess shall be levied
taxes and duties by the Bureau of Customs.
On June 10, 1993, the President issued
Executive Order No. 97, "Clarifying the Tax and
Duty Free Incentive Within the Subic Special
Economic Zone Pursuant to R.A. No. 7227." Said
issuance in part states, thus:
SECTION 1. On Import Taxes and Duties – Tax
and duty-free importations shall apply only to
raw materials, capital goods and equipment
brought in by business enterprises into the
SSEZ. Except for these items, importations of
other goods into the SSEZ, whether by business
enterprises or resident individuals, are subject
to taxes and duties under relevant Philippine
laws.
The exportation or removal of tax and duty-free
goods from the territory of the SSEZ to other
parts of the Philippine territory shall be subject
to duties and taxes under relevant Philippine
laws.
Nine days after, on June 19, 1993, Executive
Order No. 97-A was issued, "Further Clarifying
the Tax and Duty-Free Privilege Within the Subic
Special Economic and Free Port Zone." The
relevant provisions read, as follows:
SECTION 1. The following guidelines shall
govern the tax and duty-free privilege within
the Secured Area of the Subic Special Economic
and Free Port Zone:
1.1 The Secured Area consisting of the presently
fenced-in former Subic Naval Base shall be the
only completely tax and duty-free area in the
SSEFPZ. Business enterprises and individuals
(Filipinos and foreigners) residing within the
Secured Area are free to import raw materials,
capital goods, equipment, and consumer items
tax and duty-free. Consumption items,
however, must be consumed within the Secured
Area. Removal of raw materials, capital goods,
equipment and consumer items out of the
Secured Area for sale to non-SSEFPZ registered
enterprises shall be subject to the usual taxes
and duties, except as may be provided herein.
1.2. Residents of the SSEFPZ living outside the
Secured Area can enter the Secured Area and
consume any quantity of consumption items in
hotels and restaurants within the Secured Area.
However, these residents can purchase and
bring out of the Secured Area to other parts of
the Philippine territory consumer items worth
not exceeding US$100 per month per person.
Only residents age 15 and over are entitled to
this privilege.
1.3. Filipinos not residing within the SSEFPZ can
enter the Secured Area and consume any
quantity of consumption items in hotels and
restaurants within the Secured Area. However,
they can purchase and bring out [of] the
Secured Area to other parts of the Philippine
territory consumer items worth not exceeding
US$200 per year per person. Only Filipinos age
15 and over are entitled to this privilege.
Petitioners assail the $100 monthly and $200
yearly tax-free shopping privileges granted by
the aforecited provisions respectively to SSEZ
residents living outside the Secured Area of the
SSEZ and to Filipinos aged 15 and over residing
outside the SSEZ.
On February 23, 1998, petitioners thus filed the
instant petition, seeking the declaration of
nullity of the assailed issuances on the following
grounds:
I.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF
EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE
NULL AND VOID [FOR] BEING AN EXERCISE OF
EXECUTIVE LAWMAKING.
II.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF
EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE
UNCONSTITUTIONAL FOR BEING VIOLATIVE OF
THE EQUAL PROTECTION CLAUSE AND THE
PROHIBITION AGAINST UNFAIR COMPETITION
AND PRACTICES IN RESTRAINT OF TRADE.
III.
EXECUTIVE ORDER NO. 97-A, SECTION 5 OF
EXECUTIVE ORDER NO. 80, AND SECTION 4 OF
BCDA BOARD RESOLUTION NO. 93-05-034 ARE
NULL AND VOID [FOR] BEING VIOLATIVE OF
REPUBLIC ACT NO. 7227.
IV.
THE CONTINUED IMPLEMENTATION OF THE
CHALLENGED ISSUANCES IF NOT RESTRAINED
WILL CONTINUE TO CAUSE PETITIONERS TO
SUFFER GRAVE AND IRREPARABLE INJURY.5
In their Comments, respondents point out
procedural issues, alleging lack of petitioners’
legal standing, the unreasonable delay in the
filing of the petition, laches, and the propriety
of the remedy of prohibition.
Anent the claim on lack of legal standing,
respondents argue that petitioners, being mere
suppliers of the local retailers operating outside
the special economic zones, do not stand to
suffer direct injury in the enforcement of the
issuances being assailed herein. Assuming this is
true, this Court has nevertheless held that in
cases of paramount importance where serious
constitutional questions are involved, the
standing requirements may be relaxed and a
suit may be allowed to prosper even where
there is no direct injury to the party claiming
the right of judicial review.6
In the same vein, with respect to the other
alleged procedural flaws, even assuming the
existence of such defects, this Court, in the
exercise of its discretion, brushes aside these
technicalities and takes cognizance of the
petition considering the importance to the
public of the present case and in keeping with
the duty to determine whether the other
branches of the government have kept
themselves within the limits of the
Constitution.7
Now, on the constitutional arguments raised:
As this Court enters upon the task of passing on
the validity of an act of a co-equal and
coordinate branch of the Government, it bears
emphasis that deeply ingrained in our
jurisprudence is the time-honored principle that
a statute is presumed to be valid.8 This
presumption is rooted in the doctrine of
separation of powers which enjoins upon the
three coordinate departments of the
Government a becoming courtesy for each
other’s acts.9 Hence, to doubt is to sustain. The
theory is that before the act was done or the
law was enacted, earnest studies were made by
Congress, or the President, or both, to insure
that the Constitution would not be
breached.10 This Court, however, may declare a
law, or portions thereof, unconstitutional where
a petitioner has shown a clear and unequivocal
breach of the Constitution, not merely a
doubtful or argumentative one.11 In other
words, before a statute or a portion thereof
may be declared unconstitutional, it must be
shown that the statute or issuance violates the
Constitution clearly, palpably and plainly, and in
such a manner as to leave no doubt or
hesitation in the mind of the Court.12
The Issue on Executive Legislation
Petitioners claim that the assailed issuances
(Executive Order No. 97-A; Section 5 of
Executive Order No. 80; and Section 4 of BCDA
Board Resolution No. 93-05-034) constitute
executive legislation, in violation of the rule on
separation of powers. Petitioners argue that the
Executive Department, by allowing through the
questioned issuances the setting up of tax and
duty-free shops and the removal of consumer
goods and items from the zones without
payment of corresponding duties and taxes,
arbitrarily provided additional exemptions to
the limitations imposed by Republic Act No.
7227, which limitations petitioners identify as
follows:
(1) [Republic Act No. 7227] allowed only tax and
duty-free importation of raw materials, capital
and equipment.
(2) It provides that any exportation or removal
of goods from the territory of the Subic Special
Economic Zone to other parts of the Philippine
territory shall be subject to customs duties and
taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines.
Anent the first alleged limitation, petitioners
contend that the wording of Republic Act No.
7227 clearly limits the grant of tax incentives to
the importation of raw materials, capital and
equipment only. Hence, they claim that the
assailed issuances constitute executive
legislation for invalidly granting tax incentives in
the importation of consumer goods such as
those being sold in the duty-free shops, in
violation of the letter and intent of Republic Act
No. 7227.
A careful reading of Section 12 of Republic Act
No. 7227, which pertains to the SSEZ, would
show that it does not restrict the duty-free
importation only to "raw materials, capital and
equipment." Section 12 of the cited law is partly
reproduced, as follows:
SECTION 12. Subic Special Economic Zone. —
...
The abovementioned zone shall be subject to
the following policies:
...
(b) The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of
goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty-free
importations of raw materials, capital and
equipment. However, exportation or removal of
goods from the territory of the Subic Special
Economic Zone to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the
Philippines.13
While it is true that Section 12 (b) of Republic
Act No. 7227 mentions only raw materials,
capital and equipment, this does not necessarily
mean that the tax and duty-free buying
privilege is limited to these types of articles to
the exclusion of consumer goods. It must be
remembered that in construing statutes, the
proper course is to start out and follow the true
intent of the Legislature and to adopt that sense
which harmonizes best with the context and
promotes in the fullest manner the policy and
objects of the Legislature.14
In the present case, there appears to be no logic
in following the narrow interpretation
petitioners urge. To limit the tax-free
importation privilege of enterprises located
inside the special economic zone only to raw
materials, capital and equipment clearly runs
counter to the intention of the Legislature to
create a free port where the "free flow
of goods  or capital within, into, and out of the
zones" is insured.
The phrase "tax and duty-free importations of
raw materials, capital and equipment" was
merely cited as an example of incentives that
may be given to entities operating within the
zone. Public respondent SBMA correctly argued
that the maxim expressio unius est exclusio
alterius, on which petitioners impliedly rely to
support their restrictive interpretation, does not
apply when words are mentioned by way of
example.15 It is obvious from the wording of
Republic Act No. 7227, particularly the use of
the phrase "such as," that the enumeration only
meant to illustrate incentives that the SSEZ is
authorized to grant, in line with its being a free
port zone.
Furthermore, said legal maxim should be
applied only as a means of discovering
legislative intent which is not otherwise
manifest, and should not be permitted to defeat
the plainly indicated purpose of the
Legislature.16
The records of the Senate containing the
discussion of the concept of "special economic
zone" in Section 12 (a) of Republic Act No. 7227
show the legislative intent that consumer goods
entering the SSEZ which satisfy the needs of
the zone and are consumed there are not
subject to duties and taxes in accordance with
Philippine laws, thus:
Senator Guingona. . . . The concept of Special
Economic Zone is one that really includes the
concept of a free port, but it is broader. While a
free port is necessarily included in the Special
Economic Zone, the reverse is not true that a
free port would include a special economic
zone.
Special Economic Zone, Mr. President, would
include not only the incoming and outgoing of
vessels, duty-free and tax-free, but it would
involve also tourism, servicing, financing and all
the appurtenances of an investment center. So,
that is the concept, Mr. President. It is broader.
It includes the free port concept and would
cater to the greater needs of Olangapo City,
Subic Bay and the surrounding municipalities.
Senator Enrile. May I know then if a factory
located within the jurisdiction of Morong,
Bataan that was originally a part of the Subic
Naval reservation, be entitled to a free port
treatment or just a special economic zone
treatment?
Senator Guingona. As far as the goods required
for manufacture is concerned, Mr. President, it
would have privileges of duty-free and tax-
free. But in addition, the Special Economic Zone
could embrace the needs of tourism, could
embrace the needs of servicing, could embrace
the needs of financing and other investment
aspects.
Senator Enrile. When a hotel is constructed,
Mr. President, in this geographical unit which
we call a special economic zone, will the goods
entering to be consumed by the customers or
guests of the hotel be subject to duties?
Senator Guingona. That is the concept that we
are crafting, Mr. President.
Senator Enrile. No. I am asking whether those
goods will be duty-free, because it is
constructed within a free port.
Senator Guingona. For as long as it services the
needs of the Special Economic Zone, yes.
Senator Enrile. For as long as the goods remain
within the zone, whether we call it an economic
zone or a free port, for as long as we say in this
law that all goods entering this particular
territory will be duty-free and tax-free, for as
long as they remain there, consumed there or
reexported or destroyed in that place, then they
are not subject to the duties and taxes in
accordance with the laws of the Philippines?
Senator Guingona. Yes.17
Petitioners rely on Committee Report No. 1206
submitted by the Ad Hoc Oversight Committee
on Bases Conversion on June 26, 1995.
Petitioners put emphasis on the report’s finding
that the setting up of duty-free stores never
figured in the minds of the authors of Republic
Act No. 7227 in attracting foreign investors to
the former military baselands. They maintain
that said law aimed to attract manufacturing
and service enterprises that will employ the
dislocated former military base workers, but not
investors who would buy consumer goods from
duty-free stores.
The Court is not persuaded. Indeed, it is well-
established that opinions expressed in the
debates and proceedings of the Legislature,
steps taken in the enactment of a law, or the
history of the passage of the law through the
Legislature, may be resorted to as aids in the
interpretation of a statute with a doubtful
meaning.18 Petitioners’ posture, however,
overlooks the fact that the 1995 Committee
Report they are referring to came into being
well after the enactment of Republic Act No.
7227 in 1993. Hence, as pointed out by
respondent Executive Secretary Torres, the
aforementioned report cannot be said to form
part of Republic Act No. 7227’s legislative
history.
Section 12 of Republic Act No. 7227, provides in
part, thus:
SEC. 12. Subic Special Economic Zone. -- . . .
The abovementioned zone shall be subject to
the following policies:
(a) Within the framework and subject to the
mandate and limitations of the Constitution and
the pertinent provisions of the Local
Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment
center to generate employment opportunities
in and around the zone and to attract and
promote productive foreign investments. 19
The aforecited policy was mentioned as a basis
for the issuance of Executive Order No. 97-A,
thus:
WHEREAS, Republic Act No. 7227 provides that
within the framework and subject to the
mandate and limitations of the Constitution and
the pertinent provisions of the Local
Government Code, the Subic Special Economic
and Free Port Zone (SSEFPZ) shall be developed
into a self-sustaining industrial, commercial,
financial and investment center to generate
employment opportunities in and around the
zone and to attract and promote productive
foreign investments; and
WHEREAS, a special tax and duty-free privilege
within a Secured Area in the SSEFPZ subject, to
existing laws has been determined necessary to
attract local and foreign visitors to the zone.
Executive Order No. 97-A provides guidelines to
govern the "tax and duty-free privileges within
the Secured Area of the Subic Special Economic
and Free Port Zone." Paragraph 1.6 thereof
states that "(t)he sale of tax and duty-free
consumer items in the Secured Area shall only
be allowed in duly authorized duty-free shops."
The Court finds that the setting up of such
commercial establishments which are the only
ones duly authorized to sell consumer items tax
and duty-free is still well within the policy
enunciated in Section 12 of Republic Act No.
7227 that ". . .the Subic Special Economic Zone
shall be developed into a self-sustaining,
industrial, commercial, financial and
investment center to generate employment
opportunities in and around the zone and to
attract and promote productive foreign
investments." (Emphasis supplied.)
However, the Court reiterates that the second
sentences of paragraphs 1.2 and 1.3 of
Executive Order No. 97-A, allowing tax and
duty-free removal of goods to certain
individuals, even in a limited amount, from the
Secured Area of the SSEZ, are null and void for
being contrary to Section 12 of Republic Act
No. 7227. Said Section clearly provides that
"exportation or removal of goods from the
territory of the Subic Special Economic Zone to
the other parts of the Philippine territory shall
be subject to customs duties and taxes under
the Customs and Tariff Code and other relevant
tax laws of the Philippines."
On the other hand, insofar as the CSEZ is
concerned, the case for an invalid exercise of
executive legislation is tenable.
In John Hay Peoples Alternative Coalition, et al.
v. Victor Lim, et al.,20 this Court resolved an
issue, very much like the one herein, concerning
the legality of the tax exemption benefits given
to the John Hay Economic Zone under
Presidential Proclamation No. 420, Series of
1994, "CREATING AND DESIGNATING A
PORTION OF THE AREA COVERED BY THE
FORMER CAMP JOHN AS THE JOHN HAY
SPECIAL ECONOMIC ZONE PURSUANT TO
REPUBLIC ACT NO. 7227."
In that case, among the arguments raised was
that the granting of tax exemptions to John Hay
was an invalid and illegal exercise by the
President of the powers granted only to the
Legislature. Petitioners therein argued that
Republic Act No. 7227 expressly granted tax
exemption only to Subic and not to the other
economic zones yet to be established. Thus, the
grant of tax exemption to John Hay by
Presidential Proclamation contravenes the
constitutional mandate that "[n]o law granting
any tax exemption shall be passed without the
concurrence of a majority of all the members of
Congress."21
This Court sustained the argument and ruled
that the incentives under Republic Act No. 7227
are exclusive only to the SSEZ. The President,
therefore, had no authority to extend their
application to John Hay. To quote from the
Decision:
More importantly, the nature of most of the
assailed privileges is one of tax exemption. It is
the legislature, unless limited by a provision of a
state constitution, that has full power to
exempt any person or corporation or class of
property from taxation, its power to exempt
being as broad as its power to tax. Other than
Congress, the Constitution may itself provide for
specific tax exemptions, or local governments
may pass ordinances on exemption only from
local taxes.
The challenged grant of tax exemption would
circumvent the Constitution’s imposition that a
law granting any tax exemption must have the
concurrence of a majority of all the members of
Congress. In the same vein, the other kinds of
privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate
upon.
Contrary to public respondents’ suggestions,
the claimed statutory exemption of the John
Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on
which it is based; it must be expressly granted in
a statute stated in a language too clear to be
mistaken. Tax exemption cannot be implied as it
must be categorically and unmistakably
expressed.
If it were the intent of the legislature to grant to
John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have
so expressly provided in R.A. No. 7227.22
In the present case, while Section 12 of Republic
Act No. 7227 expressly provides for the grant of
incentives to the SSEZ, it fails to make any
similar grant in favor of other economic zones,
including the CSEZ. Tax and duty-free incentives
being in the nature of tax exemptions, the basis
thereof should be categorically and
unmistakably expressed from the language of
the statute. Consequently, in the absence of any
express grant of tax and duty-free privileges to
the CSEZ in Republic Act No. 7227, there would
be no legal basis to uphold the questioned
portions of two issuances: Section 5 of
Executive Order No. 80 and Section 4 of BCDA
Board Resolution No. 93-05-034, which both
pertain to the CSEZ.
Petitioners also contend that the questioned
issuances constitute executive legislation for
allowing the removal of consumer goods and
items from the zones without payment of
corresponding duties and taxes in violation of
Republic Act No. 7227 as Section 12 thereof
provides for the taxation of goods that are
exported or removed from the SSEZ to other
parts of the Philippine territory.
On September 26, 1997, Executive Order No.
444 was issued, curtailing the duty-free
shopping privileges in the SSEZ and the CSEZ "to
prevent abuse of duty-free privilege and to
protect local industries from unfair
competition." The pertinent provisions of said
issuance state, as follows:
SECTION 3. Special Shopping Privileges Granted
During the Year-round Centennial Anniversary
Celebration in 1998. — Upon effectivity of this
Order and up to the Centennial Year 1998, in
addition to the permanent residents, locators
and employees of the fenced-in areas of the
Subic Special Economic and Freeport Zone and
the Clark Special Economic Zone who are
allowed unlimited duty free purchases,
provided these are consumed within said
fenced-in areas of the Zones, the residents of
the municipalities adjacent to Subic and Clark as
respectively provided in R.A. 7227 (1992) and
E.O. 97-A s. 1993 shall continue to be allowed
One Hundred US Dollars (US$100) monthly
shopping privilege until 31 December
1998. Domestic tourists visiting Subic and Clark
shall be allowed a shopping privilege of US$25
for consumable goods which shall be consumed
only in the fenced-in area during their
visit therein.
SECTION 4. Grant of Duty Free Shopping
Privileges Limited Only To Individuals Allowed
by Law. — Starting 1 January 1999, only the
following persons shall continue to be eligible to
shop in duty free shops/outlets with their
corresponding purchase limits:
a. Tourists and Filipinos traveling to or returning
from foreign destinations under E.O. 97-A s.
1993 — One Thousand US Dollars (US$1,000)
but not to exceed Ten Thousand US Dollars
(US$10,000) in any given year;
b. Overseas Filipino Workers (OFWs) and
Balikbayans defined under R.A. 6768 dated 3
November 1989 — Two Thousand US Dollars
(US$2,000);
c. Residents, eighteen (18) years old and above,
of the fenced-in areas of the freeports under
R.A. 7227 (1992) and E.O. 97-A s. 1993 —
Unlimited purchase as long as these are for
consumption within these freeports.
The term "Residents" mentioned in item c
above shall refer to individuals who, by virtue of
domicile or employment, reside on permanent
basis within the freeport area. The term
excludes (1) non-residents who have entered
into short- or long-term property lease inside
the freeport, (2) outsiders engaged in doing
business within the freeport, and (3) members
of private clubs (e.g., yacht and golf clubs)
based or located within the freeport. In this
regard, duty free privileges granted to any of
the above individuals (e.g., unlimited shopping
privilege, tax-free importation of cars, etc.) are
hereby revoked.23
A perusal of the above provisions indicates that
effective January 1, 1999, the grant of duty-free
shopping privileges to domestic tourists and to
residents living adjacent to SSEZ and the CSEZ
had been revoked. Residents of the fenced-in
area of the free port are still allowed unlimited
purchase of consumer goods, "as long as these
are for consumption within these freeports."
Hence, the only individuals allowed by law to
shop in the duty-free outlets and remove
consumer goods out of the free ports tax-free
are tourists and Filipinos traveling to or
returning from foreign destinations, and
Overseas Filipino Workers and Balikbayans as
defined under Republic Act No. 6768.24
Subsequently, on October 20, 2000, Executive
Order No. 303 was issued, amending Executive
Order No. 444. Pursuant to the limited duration
of the privileges granted under the preceding
issuance, Section 2 of Executive Order No. 303
declared that "[a]ll special shopping privileges
as granted under Section 3 of Executive Order
444, s. 1997, are hereby deemed terminated.
The grant of duty free shopping privileges shall
be restricted to qualified individuals as provided
by law."
It bears noting at this point that the shopping
privileges currently being enjoyed by Overseas
Filipino Workers, Balikbayans, and tourists
traveling to and from foreign destinations, draw
authority not from the issuances being assailed
herein, but from Executive Order No. 4625 and
Republic Act No. 6768, both enacted prior to
the promulgation of Republic Act No. 7227.
From the foregoing, it appears that petitioners’
objection to the allowance of tax-free removal
of goods from the special economic zones as
previously authorized by the questioned
issuances has become moot and academic.
In any event, Republic Act No. 7227, specifically
Section 12 (b) thereof, clearly provides that
"exportation or removal of goods from the
territory of the Subic Special Economic Zone to
the other parts of the Philippine territory shall
be subject to customs duties and taxes under
the Customs and Tariff Code and other relevant
tax laws of the Philippines."
Thus, the removal of goods from the SSEZ to
other parts of the Philippine territory without
payment of said customs duties and taxes is not
authorized by the Act. Consequently, the
following italicized provisions found in the
second sentences of paragraphs 1.2 and 1.3,
Section 1 of Executive Order No. 97-A are null
and void:
1.2 Residents of the SSEFPZ living outside the
Secured Area can enter and consume any
quantity of consumption items in hotels and
restaurants within the Secured Area. However,
these residents can purchase and bring out of
the Secured Area to other parts of the Philippine
territory consumer items worth not exceeding
US $100 per month per person. Only residents
age 15 and over are entitled to this privilege.
1.3 Filipinos not residing within the SSEFPZ can
enter the Secured Area and consume any
quantity of consumption items in hotels and
restaurants within the Secured Area. However,
they can purchase and bring out of the Secured
Area to other parts of the Philippine territory
consumer items worth not exceeding US $200
per year per person. Only Filipinos age 15 and
over are entitled to this privilege.26
A similar provision found in paragraph 5,
Section 4(A) of BCDA Board Resolution No. 93-
05-034 is also null and void. Said Resolution
applied the incentives given to the SSEZ under
Republic Act No. 7227 to the CSEZ, which, as
aforestated, is without legal basis.
Having concluded earlier that the CSEZ is
excluded from the tax and duty-free incentives
provided under Republic Act No. 7227, this
Court will resolve the remaining arguments only
with regard to the operations of the SSEZ. Thus,
the assailed issuance that will be discussed is
solely Executive Order No. 97-A, since it is the
only one among the three questioned issuances
which pertains to the SSEZ.
Equal Protection of the Laws
Petitioners argue that the assailed issuance
(Executive Order No. 97-A) is violative of their
right to equal protection of the laws, as
enshrined in Section 1, Article III of the
Constitution. To support this argument, they
assert that private respondents operating inside
the SSEZ are not different from the retail
establishments located outside, the products
sold being essentially the same. The only
distinction, they claim, lies in the products’
variety and source, and the fact that private
respondents import their items tax-free, to the
prejudice of the retailers and manufacturers
located outside the zone.
Petitioners’ contention cannot be sustained. It
is an established principle of constitutional law
that the guaranty of the equal protection of the
laws is not violated by a legislation based on a
reasonable classification.27 Classification, to be
valid, must (1) rest on substantial distinction, (2)
be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4)
apply equally to all members of the same
class.28
Applying the foregoing test to the present case,
this Court finds no violation of the right to equal
protection of the laws. First,  contrary to
petitioners’ claim, substantial distinctions lie
between the establishments inside and outside
the zone, justifying the difference in their
treatment. In Tiu v. Court of Appeals,29 the
constitutionality of Executive Order No. 97-A
was challenged for being violative of the equal
protection clause. In that case, petitioners
claimed that Executive Order No. 97-A was
discriminatory in confining the application of
Republic Act No. 7227 within a secured area of
the SSEZ, to the exclusion of those outside but
are, nevertheless, still within the economic
zone.
Upholding the constitutionality of Executive
Order No. 97-A, this Court therein found
substantial differences between the retailers
inside and outside the secured area, thereby
justifying a valid and reasonable classification:
Certainly, there are substantial differences
between the big investors who are being lured
to establish and operate their industries in the
so-called "secured area" and the present
business operators outside the area. On the one
hand, we are talking of billion-peso investments
and thousands of new jobs. On the other hand,
definitely none of such magnitude. In the first,
the economic impact will be national; in the
second, only local. Even more important, at this
time the business activities outside the "secured
area" are not likely to have any impact in
achieving the purpose of the law, which is to
turn the former military base to productive use
for the benefit of the Philippine economy. There
is, then, hardly any reasonable basis to extend
to them the benefits and incentives accorded in
R.A. 7227. Additionally, as the Court of Appeals
pointed out, it will be easier to manage and
monitor the activities within the "secured area,"
which is already fenced off, to prevent
"fraudulent importation of merchandise" or
smuggling.
It is well-settled that the equal-protection
guarantee does not require territorial
uniformity of laws. As long as there are actual
and material differences between territories,
there is no violation of the constitutional clause.
And of course, anyone, including the
petitioners, possessing the requisite investment
capital can always avail of the same benefits by
channeling his or her resources or business
operations into the fenced-off free port zone.30
The Court in Tiu  found real and substantial
distinctions between residents within the
secured area and those living within the
economic zone but outside the fenced-off area.
Similarly, real and substantial differences exist
between the establishments herein involved. A
significant distinction between the two groups
is that enterprises outside the zones maintain
their businesses within Philippine customs
territory, while private respondents and the
other duly-registered zone enterprises operate
within the so-called "separate customs
territory." To grant the same tax incentives
given to enterprises within the zones to
businesses operating outside the zones, as
petitioners insist, would clearly defeat the
statute’s intent to carve a territory out of the
military reservations in Subic Bay where free
flow of goods and capital is maintained.
The classification is germane to the purpose of
Republic Act No. 7227. As held in Tiu,  the real
concern of Republic Act No. 7227 is to convert
the lands formerly occupied by the US military
bases into economic or industrial areas. In
furtherance of such objective, Congress deemed
it necessary to extend economic incentives to
the establishments within the zone to attract
and encourage foreign and local investors. This
is the very rationale behind Republic Act No.
7227 and other similar special economic zone
laws which grant a complete package of tax
incentives and other benefits.
The classification, moreover, is not limited to
the existing conditions when the law was
promulgated, but to future conditions as well,
inasmuch as the law envisioned the former
military reservation to ultimately develop into a
self-sustaining investment center.
And, lastly, the classification applies equally to
all retailers found within the "secured area." As
ruled in Tiu,  the individuals and businesses
within the "secured area," being in like
circumstances or contributing directly to the
achievement of the end purpose of the law, are
not categorized further. They are all similarly
treated, both in privileges granted and in
obligations required.
With all the four requisites for a reasonable
classification present, there is no ground to
invalidate Executive Order No. 97-A for being
violative of the equal protection clause.
Prohibition against Unfair Competition
and Practices in Restraint of Trade
Petitioners next argue that the grant of special
tax exemptions and privileges gave the private
respondents undue advantage over local
enterprises which do not operate inside the
SSEZ, thereby creating unfair competition in
violation of the constitutional prohibition
against unfair competition and practices in
restraint of trade.
The argument is without merit. Just how the
assailed issuance is violative of the prohibition
against unfair competition and practices in
restraint of trade is not clearly explained in the
petition. Republic Act No. 7227, and
consequently Executive Order No. 97-A, cannot
be said to be distinctively arbitrary against the
welfare of businesses outside the zones. The
mere fact that incentives and privileges are
granted to certain enterprises to the exclusion
of others does not render the issuance
unconstitutional for espousing unfair
competition. Said constitutional prohibition
cannot hinder the Legislature from using tax
incentives as a tool to pursue its policies.
Suffice it to say that Congress had justifiable
reasons in granting incentives to the private
respondents, in accordance with Republic Act
No. 7227’s policy of developing the SSEZ into a
self-sustaining entity that will generate
employment and attract foreign and local
investment. If petitioners had wanted to avoid
any alleged unfavorable consequences on their
profits, they should upgrade their standards of
quality so as to effectively compete in the
market. In the alternative, if petitioners really
wanted the preferential treatment accorded to
the private respondents, they could have opted
to register with SSEZ in order to operate within
the special economic zone.
Preferential Use of Filipino Labor, Domestic
Materials
and Locally Produced Goods
Lastly, petitioners claim that the questioned
issuance (Executive Order No. 97-A) openly
violated the State policy of promoting the
preferential use of Filipino labor, domestic
materials and locally produced goods and
adopting measures to help make them
competitive.
Again, the argument lacks merit. This Court
notes that petitioners failed to substantiate
their sweeping conclusion that the issuance has
violated the State policy of giving preference to
Filipino goods and labor.  The mere fact that
said issuance authorizes the importation and
trade of foreign goods does not suffice to
declare it unconstitutional on this ground.
Petitioners cite Manila Prince Hotel v.
GSIS31  which, however, does not apply. That
case dealt with the policy enunciated under the
second paragraph of Section 10, Article XII of
the Constitution,32 applicable to the grant of
rights, privileges, and concessions "covering the
national economy and patrimony," which is
different from the policy invoked in this
petition, specifically that of giving preference to
Filipino materials and labor found under Section
12 of the same Article of the Constitution.
(Emphasis supplied).
In Tañada v. Angara,33  this Court elaborated on
the meaning of Section 12, Article XII of the
Constitution in this wise:
[W]hile the Constitution indeed mandates a bias
in favor of Filipino goods, services, labor and
enterprises, at the same time, it recognizes the
need for business exchange with the rest of the
world on the bases of equality and reciprocity
and limits protection of Filipino enterprises only
against foreign competition and trade practices
that are unfair. In other words, the Constitution
did not intend to pursue an isolationist policy. It
did not shut out foreign investments, goods and
services in the development of the Philippine
economy. While the Constitution does not
encourage the unlimited entry of foreign goods,
services and investments into the country, it
does not prohibit them either. In fact, it allows
an exchange on the basis of equality and
reciprocity, frowning only on foreign
competition that is unfair.34
This Court notes that the Executive Department,
with its subsequent issuance of Executive Order
Nos. 444 and 303, has provided certain
measures to prevent unfair competition. In
particular, Executive Order Nos. 444 and 303
have restricted the special shopping privileges
to certain individuals.35 Executive Order No. 303
has limited the range of items that may be sold
in the duty-free outlets,36 and imposed
sanctions to curb abuses of duty-free
privileges.37 With these measures, this Court
finds no reason to strike down Executive Order
No. 97-A for allegedly being prejudicial to
Filipino labor, domestic materials and locally
produced goods.
WHEREFORE, the petition is PARTLY GRANTED.
Section 5 of Executive Order No. 80 and Section
4 of BCDA Board Resolution No. 93-05-034 are
hereby declared NULL and VOID and are
accordingly declared of no legal force and
effect. Respondents are hereby enjoined from
implementing the aforesaid void provisions. All
portions of Executive Order No. 97-A are valid
and effective, except the second sentences in
paragraphs 1.2 and 1.3 of said Executive Order,
which are hereby declared INVALID.
No costs.
SO ORDERED.
G. R. No. 119775               October 24, 2003
JOHN HAY PEOPLES ALTERNATIVE COALITION,
MATEO CARIÑO FOUNDATION INC., CENTER
FOR ALTERNATIVE SYSTEMS FOUNDATION
INC., REGINA VICTORIA A. BENAFIN
REPRESENTED AND JOINED BY HER MOTHER
MRS. ELISA BENAFIN, IZABEL M. LUYK
REPRESENTED AND JOINED BY HER MOTHER
MRS. REBECCA MOLINA LUYK, KATHERINE PE
REPRESENTED AND JOINED BY HER MOTHER
ROSEMARIE G. PE, SOLEDAD S. CAMILO, ALICIA
C. PACALSO ALIAS "KEVAB," BETTY I.
STRASSER, RUBY C. GIRON, URSULA C. PEREZ
ALIAS "BA-YAY," EDILBERTO T. CLARAVALL,
CARMEN CAROMINA, LILIA G. YARANON,
DIANE MONDOC, Petitioners,
vs.
VICTOR LIM, PRESIDENT, BASES CONVERSION
DEVELOPMENT AUTHORITY; JOHN HAY PORO
POINT DEVELOPMENT CORPORATION, CITY OF
BAGUIO, TUNTEX (B.V.I.) CO. LTD.,
ASIAWORLD INTERNATIONALE GROUP, INC.,
DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES, Respondents.
DECISION
CARPIO MORALES, J.:
By the present petition for
prohibition, mandamus and declaratory relief
with prayer for a temporary restraining order
(TRO) and/or writ of preliminary injunction,
petitioners assail, in the main, the
constitutionality of Presidential Proclamation
No. 420, Series of 1994, "CREATING AND
DESIGNATING a portion of the area covered by
the former Camp John [Hay] as THE JOHN HAY
Special Economic Zone pursuant to R.A. No.
7227."
R.A. No. 7227, AN ACT ACCELERATING THE
CONVERSION OF MILITARY RESERVATIONS INTO
OTHER PRODUCTIVE USES, CREATING THE
BASES CONVERSION AND DEVELOPMENT
AUTHORITY FOR THIS PURPOSE, PROVIDING
FUNDS THEREFOR AND FOR OTHER PURPOSES,
otherwise known as the "Bases Conversion and
Development Act of 1992," which was enacted
on March 13, 1992, set out the policy of the
government to accelerate the sound and
balanced conversion into alternative productive
uses of the former military bases under the
1947 Philippines-United States of America
Military Bases Agreement, namely, the Clark
and Subic military reservations as well as their
extensions including the John Hay Station
(Camp John Hay or the camp) in the City of
Baguio.1
As noted in its title, R.A. No. 7227 created public
respondent Bases Conversion and Development
Authority2 (BCDA), vesting it with powers
pertaining to the multifarious aspects of
carrying out the ultimate objective of utilizing
the base areas in accordance with the declared
government policy.
R.A. No. 7227 likewise created the Subic Special
Economic [and Free Port] Zone (Subic SEZ) the
metes and bounds of which were to be
delineated in a proclamation to be issued by the
President of the Philippines.3
R.A. No. 7227 granted the Subic SEZ incentives
ranging from tax and duty-free importations,
exemption of businesses therein from local and
national taxes, to other hallmarks of a
liberalized financial and business climate.4
And R.A. No. 7227 expressly gave authority to
the President to create through executive
proclamation, subject to the concurrence of the
local government units directly affected, other
Special Economic Zones (SEZ) in the areas
covered respectively by the Clark military
reservation, the Wallace Air Station in San
Fernando, La Union, and Camp John Hay.5
On August 16, 1993, BCDA entered into a
Memorandum of Agreement and Escrow
Agreement with private respondents Tuntex
(B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD),
private corporations registered under the laws
of the British Virgin Islands, preparatory to the
formation of a joint venture for the
development of Poro Point in La Union and
Camp John Hay as premier tourist destinations
and recreation centers. Four months later or on
December 16, 1993, BCDA, TUNTEX and
ASIAWORD executed a Joint Venture
Agreement6 whereby they bound themselves to
put up a joint venture company known as the
Baguio International Development and
Management Corporation which would lease
areas within Camp John Hay and Poro Point for
the purpose of turning such places into principal
tourist and recreation spots, as originally
envisioned by the parties under their
Memorandum of Agreement.
The Baguio City government meanwhile passed
a number of resolutions in response to the
actions taken by BCDA as owner and
administrator of Camp John Hay.
By Resolution7 of September 29, 1993,
the Sangguniang Panlungsod of Baguio City
(the sanggunian) officially asked BCDA to
exclude all the barangays partly or totally
located within Camp John Hay from the reach or
coverage of any plan or program for its
development.
By a subsequent Resolution8 dated January 19,
1994, the sanggunian  sought from BCDA an
abdication, waiver or quitclaim of its ownership
over the home lots being occupied by residents
of nine (9) barangays surrounding the military
reservation.
Still by another resolution passed on February
21, 1994, the sanggunian  adopted and
submitted to BCDA a 15-point concept for the
development of Camp John
Hay.9 The sanggunian's  vision expressed, among
other things, a kind of development that affords
protection to the environment, the making of a
family-oriented type of tourist destination,
priority in employment opportunities for Baguio
residents and free access to the base area,
guaranteed participation of the city government
in the management and operation of the camp,
exclusion of the previously named nine
barangays from the area for development, and
liability for local taxes of businesses to be
established within the camp.10
BCDA, Tuntex and AsiaWorld agreed to some,
but rejected or modified the other proposals of
the sanggunian.11 They stressed the need to
declare Camp John Hay a SEZ as a condition
precedent to its full development in accordance
with the mandate of R.A. No. 7227.12
On May 11, 1994, the sanggunian  passed a
resolution requesting the Mayor to order the
determination of realty taxes which may
otherwise be collected from real properties of
Camp John Hay.13 The resolution was intended
to intelligently guide the sanggunian  in
determining its position on whether Camp John
Hay be declared a SEZ, it (the sanggunian) being
of the view that such declaration would exempt
the camp's property and the economic activity
therein from local or national taxation.
More than a month later, however,
the sanggunian  passed Resolution No. 255,
(Series of 1994),14 seeking and supporting,
subject to its concurrence, the issuance by then
President Ramos of a presidential proclamation
declaring an area of 288.1 hectares of the camp
as a SEZ in accordance with the provisions of
R.A. No. 7227. Together with this resolution was
submitted a draft of the proposed proclamation
for consideration by the President.15
On July 5, 1994 then President Ramos issued
Proclamation No. 420,16 the title of which was
earlier indicated, which established a SEZ on a
portion of Camp John Hay and which reads as
follows:
xxx
Pursuant to the powers vested in me by the law
and the resolution of concurrence by the City
Council of Baguio, I, FIDEL V. RAMOS, President
of the Philippines, do hereby create and
designate a portion of the area covered by the
former John Hay reservation as embraced,
covered, and defined by the 1947 Military Bases
Agreement between the Philippines and the
United States of America, as amended, as the
John Hay Special Economic Zone, and
accordingly order:
SECTION 1. Coverage of John Hay Special
Economic Zone. -  The John Hay Special
Economic Zone shall cover the area consisting
of Two Hundred Eighty Eight and one/tenth
(288.1) hectares, more or less, of the total of Six
Hundred Seventy-Seven (677) hectares of the
John Hay Reservation, more or less, which have
been surveyed and verified by the Department
of Environment and Natural Resources (DENR)
as defined by the following technical
description:
A parcel of land, situated in the City of Baguio,
Province of Benguet, Island of Luzon, and
particularly described in survey plans Psd-
131102-002639 and Ccs-131102-000030 as
approved on 16 August 1993 and 26 August
1993, respectively, by the Department of
Environment and Natural Resources, in detail
containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot
13, Lot 14, Lot 15, and Lot 20 of Ccs-131102-
000030
-and-
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot
10, Lot 11, Lot 14, Lot 15, Lot 16, Lot 17, and Lot
18 of Psd-131102-002639 being portions of TCT
No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED
EIGHTY EIGHT AND ONE/TENTH HECTARES
(288.1 hectares); Provided that the area
consisting of approximately Six and two/tenth
(6.2) hectares, more or less, presently occupied
by the VOA and the residence of the
Ambassador of the United States, shall be
considered as part of the SEZ only upon
turnover of the properties to the government of
the Republic of the Philippines.
Sec. 2. Governing Body of the John Hay Special
Economic Zone. - Pursuant to Section 15 of R.A.
No. 7227, the Bases Conversion and
Development Authority is hereby established as
the governing body of the John Hay Special
Economic Zone and, as such, authorized to
determine the utilization and disposition of the
lands comprising it, subject to private rights, if
any, and in consultation and coordination with
the City Government of Baguio after
consultation with its inhabitants, and to
promulgate the necessary policies, rules, and
regulations to govern and regulate the zone
thru the John Hay Poro Point Development
Corporation, which is its implementing arm for
its economic development and optimum
utilization.
Sec. 3. Investment Climate in John Hay Special
Economic Zone. - Pursuant to Section 5(m) and
Section 15 of R.A. No. 7227, the John Hay Poro
Point Development Corporation shall
implement all necessary policies, rules, and
regulations governing the zone, including
investment incentives, in consultation with
pertinent government departments. Among
others, the zone shall have all the applicable
incentives of the Special Economic Zone under
Section 12 of R.A. No. 7227 and those
applicable incentives granted in the Export
Processing Zones, the Omnibus Investment
Code of 1987, the Foreign Investment Act of
1991, and new investment laws that may
hereinafter be enacted.
Sec. 4. Role of Departments, Bureaus, Offices,
Agencies and Instrumentalities. - All Heads of
departments, bureaus, offices, agencies, and
instrumentalities of the government are hereby
directed to give full support to Bases
Conversion and Development Authority and/or
its implementing subsidiary or joint venture to
facilitate the necessary approvals to expedite
the implementation of various projects of the
conversion program.
Sec. 5. Local Authority.  - Except as herein
provided, the affected local government units
shall retain their basic autonomy and identity.
Sec. 6. Repealing Clause. - All orders, rules, and
regulations, or parts thereof, which are
inconsistent with the provisions of this
Proclamation, are hereby repealed, amended,
or modified accordingly.
Sec. 7. Effectivity.  This proclamation shall take
effect immediately.
Done in the City of Manila, this 5th day of July,
in the year of Our Lord, nineteen hundred and
ninety-four.
The issuance of Proclamation No. 420 spawned
the present petition17 for
prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in
the main, its constitutionality or validity as well
as the legality of the Memorandum of
Agreement and Joint Venture Agreement
between public respondent BCDA and private
respondents Tuntex and AsiaWorld.
Petitioners allege as grounds for the allowance
of the petition the following:
I. PRESIDENTIAL PROCLAMATION NO. 420,
SERIES OF 1990 (sic) IN SO FAR AS IT GRANTS
TAX EXEMPTIONS IS INVALID AND ILLEGAL AS IT
IS AN UNCONSTITUTIONAL EXERCISE BY THE
PRESIDENT OF A POWER GRANTED ONLY TO
THE LEGISLATURE.
II .PRESIDENTIAL PROCLAMATION NO. 420, IN
SO FAR AS IT LIMITS THE POWERS AND
INTERFERES WITH THE AUTONOMY OF THE CITY
OF BAGUIO IS INVALID, ILLEGAL AND
UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420,
SERIES OF 1994 IS UNCONSTITUTIONAL IN THAT
IT VIOLATES THE RULE THAT ALL TAXES SHOULD
BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT
ENTERED INTO BY AND BETWEEN PRIVATE AND
PUBLIC RESPONDENTS BASES CONVERSION
DEVELOPMENT AUTHORITY HAVING BEEN
ENTERED INTO ONLY BY DIRECT NEGOTIATION
IS ILLEGAL.
V. THE TERMS AND CONDITIONS OF THE
MEMORANDUM OF AGREEMENT ENTERED
INTO BY AND BETWEEN PRIVATE AND PUBLIC
RESPONDENT BASES CONVERSION
DEVELOPMENT AUTHORITY IS (sic) ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF
RESPONDENTS NOT HAVING UNDERGONE
ENVIRONMENTAL IMPACT ASSESSMENT IS
BEING ILLEGALLY CONSIDERED WITHOUT A
VALID ENVIRONMENTAL IMPACT ASSESSMENT.
A temporary restraining order and/or writ of
preliminary injunction was prayed for to enjoin
BCDA, John Hay Poro Point Development
Corporation and the city government from
implementing Proclamation No. 420, and
Tuntex and AsiaWorld from proceeding with
their plan respecting Camp John Hay's
development pursuant to their Joint Venture
Agreement with BCDA.18
Public respondents, by their separate
Comments, allege as moot and academic the
issues raised by the petition, the questioned
Memorandum of Agreement and Joint Venture
Agreement having already been deemed
abandoned by the inaction of the parties
thereto prior to the filing of the petition as in
fact, by letter of November 21, 1995, BCDA
formally notified Tuntex and AsiaWorld of the
revocation of their said agreements.19
In maintaining the validity of Proclamation No.
420, respondents contend that by extending to
the John Hay SEZ economic incentives similar to
those enjoyed by the Subic SEZ which was
established under R.A. No. 7227, the
proclamation is merely implementing the
legislative intent of said law to turn the US
military bases into hubs of business activity or
investment. They underscore the point that the
government's policy of bases conversion can
not be achieved without extending the same tax
exemptions granted by R.A. No. 7227 to Subic
SEZ to other SEZs.
Denying that Proclamation No. 420 is in
derogation of the local autonomy of Baguio City
or that it is violative of the constitutional
guarantee of equal protection, respondents
assail petitioners' lack of standing to bring the
present suit even as taxpayers and in the
absence of any actual case or controversy to
warrant this Court's exercise of its power of
judicial review over the proclamation.
Finally, respondents seek the outright dismissal
of the petition for having been filed in disregard
of the hierarchy of courts and of the doctrine of
exhaustion of administrative remedies.
Replying,20 petitioners aver that the doctrine of
exhaustion of administrative remedies finds no
application herein since they are invoking the
exclusive authority of this Court under Section
21 of R.A. No. 7227 to enjoin or restrain
implementation of projects for conversion of
the base areas; that the established exceptions
to the aforesaid doctrine obtain in the present
petition; and that they possess the standing to
bring the petition which is a taxpayer's suit.
Public respondents have filed their
Rejoinder21 and the parties have filed their
respective memoranda.
Before dwelling on the core issues, this Court
shall first address the preliminary procedural
questions confronting the petition.
The judicial policy is and has always been that
this Court will not entertain direct resort to it
except when the redress sought cannot be
obtained in the proper courts, or when
exceptional and compelling circumstances
warrant availment of a remedy within and
calling for the exercise of this Court's primary
jurisdiction.22 Neither will it entertain an action
for declaratory relief, which is partly the nature
of this petition, over which it has no original
jurisdiction.
Nonetheless, as it is only this Court which has
the power under Section 2123 of R.A. No. 7227
to enjoin implementation of projects for the
development of the former US military
reservations, the issuance of which injunction
petitioners pray for, petitioners' direct filing of
the present petition with it is allowed. Over and
above this procedural objection to the present
suit, this Court retains full discretionary power
to take cognizance of a petition filed directly to
it if compelling reasons, or the nature and
importance of the issues raised,
24 
warrant. Besides, remanding the case to the
lower courts now would just unduly prolong
adjudication of the issues.
The transformation of a portion of the area
covered by Camp John Hay into a SEZ is not
simply a re-classification of an area, a mere
ascription of a status to a place. It involves
turning the former US military reservation into a
focal point for investments by both local and
foreign entities. It is to be made a site of
vigorous business activity, ultimately serving as
a spur to the country's long awaited economic
growth. For, as R.A. No. 7227 unequivocally
declares, it is the government's policy to
enhance the benefits to be derived from the
base areas in order to promote the economic
and social development of Central Luzon in
particular and the country in general.25 Like the
Subic SEZ, the John Hay SEZ should also be
turned into a "self-sustaining, industrial,
commercial, financial and investment center."26
More than the economic interests at stake, the
development of Camp John Hay as well as of
the other base areas unquestionably has critical
links to a host of environmental and social
concerns. Whatever use to which these lands
will be devoted will set a chain of events that
can affect one way or another the social and
economic way of life of the communities where
the bases are located, and ultimately the nation
in general.
Underscoring the fragility of Baguio City's
ecology with its problem on the scarcity of its
water supply, petitioners point out that the
local and national government are faced with
the challenge of how to provide for an
ecologically sustainable, environmentally sound,
equitable transition for the city in the wake of
Camp John Hay's reversion to the mass of
government property.27 But that is why R.A. No.
7227 emphasizes the "sound and balanced
conversion of the Clark and Subic military
reservations and their extensions consistent
with ecological and environmental
standards."28 It cannot thus be gainsaid that the
matter of conversion of the US bases into SEZs,
in this case Camp John Hay, assumes
importance of a national magnitude.
Convinced then that the present petition
embodies crucial issues, this Court assumes
jurisdiction over the petition.
As far as the questioned agreements between
BCDA and Tuntex and AsiaWorld are concerned,
the legal questions being raised thereon by
petitioners have indeed been rendered moot
and academic by the revocation of such
agreements. There are, however, other issues
posed by the petition, those which center on
the constitutionality of Proclamation No. 420,
which have not been mooted by the said
supervening event upon application of the rules
for the judicial scrutiny of constitutional cases.
The issues boil down to:
(1) Whether the present petition complies with the requ
jurisdiction over constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by providin
within and granting other economic incentives to the John H
(3) Whether Proclamation No. 420 is constitutional for limiting
of Baguio City;
It is settled that when questions of
constitutional significance are raised, the court
can exercise its power of judicial review only if
the following requisites are present: (1) the
existence of an actual and appropriate case; (2)
a personal and substantial interest of the party
raising the constitutional question; (3) the
exercise of judicial review is pleaded at the
earliest opportunity; and (4) the constitutional
question is the lis mota of the case.29
An actual case or controversy refers to an
existing case or controversy that is appropriate
or ripe for determination, not conjectural or
anticipatory.30 The controversy needs to be
definite and concrete, bearing upon the legal
relations of parties who are pitted against each
other due to their adverse legal
31 
interests. There is in the present case a real
clash of interests and rights between petitioners
and respondents arising from the issuance of a
presidential proclamation that converts a
portion of the area covered by Camp John Hay
into a SEZ, the former insisting that such
proclamation contains unconstitutional
provisions, the latter claiming otherwise.
R.A. No. 7227 expressly requires
the concurrence of the affected local
government units to the creation of SEZs out of
all the base areas in the country.32 The grant by
the law on local government units of the right
of concurrence on the bases' conversion is
equivalent to vesting a legal standing on them,
for it is in effect a recognition of the real
interests that communities nearby or
surrounding a particular base area have in its
utilization. Thus, the interest of petitioners,
being inhabitants of Baguio, in assailing the
legality of Proclamation No. 420, is personal and
substantial such that they have sustained or will
sustain direct injury as a result of the
government act being challenged.33 Theirs is a
material interest, an interest in issue affected by
the proclamation and not merely an interest in
the question involved or an incidental
interest,34 for what is at stake in the
enforcement of Proclamation No. 420 is the
very economic and social existence of the
people of Baguio City.
Petitioners' locus standi  parallels that of the
petitioner and other residents of Bataan,
specially of the town of Limay, in Garcia v.
Board of Investments35 where this Court
characterized their interest in the establishment
of a petrochemical plant in their place as actual,
real, vital and legal, for it would affect not only
their economic life but even the air they
breathe.
Moreover, petitioners Edilberto T. Claravall and
Lilia G. Yaranon were duly elected councilors of
Baguio at the time, engaged in the local
governance of Baguio City and whose duties
included deciding for and on behalf of their
constituents the question of whether to concur
with the declaration of a portion of the area
covered by Camp John Hay as a SEZ. Certainly
then, petitioners Claravall and Yaranon, as city
officials who voted
36 
against the sanggunian  Resolution No. 255
(Series of 1994) supporting the issuance of the
now challenged Proclamation No. 420, have
legal standing to bring the present petition.
That there is herein a dispute on legal rights and
interests is thus beyond doubt. The mootness of
the issues concerning the questioned
agreements between public and private
respondents is of no moment.
"By the mere enactment of the questioned law
or the approval of the challenged act, the
dispute is deemed to have ripened into a
judicial controversy even without any other
overt act. Indeed, even a singular violation of
the Constitution and/or the law is enough to
awaken judicial duty."37
As to the third and fourth requisites of a judicial
inquiry, there is likewise no question that they
have been complied with in the case at bar. This
is an action filed purposely to bring forth
constitutional issues, ruling on which this Court
must take up. Besides, respondents never
raised issues with respect to these requisites,
hence, they are deemed waived.
Having cleared the way for judicial review, the
constitutionality of Proclamation No. 420, as
framed in the second and third issues above,
must now be addressed squarely.
The second issue refers to petitioners' objection
against the creation by Proclamation No. 420 of
a regime of tax exemption within the John Hay
SEZ. Petitioners argue that nowhere in R. A. No.
7227 is there a grant of tax exemption to
SEZs yet to be established in base areas, unlike
the grant under Section 12 thereof of tax
exemption and investment incentives to the
therein established Subic SEZ. The grant of tax
exemption to the John Hay SEZ, petitioners
conclude, thus contravenes Article VI, Section
28 (4) of the Constitution which provides that
"No law granting any tax exemption shall be
passed without the concurrence of a majority of
all the members of Congress."
Section 3 of Proclamation No. 420, the
challenged provision, reads:
Sec. 3. Investment Climate in John Hay Special
Economic Zone. - Pursuant to Section 5(m) and
Section 15 of R.A. No. 7227, the John Hay Poro
Point Development Corporation shall
implement all necessary policies, rules, and
regulations governing the zone, including
investment incentives, in consultation with
pertinent government departments. Among
others, the zone shall have all the applicable
incentives of the Special Economic Zone under
Section 12 of R.A. No. 7227 and those
applicable incentives granted in the Export
Processing Zones, the Omnibus Investment
Code of 1987, the Foreign Investment Act of
1991, and new investment laws that may
hereinafter be enacted. (Emphasis and
underscoring supplied)
Upon the other hand, Section 12 of R.A. No.
7227 provides:
xxx
(a) Within the framework and subject to the
mandate and limitations of the Constitution and
the pertinent provisions of the Local
Government Code, the Subic Special Economic
Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment
center to generate employment opportunities
in and around the zone and to attract and
promote productive foreign investments;
b) The Subic Special Economic Zone shall be
operated and managed as a separate customs
territory ensuring free flow or movement of
goods and capital within, into and exported out
of the Subic Special Economic Zone, as well as
provide incentives such as tax and duty free
importations of raw materials, capital and
equipment. However, exportation or removal of
goods from the territory of the Subic Special
Economic Zone to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the
Philippines;
(c) The provisions of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed
within the Subic Special Economic Zone. In lieu
of paying taxes, three percent (3%) of the gross
income earned by all businesses and enterprises
within the Subic Special Economic Zone shall be
remitted to the National Government, one
percent (1%) each to the local government units
affected by the declaration of the zone in
proportion to their population area, and other
factors. In addition, there is hereby established
a development fund of one percent (1%) of the
gross income earned by all businesses and
enterprises within the Subic Special Economic
Zone to be utilized for the Municipality of Subic,
and other municipalities contiguous to be base
areas. In case of conflict between national and
local laws with respect to tax exemption
privileges in the Subic Special Economic Zone,
the same shall be resolved in favor of the latter;
(d) No exchange control policy shall be applied
and free markets for foreign exchange, gold,
securities and futures shall be allowed and
maintained in the Subic Special Economic Zone;
(e) The Central Bank, through the Monetary
Board, shall supervise and regulate the
operations of banks and other financial
institutions within the Subic Special Economic
Zone;
(f) Banking and Finance shall be liberalized with
the establishment of foreign currency
depository units of local commercial banks and
offshore banking units of foreign banks with
minimum Central Bank regulation;
(g) Any investor within the Subic Special
Economic Zone whose continuing investment
shall not be less than Two Hundred fifty
thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21)
years of age, shall be granted permanent
resident status within the Subic Special
Economic Zone. They shall have freedom of
ingress and egress to and from the Subic Special
Economic Zone without any need of special
authorization from the Bureau of Immigration
and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act
may also issue working visas renewable every
two (2) years to foreign executives and other
aliens possessing highly-technical skills which no
Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of
Labor and Employment. The names of aliens
granted permanent residence status and
working visas by the Subic Bay Metropolitan
Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30)
days after issuance thereof;
x x x (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227
it is only the Subic SEZ which was granted by
Congress with tax exemption, investment
incentives and the like. There is no express
extension of the aforesaid benefits to other
SEZs still to be created at the time via
presidential proclamation.
The deliberations of the Senate confirm the
exclusivity to Subic SEZ of the tax and
investment privileges accorded it under the law,
as the following exchanges between our
lawmakers show during the second reading of
the precursor bill of R.A. No. 7227 with respect
to the investment policies that would govern
Subic SEZ which are now embodied in the
aforesaid Section 12 thereof:
xxx
Senator Maceda: This is what I was talking
about. We get into problems here because all of
these following policies are centered around
the concept of free port. And in the main
paragraph above, we have declared both Clark
and Subic as special economic zones, subject to
these policies which are, in effect, a free-port
arrangement.
Senator Angara: The Gentleman is absolutely
correct, Mr. President. So we must confine
these policies only to Subic.
May I withdraw then my amendment, and
instead provide that "THE SPECIAL ECONOMIC
ZONE OF SUBIC SHALL BE ESTABLISHED IN
ACCORDANCE WITH THE FOLLOWING
POLICIES." Subject to style, Mr. President.
Thus, it is very clear that these principles and
policies are applicable only to Subic as a free
port.
Senator Paterno: Mr. President.
The President: Senator Paterno is recognized.
Senator Paterno: I take it that the amendment
suggested by Senator Angara would then
prevent the establishment of other special
economic zones observing these policies.
Senator Angara: No, Mr. President, because
during our short caucus, Senator Laurel raised
the point that if we give this delegation to the
President to establish other economic zones,
that may be an unwarranted delegation.
So we agreed that we will simply limit the
definition of powers and description of the zone
to Subic, but that does not exclude the
possibility of creating other economic zones
within the baselands.
Senator Paterno: But if that amendment is
followed, no other special economic zone may
be created under authority of this particular bill.
Is that correct, Mr. President?
Senator Angara: Under this specific provision,
yes, Mr. President. This provision now will be
confined only to Subic.38
x x x (Underscoring supplied).
As gathered from the earlier-quoted Section 12
of R.A. No. 7227, the privileges given to Subic
SEZ consist principally of exemption from tariff
or customs duties, national and local taxes of
business entities therein (paragraphs (b) and
(c)), free market and trade of specified goods or
properties (paragraph d), liberalized banking
and finance (paragraph f), and relaxed
immigration rules for foreign investors
(paragraph g). Yet, apart from these,
Proclamation No. 420 also makes available to
the John Hay SEZ benefits existing in other laws
such as the privilege of export processing zone-
based businesses of importing capital
equipment and raw materials free from taxes,
duties and other restrictions;39 tax and duty
exemptions, tax holiday, tax credit, and other
incentives under the Omnibus Investments
Code of 1987;40 and the applicability to the
subject zone of rules governing foreign
investments in the Philippines.41
While the grant of economic incentives may be
essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof
to the John Hay SEZ cannot be sustained. The
incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the
extension of the same to the John Hay SEZ finds
no support therein. Neither does the same
grant of privileges to the John Hay SEZ find
support in the other laws specified under
Section 3 of Proclamation No. 420, which laws
were already extant before the issuance of the
proclamation or the enactment of R.A. No.
7227.
More importantly, the nature of most of the
assailed privileges is one of tax exemption. It is
the legislature, unless limited by a provision of
the state constitution, that has full power to
exempt any person or corporation or class of
property from taxation, its power to exempt
being as broad as its power to tax.42 Other than
Congress, the Constitution may itself provide for
specific tax exemptions,43 or local governments
may pass ordinances on exemption only from
local taxes.44
The challenged grant of tax exemption would
circumvent the Constitution's imposition that a
law granting any tax exemption must have the
concurrence of a majority of all the members of
Congress.45 In the same vein, the other kinds of
privileges extended to the John Hay SEZ are by
tradition and usage for Congress to legislate
upon.
Contrary to public respondents' suggestions,
the claimed statutory exemption of the John
Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on
which it is based; it must be expressly granted in
a statute stated in a language too clear to be
mistaken.46 Tax exemption cannot be implied as
it must be categorically and unmistakably
expressed.47
If it were the intent of the legislature to grant to
the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would have
so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of
the political departments of the government on
either of two grounds-infringement of the
Constitution or grave abuse of discretion.48
This Court then declares that the grant by
Proclamation No. 420 of tax exemption and
other privileges to the John Hay SEZ is void for
being violative of the Constitution. This renders
it unnecessary to still dwell on petitioners' claim
that the same grant violates the equal
protection guarantee.
With respect to the final issue raised by
petitioners -- that Proclamation No. 420 is
unconstitutional for being in derogation of
Baguio City's local autonomy, objection is
specifically mounted against Section 2 thereof
in which BCDA is set up as the governing body
of the John Hay SEZ.49
Petitioners argue that there is no authority of
the President to subject the John Hay SEZ to the
governance of BCDA which has just oversight
functions over SEZ; and that to do so is to
diminish the city government's power over an
area within its jurisdiction, hence, Proclamation
No. 420 unlawfully gives the President power of
control over the local government instead of
just mere supervision.
Petitioners' arguments are bereft of merit.
Under R.A. No. 7227, the BCDA is entrusted
with, among other things, the following
purpose:50
xxx
(a) To own, hold and/or administer the military
reservations of John Hay Air Station, Wallace Air
Station, O'Donnell Transmitter Station, San
Miguel Naval Communications Station, Mt. Sta.
Rita Station (Hermosa, Bataan) and those
portions of Metro Manila Camps which may be
transferred to it by the President;
x x x (Underscoring supplied)
With such broad rights of ownership and
administration vested in BCDA over Camp John
Hay, BCDA virtually has control over it, subject
to certain limitations provided for by law. By
designating BCDA as the governing agency of
the John Hay SEZ, the law merely emphasizes or
reiterates the statutory role or functions it has
been granted.
The unconstitutionality of the grant of tax
immunity and financial incentives as contained
in the second sentence of Section 3 of
Proclamation No. 420 notwithstanding, the
entire assailed proclamation cannot be declared
unconstitutional, the other parts thereof not
being repugnant to law or the Constitution. The
delineation and declaration of a portion of the
area covered by Camp John Hay as a SEZ was
well within the powers of the President to do so
by means of a proclamation.51 The requisite
prior concurrence by the Baguio City
government to such proclamation appears to
have been given in the form of a duly enacted
resolution by the sanggunian. The other
provisions of the proclamation had been proven
to be consistent with R.A. No. 7227.
Where part of a statute is void as contrary to
the Constitution, while another part is valid, the
valid portion, if separable from the invalid, may
stand and be enforced.52 This Court finds that
the other provisions in Proclamation No. 420
converting a delineated portion of Camp John
Hay into the John Hay SEZ are separable from
the invalid second sentence of Section 3
thereof, hence they stand.
WHEREFORE, the second sentence of Section 3
of Proclamation No. 420 is hereby declared
NULL AND VOID and is accordingly declared of
no legal force and effect. Public respondents are
hereby enjoined from implementing the HON. LIWAYWAY V. CHATO, in her capacity as
aforesaid void provision. Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as
Proclamation No. 420, without the invalidated Executive Secretary; and HON. ROBERTO B. DE
portion, remains valid and effective. OCAMPO, in his capacity as Secretary of
Finance, respondents.
SO ORDERED.
G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS

G.R. No. 115455 October 30, 1995 ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
ARTURO M. TOLENTINO, petitioner, THE COMMISSIONER OF INTERNAL
vs. REVENUE, respondent.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL G.R. No. 115781 October 30, 1995
REVENUE, respondents.
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO
G.R. No. 115525 October 30, 1995 A. RIGOS, ERME CAMBA, EMILIO C.
CAPULONG, JR., JOSE T. APOLO, EPHRAIM
JUAN T. DAVID, petitioner, TENDERO, FERNANDO SANTIAGO, JOSE
vs. ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
TEOFISTO T. GUINGONA, JR., as Executive RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
Secretary; ROBERTO DE OCAMPO, as Secretary JOSE CUNANAN, QUINTIN S. DOROMAL,
of Finance; LIWAYWAY VINZONS-CHATO, as MOVEMENT OF ATTORNEYS FOR
Commissioner of Internal Revenue; and their BROTHERHOOD, INTEGRITY AND
AUTHORIZED AGENTS OR NATIONALISM, INC. ("MABINI"), FREEDOM
REPRESENTATIVES, respondents. FROM DEBT COALITION, INC., and PHILIPPINE
BIBLE SOCIETY, INC. and WIGBERTO
G.R. No. 115543 October 30, 1995 TAÑADA, petitioners,
vs.
RAUL S. ROCO and the INTEGRATED BAR OF THE EXECUTIVE SECRETARY, THE SECRETARY
THE PHILIPPINES, petitioners, OF FINANCE, THE COMMISSIONER OF
vs. INTERNAL REVENUE and THE COMMISSIONER
THE SECRETARY OF THE DEPARTMENT OF OF CUSTOMS, respondents.
FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU G.R. No. 115852 October 30, 1995
OF CUSTOMS, respondents.
PHILIPPINE AIRLINES, INC., petitioner,
G.R. No. 115544 October 30, 1995 vs.
THE SECRETARY OF FINANCE and
PHILIPPINE PRESS INSTITUTE, INC.; EGP COMMISSIONER OF INTERNAL
PUBLISHING CO., INC.; KAMAHALAN REVENUE, respondents.
PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA G.R. No. 115873 October 30, 1995
L. DIMALANTA, petitioners,
vs.
COOPERATIVE UNION OF THE
PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as
Executive Secretary, and HON. ROBERTO B. DE
OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS
ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the
Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal
Revenue; and HON. GUILLERMO PARAYNO,
JR., in his capacity as the Commissioner of
Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of
our decision dismissing the petitions filed in
these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have
been filed by the several petitioners in these
cases, with the exception of the Philippine
Educational Publishers Association, Inc. and the
Association of Philippine Booksellers,
petitioners in G.R. No. 115931.
The Solicitor General, representing the
respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in
G.R. No. 115852, and the Philippine Press
Institute, Inc., petitioner in G.R. No. 115544,
and Juan T. David, petitioner in G.R. No. 115525,
each filed a reply. In turn the Solicitor General
filed on June 1, 1995 a rejoinder to the PPI's
reply.
On June 27, 1995 the matter was submitted for
resolution.
I. Power of the Senate to propose amendments
to revenue bills. Some of the petitioners
(Tolentino, Kilosbayan, Inc., Philippine Airlines
(PAL), Roco, and Chamber of Real Estate and
Builders Association (CREBA)) reiterate previous
claims made by them that R.A. No. 7716 did not
"originate exclusively" in the House of
Representatives as required by Art. VI, §24 of
the Constitution. Although they admit that H.
No. 11197 was filed in the House of
Representatives where it passed three readings
and that afterward it was sent to the Senate
where after first reading it was referred to the
Senate Ways and Means Committee, they
complain that the Senate did not pass it on
second and third readings. Instead what the
Senate did was to pass its own version (S. No.
1630) which it approved on May 24, 1994.
Petitioner Tolentino adds that what the Senate
committee should have done was to amend H.
No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That
way, it is said, "the bill remains a House bill and
the Senate version just becomes the text (only
the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only
instance in which the Senate proposed an
amendment to a House revenue bill by enacting
its own version of a revenue bill. On at least two
occasions during the Eighth Congress, the
Senate passed its own version of revenue bills,
which, in consolidation with House bills earlier
passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE
OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS
THE PERIOD FOR TAX AND DUTY EXEMPTION AN ACT TO EMPOWER THE
AND TAX CREDIT ON CAPITAL EQUIPMENT) COMMISSIONER OF INTERNAL
which was approved by the President on April REVENUE TO REQUIRE THE
10, 1992. This Act is actually a consolidation of PAYMENT OF THE VALUE-
H. No. 34254, which was approved by the ADDED TAX EVERY MONTH AND
House on January 29, 1992, and S. No. 1920, TO ALLOW LOCAL
which was approved by the Senate on February GOVERNMENT UNITS TO SHARE
3, 1992. IN VAT REVENUE, AMENDING
FOR THIS PURPOSE CERTAIN
R.A. No. 7549 (AN ACT GRANTING TAX SECTIONS OF THE NATIONAL
EXEMPTIONS TO WHOEVER SHALL GIVE INTERNAL REVENUE CODE
REWARD TO ANY FILIPINO ATHLETE WINNING A (December 28, 1992)
MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. House Bill No. 1503, September
This Act is a consolidation of H. No. 22232, 3, 1992
which was approved by the House of
Representatives on August 2, 1989, and S. No. Senate Bill No. 968, December
807, which was approved by the Senate on 7, 1992
October 21, 1991.
3. R.A. NO. 7646
On the other hand, the Ninth Congress  passed
revenue laws which were also the result of the AN ACT AUTHORIZING THE
consolidation of House and Senate bills. These COMMISSIONER OF INTERNAL
are the following, with indications of the dates REVENUE TO PRESCRIBE THE
on which the laws were approved by the PLACE FOR PAYMENT OF
President and dates the separate bills of the INTERNAL REVENUE TAXES BY
two chambers of Congress were respectively LARGE TAXPAYERS, AMENDING
passed: FOR THIS PURPOSE CERTAIN
PROVISIONS OF THE NATIONAL
1. R.A. NO. 7642 INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
AN ACT INCREASING THE
PENALTIES FOR TAX EVASION, House Bill No. 1470, October
AMENDING FOR THIS PURPOSE 20, 1992
THE PERTINENT SECTIONS OF
THE NATIONAL INTERNAL Senate Bill No. 35, November
REVENUE CODE (December 28, 19, 1992
1992).
4. R.A. NO. 7649
House Bill No. 2165, October 5,
1992 AN ACT REQUIRING THE
GOVERNMENT OR ANY OF ITS
Senate Bill No. 32, December 7, POLITICAL SUBDIVISIONS,
1992 INSTRUMENTALITIES OR
AGENCIES INCLUDING
2. R.A. NO. 7643 GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS
(GOCCS) TO DEDUCT AND OTHER PURPOSES (December
WITHHOLD THE VALUE-ADDED 23, 1993)
TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON House Bill No. 7789, May 31,
GROSS PAYMENT FOR THE 1993
PURCHASE OF GOODS AND SIX
PERCENT (6%) ON GROSS Senate Bill No. 1330, November
RECEIPTS FOR SERVICES 18, 1993
RENDERED BY CONTRACTORS
(April 6, 1993) 7. R.A. NO. 7717

House Bill No. 5260, January 26, AN ACT IMPOSING A TAX ON

1993 THE SALE, BARTER OR
EXCHANGE OF SHARES OF
Senate Bill No. 1141, March 30, STOCK LISTED AND TRADED
1993 THROUGH THE LOCAL STOCK
EXCHANGE OR THROUGH
5. R.A. NO. 7656 INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE
AN ACT REQUIRING THE NATIONAL INTERNAL
GOVERNMENT-OWNED OR REVENUE CODE, AS AMENDED,
CONTROLLED CORPORATIONS BY INSERTING A NEW SECTION
TO DECLARE DIVIDENDS UNDER AND REPEALING CERTAIN
CERTAIN CONDITIONS TO THE SUBSECTIONS THEREOF (May 5,
NATIONAL GOVERNMENT, AND 1994)
FOR OTHER PURPOSES
(November 9, 1993) House Bill No. 9187, November
3, 1993
House Bill No. 11024,
November 3, 1993 Senate Bill No. 1127, March 23,
1994
Senate Bill No. 1168, November
3, 1993 Thus, the enactment of S. No. 1630 is not the
only instance in which the Senate, in the
6. R.A. NO. 7660 exercise of its power to propose amendments
to bills required to originate in the House,
AN ACT RATIONALIZING passed its own version of a House revenue
FURTHER THE STRUCTURE AND measure. It is noteworthy that, in the particular
ADMINISTRATION OF THE case of S. No. 1630, petitioners Tolentino and
DOCUMENTARY STAMP TAX, Roco, as members of the Senate, voted to
AMENDING FOR THE PURPOSE approve it on second and third readings.
CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE On the other hand, amendment by substitution,
CODE, AS AMENDED, in the manner urged by petitioner Tolentino,
ALLOCATING FUNDS FOR concerns a mere matter of form. Petitioner has
SPECIFIC PROGRAMS, AND FOR not shown what substantial difference it would
make if, as the Senate actually did in this case, a
separate bill like S. No. 1630 is instead enacted
as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the
Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one
amendment to the original
amendment shall be
considered.
No amendment by substitution
shall be entertained unless the
text thereof is submitted in
writing.
Any of said amendments may
be withdrawn before a vote is
taken thereon.
§69. No amendment which
seeks the inclusion of a
legislative provision foreign to
the subject matter of a bill
(rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall
not be amended by substituting
it with another which covers a
subject distinct from that
proposed in the original bill or
resolution. (emphasis added).
Nor is there merit in petitioners' contention
that, with regard to revenue bills, the Philippine
Senate possesses less power than the U.S.
Senate because of textual differences between
constitutional provisions giving them the power
to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall
originate in the House of
Representatives; but the Senate
may propose or concur with
amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
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.
The addition of the word "exclusively" in the
Philippine Constitution and the decision to drop
the phrase "as on other Bills" in the American
version, according to petitioners, shows the
intention of the framers of our Constitution to
restrict the Senate's power to propose
amendments to revenue bills. Petitioner
Tolentino contends that the word "exclusively"
was inserted to modify "originate" and "the
words 'as in any other bills' (sic) were
eliminated so as to show that these bills were
not to be like other bills but must be treated as
a special kind."
The history of this provision does not support
this contention. The supposed indicia of
constitutional intent are nothing but the relics
of an unsuccessful attempt to limit the power of
the Senate. It will be recalled that the 1935
Constitution originally provided for a
unicameral National Assembly. When it was
decided in 1939 to change to a bicameral
legislature, it became necessary to provide for
the procedure for lawmaking by the Senate and
the House of Representatives. The work of
proposing amendments to the Constitution was
done by the National Assembly, acting as a
constituent assembly, some of whose members,
jealous of preserving the Assembly's lawmaking
powers, sought to curtail the powers of the
proposed Senate. Accordingly they proposed
the following provision:
All bills appropriating public
funds, revenue or tariff bills,
bills of local application, and
private bills shall originate
exclusively in the Assembly, but
the Senate may propose or
concur with amendments. In
case of disapproval by the
Senate of any such bills, the
Assembly may repass the same
by a two-thirds vote of all its
members, and thereupon, the
bill so repassed shall be
deemed enacted and may be
submitted to the President for
corresponding action. In the
event that the Senate should
fail to finally act on any such
bills, the Assembly may, after
thirty days from the opening of
the next regular session of the
same legislative term,
reapprove the same with a vote
of two-thirds of all the
members of the Assembly. And
upon such reapproval, the bill
shall be deemed enacted and
may be submitted to the
President for corresponding
action.
The special committee on the revision of laws of
the Second National Assembly vetoed the
proposal. It deleted everything after the first
sentence. As rewritten, the proposal was
approved by the National Assembly and
embodied in Resolution No. 38, as amended by
Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and
ratified by them in the elections held on June
18, 1940.
This is the history of Art. VI, §18 (2) of the 1935
Constitution, from which Art. VI, §24 of the
present Constitution was derived. It explains
why the word "exclusively" was added to the
American text from which the framers of the
Philippine Constitution borrowed and why the
phrase "as on other Bills" was not copied.
Considering the defeat of the proposal, the
power of the Senate to propose amendments
must be understood to be full, plenary and
complete "as on other Bills." Thus, because
revenue bills are required to originate
exclusively in the House of Representatives, the
Senate cannot enact revenue measures of its
own without such bills. After a revenue bill is
passed and sent over to it by the House,
however, the Senate certainly can pass its own
version on the same subject matter. This follows
from the coequality of the two chambers of
Congress.
That this is also the understanding of book
authors of the scope of the Senate's power to
concur is clear from the following
commentaries:
The power of the Senate to
propose or concur with
amendments is apparently
without restriction. It would
seem that by virtue of this
power, the Senate can
practically re-write a bill
required to come from the
House and leave only a trace of
the original bill. For example, a
general revenue bill passed by
the lower house of the United
States Congress contained
provisions for the imposition of
an inheritance tax . This was
changed by the Senate into a
corporation tax. The amending
authority of the Senate was
 declared by the United States
Supreme Court to be
sufficiently broad to enable it to
make the alteration. [Flint v.
Stone Tracy Company, 220 U.S.
107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON,
POLITICAL LAW OF THE
PHILIPPINES 247 (1961))
The above-mentioned bills are
supposed to be initiated by the
House of Representatives
because it is more numerous in
membership and therefore also
more representative of the
people. Moreover, its members
are presumed to be more
familiar with the needs of the
country in regard to the
enactment of the legislation
involved.
The Senate is, however, allowed
much leeway in the exercise of
its power to propose or concur
with amendments to the bills
initiated by the House of
Representatives. Thus, in one
case, a bill introduced in the
U.S. House of Representatives
was changed by the Senate to
make a proposed inheritance
tax a corporation tax. It is also
accepted practice for the
Senate to introduce what is
known as an amendment by
substitution, which may entirely
replace the bill initiated in the
House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL
LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all
appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of
local application, and private bills must
"originate exclusively in the House of
Representatives," it also adds, "but the Senate
may propose or concur with amendments." In
the exercise of this power, the Senate may
propose an entirely new bill as a substitute
measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is
referred may do any of the following:
(1) to endorse the bill without
changes; (2) to make changes in
the bill omitting or adding
sections or altering its language;
(3) to make and endorse an
entirely new bill as a substitute,
in which case it will be known
as a committee bill; or (4) to
make no report at all.
(A. TOLENTINO, THE
GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment
of bills which are required to originate in the
House by prescribing that the number of the
House bill and its other parts up to the enacting
clause must be preserved although the text of
the Senate amendment may be incorporated in
place of the original body of the bill is to insist
on a mere technicality. At any rate there is no
rule prescribing this form. S. No. 1630, as a
substitute measure, is therefore as much an
amendment of H. No. 11197 as any which the
Senate could have made.
II. S. No. 1630 a mere amendment of
H. No. 11197. Petitioners' basic error is that
they assume that S. No. 1630 is an independent
and distinct bill. Hence their repeated
references to its certification that it was passed
by the Senate "in substitution of S.B.  No.  1129,
taking into consideration P.S. Res. No. 734
and H.B.  No.  11197," implying that there is
something substantially different between the
reference to S. No. 1129 and the reference to H.
No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House
and in the Senate and that it is the product of
two "half-baked bills because neither H. No.
11197 nor S. No. 1630 was passed by both
houses of Congress."
In point of fact, in several instances the
provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding
provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197
and S. No. 1630 attached as Supplement A to
the basic petition of petitioner Tolentino, while
showing differences between the two bills, at
the same time indicates that the provisions of
the Senate bill were precisely intended to be
amendments to the House bill.
Without H. No. 11197, the Senate could not
have enacted S. No. 1630. Because the Senate
bill was a mere amendment of the House bill, H.
No. 11197 in its original form did not have to
pass the Senate on second and three readings.
It was enough that after it was passed on first
reading it was referred to the Senate
Committee on Ways and Means. Neither was it
required that S. No. 1630 be passed by the
House of Representatives before the two bills
could be referred to the Conference Committee.
There is legislative precedent for what was done
in the case of H. No. 11197 and S. No. 1630.
When the House bill and Senate bill, which
became R.A. No. 1405 (Act prohibiting the
disclosure of bank deposits), were referred to a
conference committee, the question was raised
whether the two bills could be the subject of
such conference, considering that the bill from
one house had not been passed by the other
and vice versa. As Congressman Duran put the
question:
MR. DURAN. Therefore, I raise
this question of order as to
procedure: If a House bill is
passed by the House but not
passed by the Senate, and a
Senate bill of a similar nature is
passed in the Senate but never
passed in the House, can the
two bills be the subject of a
conference, and can a law be
enacted from these two bills? I
understand that the Senate bill
in this particular instance does
not refer to investments in
government securities, whereas
the bill in the House, which was
introduced by the Speaker,
covers two subject matters: not
only investigation of deposits in
banks but also investigation of
investments in government
securities. Now, since the two
bills differ in their subject
matter, I believe that no law
can be enacted.
Ruling on the point of order raised, the chair
(Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the
conference committee is in
order. It is precisely in cases like
this where a conference should
be had. If the House bill had
been approved by the Senate,
there would have been no need
of a conference; but precisely
because the Senate  passed
another bill on the same subject
matter, the conference
committee had to be created,
and we are now considering the
report of that committee.
(2 CONG. REC. NO. 13, July 27,
1955, pp. 3841-42 (emphasis
added))
III. The President's certification. The fallacy in
thinking that H. No. 11197 and S. No. 1630 are
distinct and unrelated measures also accounts
for the petitioners' (Kilosbayan's and PAL's)
contention that because the President
separately certified to the need for the
immediate enactment of these measures, his
certification was ineffectual and void. The
certification had to be made of the version of
the same revenue bill which at the moment was
being considered. Otherwise, to follow
petitioners' theory, it would be necessary for
the President to certify as many bills as are
presented in a house of Congress even though
the bills are merely versions of the bill he has
already certified. It is enough that he certifies
the bill which, at the time he makes the
certification, is under consideration. Since on
March 22, 1994 the Senate was considering S.
No. 1630, it was that bill which had to be
certified. For that matter on June 1, 1993 the
President had earlier certified H. No. 9210 for
immediate enactment because it was the one
which at that time was being considered by the
House. This bill was later substituted, together
with other bills, by H. No. 11197.
As to what Presidential certification can
accomplish, we have already explained in the
main decision that the phrase "except when the
President certifies to the necessity of its
immediate enactment, etc." in Art. VI, §26 (2)
qualifies not only the requirement that "printed
copies [of a bill] in its final form [must be]
distributed to the members three days before
its passage" but also the requirement that
before a bill can become a law it must have
passed "three readings on separate days."
There is not only textual support for such
construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution
originally provided:
(2) No bill shall be passed by
either House unless it shall have
been printed and copies thereof
in its final form furnished its
Members at least three
calendar days prior to its
passage, except when the
President shall have certified to
the necessity of its immediate
enactment. Upon the last
reading of a bill, no amendment
thereof shall be allowed and
the question upon its passage
shall be taken immediately
thereafter, and
the yeas and nays entered on
the Journal.
When the 1973 Constitution was adopted, it
was provided in Art. VIII, §19 (2):
(2) No bill shall become a law
unless it has passed three
readings on separate days, and
printed copies thereof in its
final form have been distributed
to the Members three days
before its passage, except when
the Prime Minister certifies to
the necessity of its immediate
enactment to meet a public
calamity or emergency. Upon
the last reading of 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.
This provision of the 1973 document, with slight
modification, was adopted in Art. VI, §26 (2) of
the present Constitution, thus:
(2) No bill passed by either
House shall become a law
unless it has passed three
readings on 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 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.
The exception is based on the prudential
consideration that if in all cases three readings
on separate days are required and a bill has to
be printed in final form before it can be passed,
the need for a law may be rendered academic
by the occurrence of the very emergency or
public calamity which it is meant to address.
Petitioners further contend that a "growing
budget deficit" is not an emergency, especially
in a country like the Philippines where budget
deficit is a chronic condition. Even if this were
the case, an enormous budget deficit does not
make the need for R.A. No. 7716 any less urgent
or the situation calling for its enactment any
less an emergency.
Apparently, the members of the Senate
(including some of the petitioners in these
cases) believed that there was an urgent need
for consideration of S. No. 1630, because they
responded to the call of the President by voting
on the bill on second and third readings on the
same day. While the judicial department is not
bound by the Senate's acceptance of the
President's certification, the respect due
coequal departments of the government in
matters committed to them by the Constitution
and the absence of a clear showing of grave
abuse of discretion caution a stay of the judicial
hand.
At any rate, we are satisfied that S. No. 1630
received thorough consideration in the Senate
where it was discussed for six days. Only its
distribution in advance in its final printed form
was actually dispensed with by holding the
voting on second and third readings on the
same day (March 24, 1994). Otherwise,
sufficient time between the submission of the
bill on February 8, 1994 on second reading and
its approval on March 24, 1994 elapsed before
it was finally voted on by the Senate on third
reading.
The purpose for which three readings on
separate days is required is said to be two-fold:
(1) to inform the members of Congress of what
they must vote on and (2) to give them notice
that a measure is progressing through the
enacting process, thus enabling them and
others interested in the measure to prepare
their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND STATUTORY
CONSTRUCTION §10.04, p. 282 (1972)). These
purposes were substantially achieved in the
case of R.A. No. 7716.
IV. Power of Conference Committee. It is
contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood,
Integrity and Nationalism, Inc. (MABINI)) that in
violation of the constitutional policy of full
public disclosure and the people's right to know
(Art. II, §28 and Art. III, §7) the Conference
Committee met for two days in executive
session with only the conferees present.
As pointed out in our main decision, even in the
United States it was customary to hold such
sessions with only the conferees and their staffs
in attendance and it was only in 1975 when a
new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine
Congress has not adopted a rule prescribing
open hearings for conference committees.
It is nevertheless claimed that in the United
States, before the adoption of the rule in 1975,
at least staff members were present. These
were staff members of the Senators and
Congressmen, however, who may be presumed
to be their confidential men, not stenographers
as in this case who on the last two days of the
conference were excluded. There is no showing
that the conferees themselves did not take
notes of their proceedings so as to give
petitioner Kilosbayan basis for claiming that
even in secret diplomatic negotiations involving
state interests, conferees keep notes of their
meetings. Above all, the public's right to know
was fully served because the Conference
Committee in this case submitted a report
showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which
provide that conference committee reports
must contain "a detailed, sufficiently explicit
statement of the changes in or other
amendments." These changes are shown in the
bill attached to the Conference Committee
Report. The members of both houses could thus
ascertain what changes had been made in the
original bills without the need of a statement
detailing the changes.
The same question now presented was raised
when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the
Conference Committee. Congressman Bengzon
raised a point of order. He said:
MR. BENGZON. My point of
order is that it is out of order to
consider the report of the
conference committee
regarding House Bill No.
2557  by reason of the provision
of Section 11, Article XII, of the
Rules of this House which
provides specifically that the
conference report must be
accompanied by a detailed
statement of the effects of the
amendment on the bill of the
House. This conference
committee report is not
accompanied by that detailed
statement, Mr. Speaker.
Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor
Leader, answered:
MR. TOLENTINO. Mr. Speaker, I
should just like to say a few
words in connection with the
point of order raised by the
gentleman from Pangasinan.
There is no question about the
provision of the Rule cited by
the gentleman from
Pangasinan, but this provision
applies to those cases where
only portions of the bill have
been amended.  In this case
before us an entire bill is
presented;  therefore, it can be
easily seen from the reading of
the bill what the provisions are.
Besides, this procedure has
been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was
saying, Mr. Speaker, we have to
look into the reason for the
provisions of the Rules, and the
reason for the requirement in
the provision cited by the
gentleman from Pangasinan is
when there are only certain
words or phrases inserted in or
deleted from the provisions of
the bill included in the
conference report, and we
cannot understand what those
words and phrases mean and
their relation to the bill. In that
case, it is necessary to make a
detailed statement on how
those words and phrases will
affect the bill as a whole; but
when the entire bill itself is
copied verbatim in the
conference report, that is not
necessary. So when the reason
for the Rule does not exist, the
Rule does not exist.
 (2 CONG. REC. NO. 2, p. 4056.
(emphasis added))
Congressman Tolentino was sustained by the
chair. The record shows that when the ruling
was appealed, it was upheld by viva voce and
when a division of the House was called, it was
sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a
conference committee to insert new provisions
as long as these are germane to the subject of
the conference. As this Court held in Philippine
Judges Association v. Prado, 227 SCRA 703
(1993), in an opinion written by then Justice
Cruz, the jurisdiction of the conference
committee is not limited to resolving
differences between the Senate and the House.
It may propose an entirely new provision. What
is important is that its report is subsequently
approved by the respective houses of Congress.
This Court ruled that it would not entertain
allegations that, because new provisions had
been added by the conference committee,
there was thereby a violation of the
constitutional injunction that "upon the last
reading of a bill, no amendment thereto shall be
allowed."
Applying these principles, we
shall decline to look into the
petitioners' charges that an
amendment was made upon
the last reading of the bill that
eventually became R.A. No.
7354 and that copies thereof in
its final form were not
distributed among the members
of each House. Both the
enrolled bill and the legislative
journals certify that the
measure was duly enacted i.e.,
in accordance with Article VI,
Sec. 26 (2) of the Constitution.
We are bound by such official
assurances from a coordinate
department of the government,
to which we owe, at the very
least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description
of conference committees in the Philippines in a
1979 study:
Conference committees may be
of two types: free or instructed.
These committees may be given
instructions by their parent
bodies or they may be left
without instructions. Normally
the conference committees are
without instructions, and this is
why they are often critically
referred to as "the little
legislatures." Once bills have
been sent to them, the
conferees have almost
unlimited authority to change
the clauses of the bills and in
fact sometimes introduce new
measures that were not in the
original legislation. No minutes
are kept, and members'
activities on conference
committees are difficult to
determine. One congressman
known for his idealism put it
this way: "I killed a bill on
export incentives for my
interest group [copra] in the
conference committee but I
could not have done so
anywhere else." The conference
committee submits a report to
both houses, and usually it is
accepted. If the report is not
accepted, then the committee
is discharged and new members
are appointed.
(R. Jackson, Committees in the
Philippine Congress, in
COMMITTEES AND
 LEGISLATURES: A (q) Transactions which are
COMPARATIVE ANALYSIS 163 (J. exempt under special laws or
D. LEES AND M. SHAW, eds.)). international agreements to
which the Philippines is a
In citing this study, we pass no judgment on the signatory.
methods of conference committees. We cite it
only to say that conference committees here R.A. No. 7716 seeks to withdraw certain
are no different from their counterparts in the exemptions, including that granted to PAL, by
United States whose vast powers we noted amending §103, as follows:
in Philippine Judges Association v. Prado, supra.
At all events, under Art. VI, §16(3) each house §103. Exempt transactions. —
has the power "to determine the rules of its The following shall be exempt
proceedings," including those of its committees. from the value-added tax:
Any meaningful change in the method and
procedures of Congress or its committees must xxx xxx xxx
therefore be sought in that body itself.
(q) Transactions which are
V. The titles of S. No. 1630 and H. No. 11197. exempt under special laws,
PAL maintains that R.A. No. 7716 violates Art. except those granted under
VI, §26 (1) of the Constitution which provides Presidential Decree Nos. 66,
that "Every bill passed by Congress shall 529, 972, 1491, 1590. . . .
embrace only one subject which shall be
expressed in the title thereof." PAL contends The amendment of §103 is expressed in the title
that the amendment of its franchise by the of R.A. No. 7716 which reads:
withdrawal of its exemption from the VAT is not
expressed in the title of the law. AN ACT RESTRUCTURING THE
VALUE-ADDED TAX (VAT)
Pursuant to §13 of P.D. No. 1590, PAL pays a SYSTEM, WIDENING ITS TAX
franchise tax of 2% on its gross revenue "in lieu BASE AND ENHANCING ITS
of all other taxes, duties, royalties, registration, ADMINISTRATION, AND FOR
license and other fees and charges of any kind, THESE PURPOSES AMENDING
nature, or description, imposed, levied, AND REPEALING THE RELEVANT
established, assessed or collected by any PROVISIONS OF THE NATIONAL
municipal, city, provincial or national authority INTERNAL REVENUE CODE, AS
or government agency, now or in the future." AMENDED, AND FOR OTHER
PURPOSES.
PAL was exempted from the payment of the
VAT along with other entities by §103 of the By stating that R.A. No. 7716 seeks to
National Internal Revenue Code, which provides "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
as follows: SYSTEM [BY] WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR
§103. Exempt transactions. — THESE PURPOSES AMENDING AND REPEALING
The following shall be exempt THE RELEVANT PROVISIONS OF THE NATIONAL
from the value-added tax: INTERNAL REVENUE CODE, AS AMENDED AND
FOR OTHER PURPOSES," Congress thereby
xxx xxx xxx clearly expresses its intention to amend any
provision of the NIRC which stands in the way of Ed., p. 297] As has been
accomplishing the purpose of the law. correctly explained:

PAL asserts that the amendment of its franchise The details of a

must be reflected in the title of the law by legislative act
specific reference to P.D. No. 1590. It is need not be
unnecessary to do this in order to comply with specifically
the constitutional requirement, since it is stated in its
already stated in the title that the law seeks to title, but matter
amend the pertinent provisions of the NIRC, germane to the
among which is §103(q), in order to widen the subject as
base of the VAT. Actually, it is the bill which expressed in
becomes a law that is required to express in its the title, and
title the subject of legislation. The titles of H. adopted to the
No. 11197 and S. No. 1630 in fact specifically accomplishmen
referred to §103 of the NIRC as among the t of the object
provisions sought to be amended. We are in view, may
satisfied that sufficient notice had been given of properly be
the pendency of these bills in Congress before included in the
they were enacted into what is now R.A. act. Thus, it is
No. 7716. proper to
create in the
In Philippine Judges Association v. Prado, supra, same act the
a similar argument as that now made by PAL machinery by
was rejected. R.A. No. 7354 is entitled AN ACT which the act is
CREATING THE PHILIPPINE POSTAL to be enforced,
CORPORATION, DEFINING ITS POWERS, to prescribe the
FUNCTIONS AND RESPONSIBILITIES, PROVIDING penalties for its
FOR REGULATION OF THE INDUSTRY AND FOR infraction, and
OTHER PURPOSES CONNECTED THEREWITH. It to remove
contained a provision repealing all franking obstacles in the
privileges. It was contended that the withdrawal way of its
of franking privileges was not expressed in the execution. If
title of the law. In holding that there was such matters
sufficient description of the subject of the law in are properly
its title, including the repeal of franking connected with
privileges, this Court held: the subject as
expressed in
To require every end and the title, it is
means necessary for the unnecessary
accomplishment of the general that they
objectives of the statute to be should also
expressed in its title would not have special
only be unreasonable but mention in the
would actually render title. (Southern
legislation impossible. [Cooley, Pac. Co. v.
Constitutional Limitations, 8th Bartine, 170
Fed. 725)
 (227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty.
We have held that, as a general proposition, the
press is not exempt from the taxing power of
the State and that what the constitutional
guarantee of free press prohibits are laws which
single out the press or target a group belonging
to the press for special treatment or which in
any way discriminate against the press on the
basis of the content of the publication, and R.A.
No. 7716 is none of these.
Now it is contended by the PPI that by removing
the exemption of the press from the VAT while
maintaining those granted to others, the law
discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is
unconstitutional."
With respect to the first contention, it would
suffice to say that since the law granted the
press a privilege, the law could take back the
privilege anytime without offense to the
Constitution. The reason is simple: by granting
exemptions, the State does not forever waive
the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax
burden to which other businesses have long ago
been subject. It is thus different from the tax
involved in the cases invoked by the PPI. The
license tax in Grosjean v.  American Press Co.,
297 U.S. 233, 80 L. Ed. 660 (1936) was found to
be discriminatory because it was laid on the
gross advertising receipts only of newspapers
whose weekly circulation was over 20,000, with
the result that the tax applied only to 13 out of
124 publishers in Louisiana. These large papers
were critical of Senator Huey Long who
controlled the state legislature which enacted
the license tax. The censorial motivation for the
law was thus evident.
On the other hand, in Minneapolis Star &
Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax
was found to be discriminatory because
although it could have been made liable for the
sales tax or, in lieu thereof, for the use tax on
the privilege of using, storing or consuming
tangible goods, the press was not. Instead, the
press was exempted from both taxes. It was,
however, later made to pay a special use tax on
the cost of paper and ink which made these
items "the only items subject to the use tax that
were component of goods to be sold at retail."
The U.S. Supreme Court held that the
differential treatment of the press "suggests
that the goal of regulation is not related to
suppression of expression, and such goal is
presumptively unconstitutional." It would
therefore appear that even a law that favors the
press is constitutionally suspect. (See the
dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions
previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the VAT,
such as those previously granted to PAL,
petroleum concessionaires, enterprises
registered with the Export Processing Zone
Authority, and many more are likewise totally
withdrawn, in addition to exemptions which are
partially withdrawn, in an effort to broaden the
base of the tax.
The PPI says that the discriminatory treatment
of the press is highlighted by the fact that
transactions, which are profit oriented,
continue to enjoy exemption under R.A. No.
7716. An enumeration of some of these
transactions will suffice to show that by and
large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General
says, such exemptions are granted, in some
cases, to encourage agricultural production and,
in other cases, for the personal benefit of the
end-user rather than for profit. The exempt
transactions are:
(a) Goods for consumption or
use which are in their original
state (agricultural, marine and
forest products, cotton seeds in
their original state, fertilizers,
seeds, seedlings, fingerlings,
fish, prawn livestock and
poultry feeds) and goods or
services to enhance agriculture
(milling of palay, corn, sugar
cane and raw sugar, livestock,
poultry feeds, fertilizer,
ingredients used for the
manufacture of feeds).
(b) Goods used for personal
consumption or use (household
and personal effects of citizens
returning to the Philippines) or
for professional use, like
professional instruments and
implements, by persons coming
to the Philippines to settle here.
(c) Goods subject to excise tax
such as petroleum products or
to be used for manufacture of
petroleum products subject to
excise tax and services subject
to percentage tax.
(d) Educational services,
medical, dental, hospital and
veterinary services, and services
rendered under employer-
employee relationship.
(e) Works of art and similar
creations sold by the artist
himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons not
VAT-registered.
(h) Goods or services with gross
annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter
that the law does not discriminate against the
press because "even nondiscriminatory taxation
on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this
assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292
(1943):
The fact that the ordinance is
"nondiscriminatory" is
immaterial. The protection
afforded by the First
Amendment is not so restricted.
A license tax certainly does not
acquire constitutional validity
because it classifies the
privileges protected by the First
Amendment along with the
wares and merchandise of
hucksters and peddlers and
treats them all alike. Such
equality in treatment does not
save the ordinance. Freedom of
press, freedom of speech,
freedom of religion are in
preferred position.
The Court was speaking in that case of a license
tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint
on the exercise of its right. Hence, although its
application to others, such those selling goods,
is valid, its application to the press or to
religious groups, such as the Jehovah's
Witnesses, in connection with the latter's sale of
religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or
property of a preacher. It is quite another thing
to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court
in American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city
ordinance requiring a business license fee on
those engaged in the sale of general
merchandise. It was held that the tax could not
be imposed on the sale of bibles by the
American Bible Society without restraining the
free exercise of its right to propagate.
The VAT is, however, different. It is not a license
tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on
the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services
and the lease of properties purely for revenue
purposes. To subject the press to its payment is
not to burden the exercise of its right any more
than to make the press pay income tax or
subject it to general regulation is not to violate
its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc.
claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the
cost of printing copies which are given free to
those who cannot afford to pay so that to tax
the sales would be to increase the price, while
reducing the volume of sale. Granting that to be
the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it
difficult to differentiate it from any other
economic imposition that might make the right
to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument,
to increase the tax on the sale of vestments
would be to lay an impermissible burden on the
right of the preacher to make a sermon.
On the other hand the registration fee of
P1,000.00 imposed by §107 of the NIRC, as
amended by §7 of R.A. No. 7716, although fixed
in amount, is really just to pay for the expenses
of registration and enforcement of provisions
such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles
and therefore is not liable to pay the VAT does
not excuse it from the payment of this fee
because it also sells some copies. At any rate
whether the PBS is liable for the VAT must be
decided in concrete cases, in the event it is
assessed this tax by the Commissioner of
Internal Revenue.
VII. Alleged violations of the due process, equal
protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2)
classifies transactions as covered or exempt
without reasonable basis and (3) violates the
rule that taxes should be uniform and equitable
and that Congress shall "evolve a progressive
system of taxation."
With respect to the first contention, it is
claimed that the application of the tax to
existing contracts of the sale of real property by
installment or on deferred payment basis would
result in substantial increases in the monthly
amortizations to be paid because of the 10%
VAT. The additional amount, it is pointed out, is
something that the buyer did not anticipate at
the time he entered into the contract.
The short answer to this is the one given by this
Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs, but
none of them show that a lawful tax on a new
subject, or an increased tax on an old one,
interferes with a contract or impairs its
obligation, within the meaning of the
Constitution. Even though such taxation may
affect particular contracts, as it may increase
the debt of one person and lessen the security
of another, or may impose additional burdens
upon one class and release the burdens of
another, still the tax must be paid unless
prohibited by the Constitution, nor can it be
said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v.
Machuca Go-Tauco and Nubla Co-Siong, 39 Phil.
567, 574 (1919)). Indeed not only existing laws
but also "the reservation of the essential
attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order."
(Philippine-American Life Ins. Co. v. Auditor
General, 22 SCRA 135, 147 (1968)) Contracts
must be understood as having been made in
reference to the possible exercise of the rightful
authority of the government and no obligation
of contract can extend to the defeat of that
authority. (Norman v. Baltimore and Ohio R.R.,
79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No.
7716 exempts such transactions as the sale of
agricultural products, food items, petroleum,
and medical and veterinary services, it grants no
exemption on the sale of real property which is
equally essential. The sale of real property for
socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle
class, who are equally homeless, should likewise
be exempted.
The sale of food items, petroleum, medical and
veterinary services, etc., which are essential
goods and services was already exempt under
§103, pars. (b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner is in
error in claiming that R.A. No. 7716 granted
exemption to these transactions, while
subjecting those of petitioner to the payment of
the VAT. Moreover, there is a difference
between the "homeless poor" and the
"homeless less poor" in the example given by
petitioner, because the second group or middle
class can afford to rent houses in the meantime
that they cannot yet buy their own homes. The
two social classes are thus differently situated in
life. "It is inherent in the power to tax that the
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.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of
Baguio v. De Leon, 134 Phil. 912 (1968); Sison,
Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan
ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already
noted, that R.A. No. 7716 also violates Art. VI,
§28(1) which provides that "The rule of taxation
shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that
all taxable articles or kinds of property of the
same class be taxed at the same rate. The taxing
power has the authority to make reasonable
and natural classifications for purposes of
taxation. To satisfy this requirement it is enough
that the statute or ordinance applies equally to
all persons, forms and corporations placed in
similar situation. (City of Baguio v. De
Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O.
No. 273 long before R.A. No. 7716 was enacted.
R.A. No. 7716 merely expands the base of the
tax. The validity of the original VAT Law was
questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v.  Tan, 163 SCRA
383 (1988) on grounds similar to those made in
these cases, namely, that the law was
"oppressive, discriminatory, unjust and
regressive in violation of Art. VI, §28(1) of the
Constitution." (At 382) Rejecting the challenge
to the law, this Court held:
As the Court sees it, EO 273
satisfies all the requirements of
a valid tax. It is uniform. . . .
The sales tax adopted in EO 273
is applied similarly on all goods
and services sold to the public,
which are not exempt, at the
constant rate of 0% or 10%.
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.
(At 382-383)
The CREBA claims that the VAT is regressive. A
similar claim is made by the Cooperative Union
of the Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law contravenes
the mandate of Congress to provide for a
progressive system of taxation because the law
imposes a flat rate of 10% and thus places the
tax burden on all taxpayers without regard to
their ability to pay.
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).
Thus, the following transactions involving basic
and essential goods and services are exempted
from the VAT:
(a) Goods for consumption or
use which are in their original
state (agricultural, marine and
forest products, cotton seeds in
their original state, fertilizers,
seeds, seedlings, fingerlings,
fish, prawn livestock and
poultry feeds) and goods or
services to enhance agriculture
(milling of palay, corn sugar
cane and raw sugar, livestock,
poultry feeds, fertilizer,
ingredients used for the
manufacture of feeds).
(b) Goods used for personal
consumption or use (household
and personal effects of citizens
returning to the Philippines)
and or professional use, like
professional instruments and
implements, by persons coming
to the Philippines to settle here.
(c) Goods subject to excise tax
such as petroleum products or
to be used for manufacture of
petroleum products subject to
excise tax and services subject
to percentage tax.
(d) Educational services,
medical, dental, hospital and
veterinary services, and services
 rendered under employer-
employee relationship.
(e) Works of art and similar
creations sold by the artist
himself.
(f) Transactions exempted
under special laws, or
international agreements.
(g) Export-sales by persons not
VAT-registered.
(h) Goods or services with gross
annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated
Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are
subject to the VAT are those which involve
goods and services which are used or availed of
mainly by higher income groups. These include
real properties held primarily for sale to
customers or for lease in the ordinary course of
trade or business, the right or privilege to use
patent, copyright, and other similar property or
right, the right or privilege to use industrial,
commercial or scientific equipment, motion
picture films, tapes and discs, radio, television,
satellite transmission and cable television time,
hotels, restaurants and similar places,
securities, lending investments, taxicabs, utility
cars for rent, tourist buses, and other common
carriers, services of franchise grantees of
telephone and telegraph.
The problem with CREBA's petition is that it
presents broad claims of constitutional
violations by tendering issues not at retail but at
wholesale and in the abstract. There is no fully
developed record which can impart to
adjudication the impact of actuality. There is no
factual foundation to show in the concrete  the
application of the law to actual contracts  and
exemplify its effect on property rights. For the
fact is that petitioner's members have not even
been assessed the VAT. Petitioner's case is not
made concrete by a series of hypothetical
questions asked which are no different from
those dealt with in advisory opinions.
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 on its face, he
has not made out a case. This is
merely to adhere to the
authoritative doctrine 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.
(Sison, Jr. v. Ancheta, 130 SCRA
at 661)
Adjudication of these broad claims must await
the development of a concrete case. It may be
that postponement of adjudication would result
in a multiplicity of suits. This need not be the
case, however. Enforcement of the law may
give rise to such a case. A test case, provided it
is an actual case and not an abstract or
hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate
justification for adjudicating abstract issues.
Otherwise, adjudication would be no different
from the giving of advisory opinion that does
not really settle legal issues.
We are told that it is our duty under Art. VIII,
§1, ¶2 to decide whenever a claim is made that
"there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the
government." This duty can only arise if an
actual case or controversy is before us. Under
Art . VIII, §5 our jurisdiction is defined in terms
of "cases" and all that Art. VIII, §1, ¶2 can
plausibly mean is that in the exercise of
that jurisdiction  we have the  judicial power  to
determine questions of grave abuse of
discretion by any branch or instrumentality of
the government.
Put in another way, what is granted in Art. VIII,
§1, ¶2 is "judicial power," which is "the power
of a court to hear and decide cases pending
between parties who have the right to sue and
be sued in the courts of law and equity" (Lamb
v. Phipps, 22 Phil. 456, 559 (1912)), as
distinguished from legislative and executive
power. This power cannot be directly
appropriated until it is apportioned among
several courts either by the Constitution, as in
the case of Art. VIII, §5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296)
and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned
constitutes the court's "jurisdiction," defined as
"the power conferred by law upon a court or
judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo,
6 Phil. 29 (1906)) Without an actual case coming
within its jurisdiction, this Court cannot inquire
into any allegation of grave abuse of discretion
by the other departments of the government.
VIII. Alleged violation of policy towards
cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation,
argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that the
present Constitution embodies provisions on
cooperatives. To subject cooperatives to the
VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes
and sales taxes but in 1984, because of the crisis
which menaced the national economy, this
exemption was withdrawn by P.D. No. 1955;
that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales
taxes until December 31, 1991, but, in the same
year, E.O. No. 93 revoked the exemption; and
that finally in 1987 the framers of the
Constitution "repudiated the previous actions of
the government adverse to the interests of the
cooperatives, that is, the repeated revocation of
the tax exemption to cooperatives and instead
upheld the policy of strengthening the
cooperatives by way of the grant of tax
exemptions," by providing the following in Art.
XII:
§1. The goals of the national
economy are a more equitable
distribution of opportunities,
income, and wealth; a sustained
increase in the amount of goods
and services produced by the
nation for the benefit of the
people; and an expanding
productivity as the key to
raising the quality of life for all,
especially the underprivileged.
The State shall promote
industrialization and full
employment based on sound
agricultural development and
agrarian reform, through
industries that make full and
efficient use of human and
natural resources, and which
are competitive in both
domestic and foreign markets.
However, the State shall
protect Filipino enterprises
against unfair foreign
 competition and trade
practices.
In the pursuit of these goals, all
sectors of the economy and all
regions of the country shall be
given optimum opportunity to
develop. Private enterprises,
including corporations,
cooperatives, and similar
collective organizations, shall be
encouraged to broaden the
base of their ownership.
§15. The Congress shall create
an agency to promote the
viability and growth of
cooperatives as instruments for
social justice and economic
development.
Petitioner's contention has no merit. In the first
place, it is not true that P.D. No. 1955 singled
out cooperatives by withdrawing their
exemption from income and sales taxes under
P.D. No. 175, §5. What P.D. No. 1955, §1 did
was to withdraw the exemptions and
preferential treatments theretofore granted to
private business enterprises in general, in view
of the economic crisis which then beset the
nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O.
No. 93, §1, but then again cooperatives were
not the only ones whose exemptions were
withdrawn. The withdrawal of tax incentives
applied to all, including government and private
entities. In the second place, the Constitution
does not really require that cooperatives be
granted tax exemptions in order to promote
their growth and viability. Hence, there is no
basis for petitioner's assertion that the
government's policy toward cooperatives had
been one of vacillation, as far as the grant of tax
privileges was concerned, and that it was to put
an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a
matter of policy cooperatives should be granted
tax exemptions, but that is left to the discretion
of Congress. If Congress does not grant
exemption and there is no discrimination to
cooperatives, no violation of any constitutional
policy can be charged.
Indeed, petitioner's theory amounts to saying
that under the Constitution cooperatives are
exempt from taxation. Such theory is contrary
to the Constitution under which only the
following are exempt from taxation: charitable
institutions, churches and parsonages, by
reason of Art. VI, §28 (3), and non-stock, non-
profit educational institutions by reason of Art.
XIV, §4 (3).
CUP's further ground for seeking the
invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law
because electric cooperatives are exempted
from the VAT. The classification between
electric and other cooperatives (farmers
cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests
on a congressional determination that there is
greater need to provide cheaper electric power
to as many people as possible, especially those
living in the rural areas, than there is to provide
them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments
raised against the constitutional validity of R.A.
No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement
pending resolution of these cases. We have now
come to the conclusion that the law suffers
from none of the infirmities attributed to it by
petitioners and that its enactment by the other
branches of the government does not
constitute a grave abuse of discretion. Any
question as to its necessity, desirability or
expediency must be addressed to Congress as
the body which is electorally responsible,
remembering that, as Justice Holmes has said,
"legislators are the ultimate guardians of the
liberties and welfare of the people in quite as
great a degree as are the courts." (Missouri,
Kansas & Texas Ry. Co. v. May, 194 U.S. 267,
270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing
that we should enforce the public accountability
of legislators, that those who took part in
passing the law in question by voting for it in
Congress should later thrust to the courts the
burden of reviewing measures in the flush of
enactment. This Court does not sit as a third
branch of the legislature, much less exercise a
veto power over legislation.
WHEREFORE, the motions for reconsideration
are denied with finality and the temporary
restraining order previously issued is hereby
lifted.
SO ORDERED.
G.R. No. 109289 October 3, 1994
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF
FINANCE & JOSE U. ONG, as COMMISSIONER
OF INTERNAL REVENUE, respondents.
G.R. No. 109446 October 3, 1994
CARAG, CABALLES, JAMORA AND SOMERA
LAW OFFICES, CARLO A. CARAG, MANUELITO
O. CABALLES, ELPIDIO C. JAMORA, JR. and
BENJAMIN A. SOMERA, JR., petitioners,
vs.
RAMON R. DEL ROSARIO, in his capacity as
SECRETARY OF FINANCE and JOSE U. ONG, in
his capacity as COMMISSIONER OF INTERNAL
REVENUE, respondents.
Rufino R. Tan for and in his own behalf.
Carag, Caballes, Jamora & Zomera Law Offices
for petitioners in G.R. 109446.
VITUG, J.:
These two consolidated special civil actions for
prohibition challenge, in G.R. No. 109289, the
constitutionality of Republic Act No. 7496, also
commonly known as the Simplified Net Income
Taxation Scheme ("SNIT"), amending certain
provisions of the National Internal Revenue
Code and, in
G.R. No. 109446, the validity of Section 6,
Revenue Regulations No. 2-93, promulgated by
public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely
affected by the continued implementation of
the amendatory legislation.
In G.R. No. 109289, it is asserted that the
enactment of Republic Act
No. 7496 violates the following provisions of the
Constitution:
Article VI, Section 26(1) — Every
bill passed by the Congress shall
embrace only one subject which
shall be expressed in the title
thereof.
Article VI, Section 28(1) — The
rule of taxation shall be uniform
and equitable. The Congress
shall evolve a progressive
system of taxation.
Article III, Section 1 — No
person shall be deprived of . . .
property without due process
of law, nor shall any person be
denied the equal protection of
the laws.
In G.R. No. 109446, petitioners, assailing Section
6 of Revenue Regulations No. 2-93, argue that
public respondents have exceeded their rule-
making authority in applying SNIT to general
professional partnerships.
The Solicitor General espouses the position
taken by public respondents.
The Court has given due course to both
petitions. The parties, in compliance with the
Court's directive, have filed their respective
memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill
No. 34314, progenitor of Republic Act No. 7496,
is a misnomer or, at least, deficient for being
merely entitled, "Simplified Net Income
Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of
their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
An Act Adopting the Simplified
Net Income Taxation Scheme
For The Self-Employed and
Professionals Engaged In The
Practice of Their Profession,
Amending Sections 21 and 29 of
the National Internal Revenue
Code, as Amended.
The pertinent provisions of Sections 21 and 29,
so referred to, of the National Internal Revenue
Code, as now amended, provide:
Sec. 21. Tax on citizens or
residents. —
xxx xxx xxx
(f) Simplified Net Income Tax
for the Self-Employed and/or
Professionals Engaged in the
Practice of Profession. — A tax
is hereby imposed upon the
taxable net income as
determined in Section 27
received during each taxable
year from all sources, other
than income covered by
paragraphs (b), (c), (d) and (e)
of this section by every
individual whether
a citizen of the Philippines or an
alien residing in the Philippines
who is self-employed or
practices his profession herein,
determined in accordance with
the following schedule:
Not over P10,000 3%
Over P10,000 P300 + 9%
but not over P30,000 of excess
over P10,000
Over P30,000 P2,100 + 15%
but not over P120,00 of excess
over P30,000
Over P120,000 P15,600 + 20%
but not over P350,000 of excess
over P120,000
Over P350,000 P61,600 + 30%
of excess over P350,000
Sec. 29. Deductions from gross
income. — In computing taxable
income subject to tax under
Sections 21(a), 24(a), (b) and
(c); and 25 (a)(1), there shall be
allowed as deductions the items
specified in paragraphs (a) to (i)
of this
section:  Provided,  however,
That in computing taxable
income subject to tax under
Section 21 (f) in the case of
individuals engaged in business
or practice of profession, only
the following direct costs shall
be allowed as deductions:
(a) Raw materials, supplies and
direct labor;
(b) Salaries of employees
directly engaged in activities in
 the course of or pursuant to the
business or practice of their
profession;
(c) Telecommunications,
electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the
Government and accredited
relief organizations for the
rehabilitation of calamity
stricken areas declared by the
President; and
(g) Interest paid or accrued
within a taxable year on loans
contracted from accredited
financial institutions which
must be proven to have been
incurred in connection with the
conduct of a taxpayer's
profession, trade or business.
For individuals whose cost of
goods sold and direct costs are
difficult to determine, a
maximum of forty per cent
(40%) of their gross receipts
shall be allowed as deductions
to answer for business or
professional expenses as the
case may be.
On the basis of the above language of the law, it
would be difficult to accept petitioner's view
that the amendatory law should be considered
as having now adopted a  gross  income, instead
of as having still retained the net  income,
taxation scheme. The allowance for deductible
items, it is true, may have significantly been
reduced by the questioned law in comparison
with that which has prevailed prior to the
amendment; limiting, however, allowable
deductions from gross income is neither
discordant with, nor opposed to, the net
income tax concept. The fact of the matter is
still that various deductions, which are by no
means inconsequential, continue to be well
provided under the new law.
Article VI, Section 26(1), of the Constitution has
been envisioned so as (a) to prevent log-rolling
legislation intended to unite the members of
the legislature who favor any one of unrelated
subjects in support of the whole act, (b) to
avoid surprises or even fraud upon the
legislature, and (c) to fairly apprise the people,
through such publications of its proceedings as
are usually made, of the subjects of
legislation.1 The above objectives of the
fundamental law appear to us to have been
sufficiently met. Anything else would be to
require a virtual compendium of the law which
could not have been the intendment of the
constitutional mandate.
Petitioner intimates that Republic Act No. 7496
desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that
the law would now attempt to tax single
proprietorships and professionals differently
from the manner it imposes the tax on
corporations and partnerships. The contention
clearly forgets, however, that such a system of
income taxation has long been the prevailing
rule even prior to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept
of equal protection, merely requires that all
subjects or objects of taxation, similarly
situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision
vs. Sarmiento, 91 Phil. 371). Uniformity does not
forfend classification as long as: (1) the
standards that are used therefor are substantial
and not arbitrary, (2) the categorization is
germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both
present and future conditions, and (4) the
classification applies equally well to all those
belonging to the same class (Pepsi Cola vs. City
of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197
SCRA 52).
What may instead be perceived to be apparent
from the amendatory law is the legislative
intent to increasingly shift the income tax
system towards the schedular approach2 in the
income taxation of individual taxpayers and to
maintain, by and large, the present global
treatment3 on taxable corporations. We
certainly do not view this classification to be
arbitrary and inappropriate.
Petitioner gives a fairly extensive discussion on
the merits of the law, illustrating, in the
process, what he believes to be an imbalance
between the tax liabilities of those covered by
the amendatory law and those who are not.
With the legislature primarily lies the discretion
to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects)
and situs (place) of taxation. This court cannot
freely delve into those matters which, by
constitutional fiat, rightly rest on legislative
judgment. Of course, where a tax measure
becomes so unconscionable and unjust as to
amount to confiscation of property, courts will
not hesitate to strike it down, for, despite all its
plenitude, the power to tax cannot override
constitutional proscriptions. This stage,
however, has not been demonstrated to have
been reached within any appreciable distance in
this controversy before us.
Having arrived at this conclusion, the plea of
petitioner to have the law declared
unconstitutional for being violative of due
process must perforce fail. The due process
clause may correctly be invoked only when
there is a clear contravention of inherent or
constitutional limitations in the exercise of the
tax power. No such transgression is so evident
to us.
G.R. No. 109446
The several propositions advanced by
petitioners revolve around the question of
whether or not public respondents have
exceeded their authority in promulgating
Section 6, Revenue Regulations No. 2-93, to
carry out Republic Act No. 7496.
The questioned regulation reads:
Sec. 6. General Professional
Partnership  — The general
professional partnership (GPP)
and the partners comprising the
GPP are covered by R. A. No.
7496. Thus, in determining the
net profit of the partnership,
only the direct costs mentioned
in said law are to be deducted
from partnership income. Also,
the expenses paid or incurred
by partners in their individual
capacities in the practice of
their profession which are not
reimbursed or paid by the
partnership but are not
considered as direct cost, are
not deductible from his gross
income.
The real objection of petitioners is focused on
the administrative interpretation of public
respondents that would apply SNIT to partners
in general professional partnerships. Petitioners
cite the pertinent deliberations in Congress
during its enactment of Republic Act No. 7496,
also quoted by the Honorable Hernando B.
Perez, minority floor leader of the House of
Representatives, in the latter's privilege speech
by way of commenting on the questioned
implementing regulation of public respondents
following the effectivity of the law, thusly:
MR. ALBANO,
Now Mr.
Speaker, I
would like to
get the correct
impression of
 this bill. Do we MR. PEREZ.
speak here of That is correct,
individuals who Mr. Speaker.
are earning, I
mean, who (Id. at 6:40 P.M.; Emphasis
earn through ours).
business
enterprises and In fact, in the sponsorship
therefore, speech of Senator Mamintal
should file an Tamano on the Senate version
income tax of the SNITS, it is categorically
return? stated, thus:

MR. PEREZ. This bill, Mr.

That is correct, President, is
Mr. Speaker. not applicable
This does not to business
apply to corporations or
corporations. It to partnerships;
applies only to it is only with
individuals. respect to
individuals and
(See Deliberations on H. B. No. professionals.
34314, August 6, 1991, 6:15 (Emphasis ours)
P.M.; Emphasis ours).
The Court, first of all, should like to correct the
Other apparent misconception that general
deliberations professional partnerships are subject to the
support this payment of income tax or that there is a
position, to wit: difference in the tax treatment between
individuals engaged in business or in the
MR. ABAYA . . . practice of their respective professions and
Now, Mr. partners in general professional partnerships.
Speaker, did I The fact of the matter is that a general
hear the professional partnership, unlike an ordinary
Gentleman business partnership (which is treated as a
from Batangas corporation for income tax purposes and so
say that this bill subject to the corporate income tax), is not
is intended to itself an income taxpayer. The income tax is
increase imposed not on the professional partnership,
collections as which is tax exempt, but on the partners
far as themselves in their individual capacity
individuals are computed on their distributive shares of
concerned and partnership profits. Section 23 of the Tax Code,
to make which has not been amended at all by Republic
collection of Act 7496, is explicit:
taxes
equitable?
Sec. 23. Tax liability of members by his share of
of general professional the deductions.
partnerships. — (a) Persons
exercising a common profession There is, then and now, no distinction in income
in general partnership shall be tax liability between a person who practices his
liable for income tax only in profession alone or individually and one who
their individual capacity, and does it through partnership (whether registered
the share in the net profits of or not) with others in the exercise of a common
the general professional profession. Indeed, outside of the gross
partnership to which any compensation income tax and the final tax on
taxable partner would be passive investment income, under the present
entitled whether distributed or income tax system all individuals deriving
otherwise, shall be returned for income from any source whatsoever are treated
taxation and the tax paid in in almost invariably the same manner and
accordance with the provisions under a common set of rules.
of this Title.
We can well appreciate the concern taken by
(b) In determining his petitioners if perhaps we were to consider
distributive share in the net Republic Act No. 7496 as an entirely
income of the partnership, each independent, not merely as an amendatory,
partner — piece of legislation. The view can easily become
myopic, however, when the law is understood,
(1) Shall take as it should be, as only forming part of, and
into account subject to, the whole income tax concept and
separately his precepts long obtaining under the National
distributive Internal Revenue Code. To elaborate a little, the
share of the phrase "income taxpayers" is an all embracing
partnership's term used in the Tax Code, and it practically
income, gain, covers all persons who derive taxable income.
loss, deduction, The law, in levying the tax, adopts the most
or credit to the comprehensive tax situs of nationality and
extent provided residence of the taxpayer (that renders citizens,
by the regardless of residence, and resident aliens
pertinent subject to income tax liability on their income
provisions of from all sources) and of the generally accepted
this Code, and and internationally recognized income taxable
base (that can subject non-resident aliens and
(2) Shall be foreign corporations to income tax on their
deemed to income from Philippine sources). In the process,
have elected the Code classifies taxpayers into four main
the itemized groups, namely: (1) Individuals, (2)
deductions, Corporations, (3) Estates under Judicial
unless he Settlement and (4) Irrevocable Trusts
declares his (irrevocable both as to corpus  and as
distributive to income).
share of the
gross income Partnerships are, under the Code, either
undiminished "taxable partnerships" or "exempt
partnerships." Ordinarily, partnerships, no
matter how created or organized, are subject to
income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the above
categorization, are by law assimilated to be
within the context of, and so legally
contemplated as, corporations. Except for few
variances, such as in the application of the
"constructive receipt rule" in the derivation of
income, the income tax approach is alike to
both juridical persons. Obviously, SNIT is not
intended or envisioned, as so correctly pointed
out in the discussions in Congress during its
deliberations on Republic Act 7496,
aforequoted, to cover corporations and
partnerships which are independently subject
to the payment of income tax.
"Exempt partnerships," upon the other hand,
are not similarly identified as corporations nor
even considered as independent taxable
entities for income tax purposes. A
general  professional partnership is such an
example.4 Here, the partners themselves, not
the partnership (although it is still obligated to
file an income tax return [mainly for
administration and data]), are liable for the
payment of income tax in
their individual  capacity computed on their
respective and distributive shares of profits. In
the determination of the tax liability, a partner
does so as an individual, and there is no choice
on the matter. In fine, under the Tax Code on
income taxation, the general professional
partnership is deemed to be no more than a
mere mechanism or a flow-through entity in the
generation of income by, and the ultimate
distribution of such income to, respectively,
each of the individual partners.
Section 6 of Revenue Regulation No. 2-93 did
not alter, but merely confirmed, the above
standing rule as now so modified by Republic
Act
No. 7496 on basically the extent of allowable
deductions applicable to all  individual income
taxpayers on their non-compensation income.
There is no evident intention of the law, either
before or after the amendatory legislation, to
place in an unequal footing or in significant
variance the income tax treatment of
professionals who practice their respective
professions individually and of those who do it
through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No
special pronouncement on costs.
SO ORDERED.
G.R. No. L-23794             February 17, 1968
ORMOC SUGAR COMPANY, INC., plaintiff-
appellant,
vs.
THE TREASURER OF ORMOC CITY, THE
MUNICIPAL BOARD OF ORMOC CITY, HON.
ESTEBAN C. CONEJOS as Mayor of Ormoc City
and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo
and Teehankee, Carreon & Tañada for plaintiff-
appellant.
Ramon O. de Veyra for defendants-appellees.
BENGZON, J.P., J.:
          On January 29, 1964, the Municipal Board
of Ormoc City passed 1 Ordinance No. 4, Series
of 1964, imposing "on any and all productions
of centrifugal sugar milled at the Ormoc Sugar
Company, Inc., in Ormoc City a municipal tax
equivalent to one per centum (1%) per export
sale to the United States of America and other
foreign countries." 2
          Payments for said tax were made, under
protest, by Ormoc Sugar Company, Inc. on
March 20, 1964 for P7,087.50 and on April 20,
1964 for P5,000, or a total of P12,087.50.
          On June 1, 1964, Ormoc Sugar Company,
Inc. filed before the Court of First Instance of
Leyte, with service of a copy upon the Solicitor
General, a complaint 3 against the City of Ormoc
as well as its Treasurer, Municipal Board and
Mayor, alleging that the afore-stated ordinance
is unconstitutional for being violative of the
equal protection clause (Sec. 1[1], Art. III,
Constitution) and the rule of uniformity of
taxation (Sec. 22[1]), Art. VI, Constitution), aside
from being an export tax forbidden under
Section 2287 of the Revised Administrative
Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City
under Section 15-kk of its charter and under
Section 2 of Republic Act 2264, otherwise
known as the Local Autonomy Act, is authorized
to impose; and that the tax amounts to a
customs duty, fee or charge in violation of
paragraph 1 of Section 2 of Republic Act 2264
because the tax is on both the sale and export
of sugar.
          Answering, the defendants asserted that
the tax ordinance was within defendant city's
power to enact under the Local Autonomy Act
and that the same did not violate the afore-
cited constitutional limitations. After pre-trial
and submission of the case on memoranda, the
Court of First Instance, on August 6, 1964,
rendered a decision that upheld the
constitutionality of the ordinance and declared
the taxing power of defendant chartered city
broadened by the Local Autonomy Act to
include all other forms of taxes, licenses or fees
not excluded in its charter.
          Appeal therefrom was directly taken to Us
by plaintiff Ormoc Sugar Company, Inc.
Appellant alleges the same statutory and
constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
          Section 1 of the ordinance states: "There
shall be paid to the City Treasurer on any and all
productions of centrifugal sugar milled at the
Ormoc Sugar Company, Incorporated, in Ormoc
City, a municipal tax equivalent to one per
centum (1%) per export sale to the United
States of America and other foreign countries."
Though referred to as a tax on the export of
centrifugal sugar produced at Ormoc Sugar
Company, Inc. For production of sugar alone is
not taxable; the only time the tax applies is
when the sugar produced is exported.
          Appellant questions the authority of the
defendant Municipal Board to levy such an
export tax, in view of Section 2287 of the
Revised Administrative Code which denies from
municipal councils the power to impose an
export tax. Section 2287 in part states: "It shall
not be in the power of the municipal council to
impose a tax in any form whatever, upon goods
and merchandise carried into the municipality,
or out of the same, and any attempt to impose
an import or export tax upon such goods in the
guise of an unreasonable charge for wharfage
use of bridges or otherwise, shall be void."
          Subsequently, however, Section 2 of
Republic Act 2264 effective June 19, 1959, gave
chartered cities, municipalities and municipal
districts authority to levy for public purposes
just and uniform taxes, licenses or fees. Anent
the inconsistency between Section 2287 of the
Revised Administrative Code and Section 2 of
Republic Act 2264, this Court, in Nin Bay Mining
Co. v. Municipality of Roxas  4 held the former to
have been repealed by the latter. And
expressing Our awareness of the transcendental
effects that municipal export or import taxes or
licenses will have on the national economy, due
to Section 2 of Republic Act 2264, We stated
that there was no other alternative until
Congress acts to provide remedial measures to
forestall any unfavorable results.
          The point remains to be determined,
however, whether constitutional limits on the
power of taxation, specifically the equal
protection clause and rule of uniformity of
taxation, were infringed.
          The Constitution in the bill of rights
provides: ". . . nor shall any person be denied
the equal protection of the laws." (Sec. 1 [1],
Art. III) In Felwa vs. Salas, 5 We ruled that the
equal protection clause applies only to persons
or things identically situated and does not bar a
reasonable classification of the subject of
legislation, and a classification is reasonable
where (1) it is based on substantial distinctions
which make real differences; (2) these are
germane to the purpose of the law; (3) the
classification applies not only to present
conditions but also to future conditions which
are substantially identical to those of the
present; (4) the classification applies only to
those who belong to the same class.

          A perusal of the requisites instantly shows

that the questioned ordinance does not meet
them, for it taxes only centrifugal sugar
produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of
the taxing ordinance's enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar
central in the city of Ormoc. Still, the
classification, to be reasonable, should be in
terms applicable to future conditions as well.
The taxing ordinance should not be singular and
exclusive as to exclude any subsequently
established sugar central, of the same class as
plaintiff, for the coverage of the tax. As it is
now, even if later a similar company is set up, it
cannot be subject to the tax because the
ordinance expressly points only to Ormoc City
Sugar Company, Inc. as the entity to be levied
upon.

          Appellant, however, is not entitled to

interest; on the refund because the taxes were
not arbitrarily collected (Collector of Internal
Revenue v. Binalbagan). 6 At the time of
collection, the ordinance provided a sufficient
basis to preclude arbitrariness, the same being
then presumed constitutional until declared
otherwise.

          WHEREFORE, the decision appealed from

is hereby reversed, the challenged ordinance is
declared unconstitutional and the defendants-
appellees are hereby ordered to refund the
P12,087.50 plaintiff-appellant paid under
protest. No costs. So ordered.