Abakada Guro Party List v. Ermita

EN BANC
[G.R. No. 168056. September 1, 2005.]
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS

SAMSON S. ALCANTARA and ED VINCENT S. ALBANO,
petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY
EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and
HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., respondents.
[G.R. No. 168207. September 1, 2005.]
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,

JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S.
LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III,
petitioners, vs. EXECUTIVE SECRETARY EDUARDO R. ERMITA,
CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO
L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE, respondents.
[G.R. No. 168461. September 1, 2005.]
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

represented by its President, ROSARIO ANTONIO; PETRON
DEALERS' ASSOCIATION represented by its President, RUTH
E. BARBIBI; ASSOCIATION OF CALTEX DEALERS' OF THE
PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the name
and style of "ANB NORTH SHELL SERVICE STATION";
LOURDES MARTINEZ doing business under the name and
style of "SHELL GATE — N. DOMINGO"; BETHZAIDA TAN
doing business under the name and style of "ADVANCE
SHELL STATION"; REYNALDO P. MONTOYA doing business
under the name and style of "NEW LAMUAN SHELL SERVICE
STATION"; EFREN SOTTO doing business under the name
and style of "RED FIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of "R&R PETRON STATION"; PETER M.
UNGSON doing business under the name and style of
"CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN
SHEILA A. LEE doing business under the name and style of
"NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P.
POSADAS doing business under the name and style of
"STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing
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business under the name and style of "CMA MOTORISTS
CENTER"; SUSAN M. ENTRATA doing business under the
name and style of "LEONA'S GASOLINE STATION and
SERVICE CENTER"; CARMELITA BALDONADO doing business
under the name and style of "FIRST CHOICE SERVICE
CENTER"; MERCEDITAS A. GARCIA doing business under the
name and style of "LORPED SERVICE CENTER"; RHEAMAR A.
RAMOS doing business under the name and style of "RJRAM
PTT GAS STATION"; MA. ISABEL VIOLAGO doing business
under the name and style of "VIOLAGO-PTT SERVICE
CENTER"; MOTORISTS' HEART CORPORATION represented
by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS' HARVARD CORPORATION
represented by its Vice-President for Operations, JOSELITO
F. FLORDELIZA; MOTORISTS' HERITAGE CORPORATION
F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
F. FLORDELIZA; ROMEO MANUEL doing business under the
name and style of "ROMMAN GASOLINE STATION";
ANTHONY ALBERT CRUZ III doing business under the name
and style of "TRUE SERVICE STATION" , petitioners, vs. CESAR
V. PURISIMA, in his capacity as Secretary of the
Department of Finance and GUILLERMO L. PARAYNO, JR., in
his capacity as Commissioner of Internal Revenue,
respondents.
[G.R. No. 168463. September 1, 2005.]
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO
Q. AGBAYANI and TEODORO A. CASIÑO, petitioners, vs.
CESAR V. PURISIMA, in his capacity as Secretary of
Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R.
ERMITA, in his capacity as Executive Secretary, respondents.
[G.R. No. 168730. September 1, 2005.]
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs.

HON. EDUARDO R. ERMITA, in his capacity as the Executive
Secretary; HON. MARGARITO TEVES, in his capacity as
Secretary of Finance; HON. JOSE MARIO BUNAG, in his
capacity as the OIC Commissioner of the Bureau of Internal
Revenue; and HON. ALEXANDER AREVALO, in his capacity
as the OIC Commissioner of the Bureau of Customs,
respondents.
Carlos G. Banigued and Laura Victoria Yuson-Layug for petitioners in

G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosalie Taguian,
Agustin C. Bacungan III and Roland Allan C. Abarguez for petitioners in G.R.
No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for
petitioners in 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.

The Solicitor General for public respondents.
SYLLABUS
1. TAXATION; VALUE-ADDED TAX (VAT); TAX ON SPENDING OR

CONSUMPTION. — The VAT is a tax on spending or consumption. It is levied
on the sale, barter, exchange or lease of goods or properties and services.
Being an indirect tax on expenditure, the seller of goods or services may
pass on the amount of tax paid to the buyer, with the seller acting merely as
a tax collector. The burden of VAT is intended to fall on the immediate
buyers and ultimately, the end-consumers. In contrast, a direct tax is a tax
for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else. Examples are
individual and corporate income taxes, transfer taxes, and residence taxes.
2. POLITICAL LAW; LEGISLATIVE DEPARTMENT; POWER OF
INTERNAL REGULATION AND DISCIPLINE ARE INTRINSIC IN ANY LEGISLATIVE
BODY. — It should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body for, as unerringly elucidated by
Justice Story, "[i]f the power did not exist, it would be utterly impracticable
to transact the business of the nation, either at all, or at least with decency,
deliberation, and order." Thus, Article VI, Section 16 (3) of the Constitution
provides that "each House may determine the rules of its proceedings."
Pursuant to this inherent constitutional power to promulgate and implement
its own rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
3. ID.; SEPARATION OF POWERS; EXPANDED JURISDICTION OF THE
SUPREME COURT CANNOT APPLY TO QUESTIONS REGARDING ONLY
INTERNAL OPERATION OF CONGRESS. — [O]ne of the most basic and
inherent power of the legislature is the power to formulate rules for its
proceedings and the discipline of its members. Congress is the best judge of
how it should conduct its own business expeditiously and in the most orderly
manner. It is also the sole concern of Congress to instill discipline among the
members of its conference committee if it believes that said members
violated any of its rules of proceedings. Even the expanded jurisdiction of
this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
4. ID.; LEGISLATIVE DEPARTMENT; CONGRESS FINDS THE
PRACTICES OF THE BICAMERAL CONFERENCE COMMITTEE TO BE VERY
USEFUL FOR PURPOSES OF PROMPT AND EFFICIENT LEGISLATIVE ACTION. —
[A]s far back as 1994 or more than ten years ago, in the case of Tolentino
vs. Secretary of Finance, the Court already made the pronouncement that "
[i]f a change is desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this question is not covered
by any constitutional provision but is only an internal rule of each house." To
date, Congress has not seen it fit to make such changes adverted to by the
Court. It seems, therefore, that Congress finds the practices of the bicameral
conference committee to be very useful for purposes of prompt and efficient
legislative action.
5. ID.; ID.; ID.; MANDATED TO SETTLE THE DIFFERENCES BETWEEN
THE DISAGREEING PROVISIONS IN THE HOUSE BILL AND THE SENATE BILL. —
Under the provisions of both the Rules of the House of Representatives and
Senate Rules, the Bicameral Conference Committee is mandated to settle
the differences between the disagreeing provisions in the House bill and the
Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."
To reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill
or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would be carried into the final form of the bill,
and/or (c) try to arrive at a compromise between the disagreeing provisions.
6. TAXATION; REPUBLIC ACT NO. 9337 (EXPANDED VALUE-ADDED
TAX LAW); THE STAND-BY AUTHORITY OF THE PRESIDENT IS STILL TOTALLY
WITHIN THE SUBJECT OF WHAT RATE OF VALUE-ADDED TAX SHOULD BE
IMPOSED ON THE TAXPAYERS. — The so-called stand-by authority in favor of
the President, whereby the rate of 10% VAT wanted by the Senate is
retained until such time that certain conditions arise when the 12% VAT
wanted by the House shall be imposed, appears to be a compromise to try to
bridge the difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally within the subject of
what rate of VAT should be imposed on taxpayers.
7. POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL
CONFERENCE COMMITTEE; IT IS WITHIN ITS POWER TO INCLUDE IN ITS
REPORT AN ENTIRELY NEW PROVISION THAT IS NOT FOUND EITHER IN THE
HOUSE BILL OR IN THE SENATE BILL. — All the changes or modifications
made by the Bicameral Conference Committee were germane to subjects of
the provisions referred to it for reconciliation. Such being the case, the Court
does not see any grave abuse of discretion amounting to lack or excess of
jurisdiction committed by the Bicameral Conference Committee. In the
earlier cases of Philippine Judges Association vs. Prado and Tolentino vs.
Secretary of Finance, the Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for
compromising differences between the Senate and the House. Thus, in the
Tolentino case, it was held that: . . . it is within the power of a conference
committee to include in its report an entirely new provision that is not found
either in the House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason why it
cannot propose several provisions, collectively considered as an
"amendment in the nature of a substitute," so long as such amendment is
germane to the subject of the bills before the committee. After all, its report
was not final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without
any basis.
8. ID.; ID.; "NO-AMENDMENT RULE"; CANNOT BE TAKEN TO MEAN
THAT THE INTRODUCTION BY THE BICAMERAL COMMITTEE OF AMENDMENTS
AND MODIFICATIONS TO DISAGREEING PROVISIONS IN BILLS THAT HAVE
BEEN ACTED UPON BY BOTH HOUSES OF CONGRESS IS PROHIBITED. — The
Court reiterates here that the "no-amendment rule" refers only to the
procedure to be followed by each house of Congress with regard to bills
initiated in each of said respective houses, before said bill is transmitted to
the other house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after one
house has voted on it would lead to absurdity as this would mean that the
other house of Congress would be deprived of its constitutional power to
amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral
Conference Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of Congress is
prohibited.
9. ID.; ID.; CONSTITUTION DOES NOT CONTAIN ANY PROHIBITION
OR LIMITATION ON THE EXTENT OF THE AMENDMENTS THAT MAY BE
INTRODUCED BY THE SENATE TO THE HOUSE REVENUE BILL. — Since there
is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, excise
and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the amendments that
may be introduced by the Senate to the House revenue bill.
10. ID.; ID.; REVENUE BILLS; THE SENATE CAN INTRODUCE
AMENDMENTS WITHIN THE PURPOSES OF THOSE BILLS. — Notably therefore,
the main purpose of the bills emanating from the House of Representatives
is to bring in sizeable revenues for the government to supplement our
country's serious financial problems, and improve tax administration and
control of the leakages in revenues from income taxes and value-added
taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can
introduce amendments within the purposes of those bills. It can provide for
ways that would soften the impact of the VAT measure on the consumer, i.e.,
by distributing the burden across all sectors instead of putting it entirely on
the shoulders of the consumers.
11. ID.; PRINCIPLE OF SEPARATION OF POWERS; ELUCIDATED. —
The principle of separation of powers ordains that each of the three great
branches of government has exclusive cognizance of and is supreme in
matters falling within its own constitutionally allocated sphere. A logical
corollary to the doctrine of separation of powers is the principle of non-
delegation of powers, as expressed in the Latin maxim: potestas delegata
non delegari potest which means "what has been delegated, cannot be
delegated. This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.
12. ID.; LEGISLATIVE DEPARTMENT; CONGRESS IS PROHIBITED
FROM DELEGATING THOSE WHICH ARE STRICTLY, OR INHERENTLY AND
EXCLUSIVELY, LEGISLATIVE. — With respect to the Legislature, Section 1 of
Article VI of the Constitution provides that "the Legislative power shall be
vested in the Congress of the Philippines which shall consist of a Senate and
a House of Representatives." The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has been
described as the authority to make a complete law — complete as to the
time when it shall take effect and as to whom it shall be applicable — and to
determine the expediency of its enactment. Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is
purely legislative in nature — that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of
its use or the manner of its exercise, which determines the validity of its
delegation.
13. ID.; ID.; ID.; EXCEPTIONS. — Nonetheless, the general rule
barring delegation of legislative powers is subject to the following recognized
limitations or exceptions: (1) Delegation of tariff powers to the President
under Section 28 (2) of Article VI of the Constitution; (2) Delegation of
emergency powers to the President under Section 23 (2) of Article VI of the
Constitution; (3) Delegation to the people at large; (4) Delegation to local
governments; and (5) Delegation to administrative bodies.
14. ID.; ID.; TESTS OF VALID DELEGATION. — In every case of
permissible delegation, there must be a showing that the delegation itself is
valid. It is valid only if the law (a) is complete in itself, setting forth therein
the policy to be executed, carried out, or implemented by the delegate; and
(b) fixes a standard — the limits of which are sufficiently determinate and
determinable — to which the delegate must conform in the performance of
his functions. A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to
apply it. It indicates the circumstances under which the legislative command
is to be effected. Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the
shoes of the legislature and exercise a power essentially legislative.
15. ID.; ID.; ID.; THE LEGISLATURE MAY DELEGATE TO EXECUTIVE
OFFICERS OR BODIES THE POWER TO DETERMINE CERTAIN FACTS OR
CONDITIONS ON WHICH THE OPERATION OF A STATUTE IS MADE TO
DEPEND. — Clearly, the legislature may delegate to executive officers or
bodies the power to determine certain facts or conditions, or the happening
of contingencies, on which the operation of a statute is, by its terms, made
to depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority. While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends.
16. ID.; ID.; ID.; ID.; RATIONALE. — The rationale for this is that the
preliminary ascertainment of facts as basis for the enactment of legislation
is not of itself a legislative function, but is simply ancillary to legislation.
Thus, the duty of correlating information and making recommendations is
the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is impossible in
the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper. The Constitution
as a continuously operative charter of government does not require that
Congress find for itself every fact upon which it desires to base legislative
action or that it make for itself detailed determinations which it has declared
to be prerequisite to application of legislative policy to particular facts and
circumstances impossible for Congress itself properly to investigate.
17. ID.; STATUTORY CONSTRUCTION; THE USE OF THE WORD
"SHALL" IN A STATUTE DENOTES AN IMPERATIVE OBLIGATION AND IS
INCONSISTENT WITH THE IDEA OF DISCRETION. — No discretion would be
exercised by the President. Highlighting the absence of discretion is the fact
that the word shall is used in the common proviso. The use of the word shall
connotes a mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion. Where the law is
clear and unambiguous, it must be taken to mean exactly what it says, and
courts have no choice but to see to it that the mandate is obeyed.
18. TAXATION; REPUBLIC ACT NO. 9337; IT IS THE MINISTERIAL
DUTY OF THE PRESIDENT TO IMMEDIATELY IMPOSE THE 12% RATE UPON THE
EXISTENCE OF ANY OF THE CONDITIONS SPECIFIED BY CONGRESS. — Thus,
it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a
duty which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the President
does not come into play. It is a clear directive to impose the 12% VAT rate
when the specified conditions are present. The time of taking into effect of
the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a
person or body other than the legislature itself.
19. POLITICAL LAW; EXECUTIVE DEPARTMENT; SECRETARY OF
FINANCE AS THE ALTER EGO OF THE PRESIDENT; EXPLAINED. — When one
speaks of the Secretary of Finance as the alter ego of the President, it simply
means that as head of the Department of Finance he is the assistant and
agent of the Chief Executive. The multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive
departments, and the acts of the secretaries of such departments, such as
the Department of Finance, performed and promulgated in the regular
course of business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in an advisory
capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General
Cushing, is "subject to the direction of the President."
20. TAXATION; REPUBLIC ACT NO. 9337; SECRETARY OF FINANCE
BECOMES THE MEANS OR TOOL BY WHICH THE LEGISLATIVE POLICY IN THE
VALUE-ADDED TAX IS DETERMINED AND IMPLEMENTED; CASE AT BAR. — In
the present case, in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not
acting as the alter ego of the President or even her subordinate. In such
instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take
effect. The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of
the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the
agent of Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
21. ID.; ID.; CONGRESS DID NOT DECLARE THE POWER TO TAX BUT
THE MERE IMPLEMENTATION OF THE LAW. — Congress simply granted the
Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a
percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2-4/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent
(1-1/2%). If either of these two instances has occurred, the Secretary of
Finance, by legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the President
effective January 1, 2006. There is no undue delegation of legislative power
but only of the discretion as to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly delegate
power when it describes what job must be done, who must do it, and what is
the scope of his authority; in our complex economy that is frequently the
only way in which the legislative process can go forward. . . . Congress did
not delegate the power to tax but the mere implementation of the law. The
intent and will to increase the VAT rate to 12% came from Congress and the
task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the
Court to inquire into, its task being to interpret the law.
22. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT DOES
NOT RULE ON ALLEGATIONS WHICH ARE MANIFESTLY CONJECTURAL. — The
insinuation by petitioners Pimentel, et al. that the President has ample
powers to cause, influence or create the conditions to bring about either or
both the conditions precedent does not deserve any merit as this argument
is highly speculative. The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all. The Court deals with
facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.
23. ID.; STATUTORY CONSTRUCTION; WHERE THE PROVISION OF
THE LAW IS CLEAR AND UNAMBIGUOUS, THE LAW MUST BE TAKEN AS IT IS.
— Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any
of the two conditions set forth therein are satisfied, the President shall
increase the VAT rate to 12%. The provisions of the law are clear. It does not
provide for a return to the 10% rate nor does it empower the President to so
revert if, after the rate is increased to 12%, the VAT collection goes below
the 2-4/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1-1/2%.
Therefore, no statutory construction or interpretation is needed. Neither can
conditions or limitations be introduced where none is provided for. Rewriting
the law is a forbidden ground that only Congress may tread upon. Thus, in
the absence of any provision providing for a return to the 10% rate, which in
this case the Court finds none, petitioners' argument is, at best, purely
speculative. There is no basis for petitioners' fear of a fluctuating VAT rate
because the law itself does not provide that the rate should go back to 10%
if the conditions provided in Sections 4, 5 and 6 are no longer present. The
rule is that where the provision of the law is clear and unambiguous, so that
there is no occasion for the court's seeking the legislative intent, the law
must be taken as it is, devoid of judicial addition or subtraction.
24. TAXATION; BASIC PRINCIPLE; FISCAL ADEQUACY, EXPLAINED. —
The principle of fiscal adequacy as a characteristic of a sound tax system
was originally stated by Adam Smith in his Canons of Taxation (1776), as: IV.
Every tax ought to be so contrived as both to take out and to keep out of the
pockets of the people as little as possible over and above what it brings into
the public treasury of the state. It simply means that sources of revenues
must be adequate to meet government expenditures and their variations.
25. POLITICAL LAW; JUDICIAL DEPARTMENT; WHETHER THE LAW IS
INDEED SUFFICIENT TO ANSWER THE STATE'S ECONOMIC DILEMMA IS NOT
FOR THE COURT TO JUDGE. — Congress passed the law hoping for rescue
from an inevitable catastrophe. Whether the law is indeed sufficient to
answer the state's economic dilemma is not for the Court to judge. In the
Fariñas case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair
Election Act), pronouncing that: . . . policy matters are not the concern of the
Court. Government policy is within the exclusive dominion of the political
branches of the government. It is not for this Court to look into the wisdom
or propriety of legislative determination. Indeed, whether an enactment is
wise or unwise, whether it is based on sound economic theory, whether it is
the best means to achieve the desired results, whether, in short, the
legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the
serious conflict of opinions does not suffice to bring them within the range of
judicial cognizance. In the same vein, the Court in this case will not dawdle
on the purpose of Congress or the executive policy, given that it is not for
the judiciary to "pass upon questions of wisdom, justice or expediency of
legislation."
26. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS AND
EQUAL PROTECTION CLAUSES; TO INVOKE VIOLATION THEREOF, THERE IS A
NEED FOR PROOF OF SUCH PERSUASIVE CHARACTER AS WOULD LEAD TO
SUCH A CONCLUSION. — The doctrine is that where the due process and
equal protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.
27. TAXATION; VALUE-ADDED TAX; INPUT TAX AND OUTPUT TAX;
DEFINED. — Input Tax is defined under Section 110 (A) of the NIRC, as
amended, as the value-added tax due from or paid by a VAT-registered
person on the importation of goods or local purchase of good and services,
including lease or use of property, in the course of trade or business, from a
VAT-registered person, and Output Tax is the value-added tax due on the
sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.
28. ID.; REPUBLIC ACT NO. 9337; THE EXCESS INPUT TAX IS
RETAINED IN A BUSINESS'S BOOKS OF ACCOUNTS AND REMAINS
CREDITABLE IN THE SUCCEEDING QUARTER/S. — Petitioners' argument is not
absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to
the extent that the input tax is less than 70% of the output tax, then 100%
of such input tax is still creditable. More importantly, the excess input tax, if
any, is retained in a business's books of accounts and remains creditable in
the succeeding quarter/s. This is explicitly allowed by Section 110 (B), which
provides that "if the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters." In addition, Section 112
(B) allows a VAT-registered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent that such input
taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
29. ID.; ID.; IN COMPUTING THE VALUE-ADDED TAX PAYABLE,
THREE POSSIBLE SCENARIOS MAY ARISE. — [T]he input tax is the tax paid by
a person, passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells goods. In computing
the VAT payable, three possible scenarios may arise: First, if at the end of a
taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is
required; Second, when the output taxes exceed the input taxes, the person
shall be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR); and Third, if the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-rated transactions,
any excess over the output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes, at the taxpayer's option.
30. ID.; ID.; A PERSON CAN CREDIT HIS INPUT TAX ONLY UP TO THE
EXTENT OF 70% OF THE OUTPUT TAX. — Section 8 of R.A. No. 9337
however, imposed a 70% limitation on the input tax. Thus, a person can
credit his input tax only up to the extent of 70% of the output tax. In
layman's term, the value-added taxes that a person/taxpayer paid and
passed on to him by a seller can only be credited up to 70% of the value-
added taxes that is due to him on a taxable transaction. There is no
retention of any tax collection because the person/taxpayer has already
previously paid the input tax to a seller, and the seller will subsequently
remit such input tax to the BIR. The party directly liable for the payment of
the tax is the seller. What only needs to be done is for the person/taxpayer
to apply or credit these input taxes, as evidenced by receipts, against his
output taxes.
31. ID.; ID.; INPUT TAX IS NOT A PROPERTY OR A PROPERTY RIGHT
WITHIN THE CONSTITUTIONAL PURVIEW OF THE DUE PROCESS CLAUSE. —
The input tax is not a property or a property right within the constitutional
purview of the due process clause. A VAT-registered person's entitlement to
the creditable input tax is a mere statutory privilege. The distinction
between statutory privileges and vested rights must be borne in mind for
persons have no vested rights in statutory privileges. The state may change
or take away rights, which were created by the law of the state, although it
may not take away property, which was vested by virtue of such rights.
32. ID.; ID.; TAXABLE TRANSACTIONS WITH THE GOVERNMENT ARE
SUBJECT TO A 5% RATE. — As applied to value-added tax, this means that
taxable transactions with the government are subject to a 5% rate, which
constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively
accounts for the standard input VAT (deemed input VAT), in lieu of the actual
input VAT directly or attributable to the taxable transaction. The Court need
not explore the rationale behind the provision. It is clear that Congress
intended to treat differently taxable transactions with the government. This
is supported by the fact that under the old provision, the 5% tax withheld by
the government remains creditable against the tax liability of the seller or
contractor[.]
33. POLITICAL LAW; JUDICIAL DEPARTMENT; SUPREME COURT WILL
NOT ENGAGE IN A LEGAL JOUST WHERE PREMISES ARE UNCERTAIN. —
Petitioners also argue that by imposing a limitation on the creditable input
tax, the government gets to tax a profit or value-added even if there is no
profit or value-added. Petitioners' stance is purely hypothetical,
argumentative, and again, one-sided. The Court will not engage in a legal
joust where premises are what ifs, arguments, theoretical and facts,
uncertain. Any disquisition by the Court on this point will only be, as
Shakespeare describes life in Macbeth, "full of sound and fury, signifying
nothing." What's more, petitioners' contention assumes the proposition that
there is no profit or value-added. It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
34. CONSTITUTIONAL LAW; BILL OF RIGHTS; EQUAL PROTECTION
CLAUSE; THE POWER OF THE STATE TO MAKE REASONABLE AND NATURAL
CLASSIFICATION FOR THE PURPOSES OF TAXATION HAS LONG BEEN
ESTABLISHED. — The equal protection clause under the Constitution means
that "no person or class of persons shall be deprived of the same protection
of laws which is enjoyed by other persons or other classes in the same place
and in like circumstances." The power of the State to make reasonable and
natural classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the rates
to be levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the State's power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such power absent a
clear showing of unreasonableness, discrimination, or arbitrariness.
35. ID.; ID.; ID.; DOES NOT REQUIRE THE UNIVERSAL APPLICATION
OF THE LAWS ON ALL PERSONS OR THINGS WITHOUT DISTINCTION. — The
equal protection clause does not require the universal application of the laws
on all persons or things without distinction. This might in fact sometimes
result in unequal protection. What the clause requires is equality among
equals as determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.
36. TAXATION; THE RULE OF UNIFORMITY DOES NOT DEPRIVE
CONGRESS OF THE POWER TO CLASSIFY SUBJECTS OF TAXATION. —
Uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. Different articles may be
taxed at different amounts provided that the rate is uniform on the same
class everywhere with all people at all times. In this case, the tax law is
uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods
and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on
sale of goods and properties, importation of goods, and sale of services and
use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction. Neither does the law make any distinction as
to the type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by the government. It must be
stressed that the rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands uniformity within
the particular class.
37. ID.; REPUBLIC ACT NO. 9337 IS EQUITABLE; EQUIPPED WITH A
THRESHOLD MARGIN. — R.A. No. 9337 is also equitable. The law is equipped
with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply
to sales of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00. Also, basic marine and agricultural food products
in their original state are still not subject to the tax, thus ensuring that prices
at the grassroots level will remain accessible. . . . It is admitted that R.A. No.
9337 puts a premium on businesses with low profit margins, and unduly
favors those with high profit margins. Congress was not oblivious to this.
Thus, to equalize the weighty burden the law entails, the law, under Section
116, imposed a 3% percentage tax on VAT-exempt persons under Section
109 (v), i.e., transactions with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a equalizer because in effect, bigger
businesses that qualify for VAT coverage and VAT-exempt taxpayers stand
on equal-footing. Moreover, Congress provided mitigating measures to
cushion the impact of the imposition of the tax on those previously exempt.
Excise taxes on petroleum products and natural gas were reduced.
Percentage tax on domestic carriers was removed. Power producers are now
exempt from paying franchise tax.
38. ID.; BASIC PRINCIPLE; PROGRESSIVITY; ELUCIDATED. —
Progressive taxation is built on the principle of the taxpayer's ability to pay.
This principle was also lifted from Adam Smith's Canons of Taxation, and it
states: I. The subjects of every state ought to contribute towards the support
of the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively enjoy
under the protection of the state. Taxation is progressive when its rate goes
up depending on the resources of the person affected.
39. ID.; REPUBLIC ACT NO. 9337; VALUE-ADDED TAX IS AN
ANTITHESIS OF PROGRESSIVE TAXATION. — The VAT is an antithesis of
progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the
VAT paid by the consumer or business for every goods bought or services
enjoyed is the same regardless of income. In other words, the VAT paid eats
the same portion of an income, whether big or small. The disparity lies in the
income earned by a person or profit margin marked by a business, such that
the higher the income or profit margin, the smaller the portion of the income
or profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the day, it
is really the lower income group or businesses with low-profit margins that is
always hardest hit.
40. ID.; ID.; THE CONSTITUTION DOES NOT REALLY PROHIBIT THE
IMPOSITION OF INDIRECT TAXES, LIKE THE VAT. — Nevertheless, the
Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall "evolve a progressive
system of taxation." The Court stated in the Tolentino case, thus: The
Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall
'evolve a progressive system of taxation.' The constitutional provision has
been interpreted to mean simply that 'direct taxes are . . . to be preferred
[and] as much as possible, indirect taxes should be minimized.' (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977))
Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest
form of indirect taxes, would have been prohibited with the proclamation of
Art. VIII, §17 (1) of the 1973 Constitution from which the present Art. VI, §28
(1) was taken. Sales taxes are also regressive. Resort to indirect taxes
should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending § 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4 amending
§103 of the NIRC)
PANGANIBAN, C.J., separate opinion:
1. POLITICAL LAW; JUDICIAL DEPARTMENT; JUDICIARY HAS BOTH
THE POWER AND THE DUTY TO STRIKE DOWN CONGRESSIONAL ACTIONS
THAT ARE DONE IN PLAIN CONTRAVENTION OF THE CONSTITUTIONAL
CONDITIONS, RESTRICTIONS OR LIMITATIONS. — In fine, the enrolled bill
doctrine applies mainly to the internal rules and processes followed by
Congress in its principal duty of lawmaking. However, when the Constitution
imposes certain conditions, restrictions or limitations on the exercise of
congressional prerogatives, the judiciary has both the power and the duty to
strike down congressional actions that are done in plain contravention of
such conditions, restrictions or limitations. Insofar as the present case is
concerned, the three most important restrictions or limitations to the
enrolled bill doctrine are the "origination," "no-amendment" and "three-
reading" rules which I will discuss later. Verily, these restrictions or
limitations to the enrolled bill doctrine are safeguarded by the expanded
constitutional mandate of the judiciary "to determine whether or not 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."
Even the ponente of Tolentino, the learned Mr. Justice Vicente V. Mendoza,
concedes in another decision that each house "may not by its rules ignore
constitutional restraints or violate fundamental rights, and there should be a
reasonable relation between the mode or method of proceeding established
by the rule and the result which is sought to be attained."
2. ID.; LEGISLATIVE DEPARTMENT; BICAMERAL CONFERENCE
COMMITTEE (BCB); SUPREME COURT MAY EXERCISE CERTIORARI REVIEW TO
FIND OUT WHETHER THE CONSTITUTIONAL CONDITIONS, RESTRICTIONS AND
LIMITATIONS ON LAW-MAKING HAVE BEEN VIOLATED. — The Bicameral
Conference Committee (BCC) created by Congress to iron out differences
between the Senate and the House of Representatives versions of the E-VAT
bills is one such "branch or instrumentality of the government," over which
this Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out
whether the constitutional conditions, restrictions and limitations on law-
making have been violated.
3. ID.; ID.; ID.; FIVE OPTIONS IN PERFORMING ITS FUNCTIONS. — In
general, the BCC has at least five options in performing its functions: (1)
adopt the House version in part or in toto, (2) adopt the Senate version in
part or in toto, (3) consolidate the two versions, (4) reject non-conflicting
provisions, and (5) adopt completely new provisions not found in either
version.
4. ID.; ID.; ID.; IN ADOPTING THE HOUSE VERSION OF THE REVENUE
BILL IN PART OR IN TOTO, THERE IS NO PROCEDURAL IMPEDIMENT SINCE IT
HAD PASSED THE THREE-READING REQUIREMENT. — [T]he BCC had the
option of adopting the House bills either in part or in toto, endorsing them
without changes. Since these bills had passed the three-reading requirement
under the Constitution, it readily becomes apparent that no procedural
impediment would arise. There would also be no question as to their
origination, because the bills originated exclusively from the House of
Representatives itself.
5. ID.; ID.; REVENUE BILL; IN THE SENATE, THE REWRITING IS
LIMITED BY THE "GERMANE" PRINCIPLE. — While in the Senate, the House
version may, per Tolentino, undergo extensive changes, such that the
Senate may rewrite not only portions of it but even all of it. I believe that
such rewriting is limited by the "germane" principle: although "relevant" or
"related" to the general subject of taxation, the Senate version is not
necessarily "germane" all the time. The "germane" principle requires a legal
— not necessarily an economic or political — interpretation. There must be
an "inherent logical connection." What may be germane in an economic or
political sense is not necessarily germane in the legal sense. Otherwise, any
provision in the Senate version that is entirely new and extraneous, or that
is remotely or even slightly connected, to the vast and perplexing subject of
taxation, would always be germane. Under this interpretation, the origination
principle would surely be rendered inutile.

6. ID.; ID.; ID.; SENATE IS NOT PROHIBITED TO FILE A SUBSTITUTE
BILL IN ANTICIPATION OF ITS RECEIPT OF THE BILL FROM THE HOUSE. — To
repeat, in Tolentino, the Court said that the Senate may even write its own
version, which in effect would be an amendment by substitution. The Court
went further by saying that "the Constitution does not prohibit the filing in
the Senate of a substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld pending receipt
of the House bill." After all, the initiative for filing a revenue bill must come
from the House on the theory that, elected as its members are from their
respective districts, the House is more sensitive to local needs and problems.
By contrast, the Senate whose members are elected at large approaches the
matter from a national perspective, with a broader and more circumspect
outlook.
7. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS REPORT WILL
NOT BECOME A FINAL VALID ACT OF THE LEGISLATIVE DEPARTMENT UNTIL IT
OBTAINS THE APPROVAL OF BOTH HOUSES OF CONGRESS. — As a third
option, the BCC may reach a compromise by consolidating both the Senate
and the House versions. It can adopt some parts and reject other parts of
both bills, and craft new provisions or even a substitute bill. I believe this
option is viable, provided that there is no violation of the origination and
germane principles, as well as the three-reading rule. After all, the report
generated by the BCC will not become a final valid act of the Legislative
Department until the BCC obtains the approval of both houses of Congress.
8. TAXATION; REPUBLIC ACT NO. 9337; "STANDBY AUTHORITY" OF
THE PRESIDENT, THERE WAS REALLY NO "DELEGATION" TO SPEAK OF SINCE
THERE WAS MERELY A DECLARATION OF AN ADMINISTRATIVE, NOT A
LEGISLATIVE FUNCTION. — In the computation of the percentage
requirements in the alternative conditions under the law, the amounts of the
VAT collection, National Deficit, and GDP — as well as the interrelationship
among them — can easily be derived by the finance secretary from the
proper government bodies charged with their determination. The law is
complete and standards have been fixed. Only the fact-finding mathematical
computation for its implementation on January 1, 2006, is necessary. Once
either of the factual and mathematical events provided in the law takes
place, the President has no choice but to implement the increase of the VAT
rate to 12 percent. This eventuality has been predetermined by Congress.
The taxing power has not been delegated by Congress to either or both the
President and the finance secretary. What was delegated was only the power
to ascertain the facts in order to bring the law into operation. In fact, there
was really no "delegation" to speak of; there was merely a declaration of an
administrative, not a legislative, function. I concur with the ponencia in that
there was no undue delegation of legislative power in the increase from 10
percent to 12 percent of the VAT rate.
9. ID.; ID.; THE SECRETARY OF FINANCE IS NOT AN ALTER EGO OF
CONGRESS BUT OF THE PRESIDENT. — The secretary of finance is not an
alter ego of Congress, but of the President. The mandate given by RA 9337
to the secretary is not equipollent to an authority to make laws. In passing
this law, Congress did not restrict or curtail the constitutional power of the
President to retain control and supervision over the entire Executive
Department. The law should be construed to be merely asking the President,
with a recommendation from the President's alter ego in finance matters, to
determine the factual bases for making the increase in VAT rate operative.
Indeed, as I have mentioned earlier, the fact-finding condition is a mere
administrative, not legislative, function.
10. POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE LEGISLATURE
DOES NOT HAVE THE POWER TO IMPLEMENT LAWS. — The ponencia states
that Congress merely delegates the implementation of the law to the
secretary of finance. How then can the latter be its agent? Making a law is
different from implementing it. While the first (the making of laws) may be
delegated under certain conditions and only in specific instances provided
under the Constitution, the second (the implementation of laws) may not be
done by Congress. After all, the legislature does not have the power to
implement laws. Therefore, congressional agency arises only in the first, not
in the second. The first is a legislative function; the second, an executive
one.
11. ID.; ID.; THE RIGHT TO SELECT THE MEASURE AND OBJECTS OF
TAXATION DEVOLVES UPON THE CONGRESS. — Petitioners' argument is that
because the GDP does not account for the economic effects of so-called
underground businesses, it is an inaccurate indicator of either economic
growth or slowdown in transitional economies. Clearly, this matter is within
the confines of lawmaking. This Court is neither a substitute for the wisdom,
or lack of it, in Congress, nor an arbiter of flaws within the latter's internal
rules. Policy matters lie within the domain of the political branches of
government, outside the range of judicial cognizance. "[T]he right to select
the measure and objects of taxation devolves upon the Congress, and not
upon the courts, and such selections are valid unless constitutional
limitations are overstepped." Moreover, each house of Congress has the
power and authority to determine the rules of its proceedings.
12. TAXATION; REPUBLIC ACT NO. 9337; THE AMENDMENTS MADE
BY THE BICAMERAL CONFERENCE COMMITTEE REGARDING INCOME TAXES
ARE NOT LEGALLY GERMANE TO THE SUBJECT MATTER OF THE HOUSE BILLS.
— Amendments on Income Taxes. I respectfully submit that the
amendments made by the BCC (that were culled from the Senate version)
regarding income taxes are not legally germane to the subject matter of the
House bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes due
from nonresident foreign corporations on intercorporate dividends; and
reducing the allowable deduction for interest expense are legally unrelated
and not germane to the subject matter contained in the House bills; they
violate the origination principle.
13. ID.; ID.; ID.; IT IS INCONCEIVABLE HOW THE PROVISIONS THAT
INCREASE CORPORATE INCOME TAXES CAN BE CONSIDERED AS MITIGATING
MEASURES FOR INCREASING THE VALUE-ADDED TAX. — One, an income tax
is a direct tax imposed on actual or presumed income — gross or net —
realized by a taxpayer during a given taxable year, while a VAT is an indirect
tax not in the context of who is directly and legally liable for its payment, but
in terms of its nature as "a tax on consumption." The former cannot be
passed on to the consumer, but the latter can. It is too wide a stretch of the
imagination to even relate one concept with the other. In like manner, it is
inconceivable how the provisions that increase corporate income taxes can
be considered as mitigating measures for increasing the VAT and, as I will
explain later, for effectively imposing a maximum of 3 percent tax on gross
sales or revenues because of the 70 percent cap. Even the argument that
the corporate income tax rates will be reduced to 30 percent does not hold
water. This reduction will take effect only in 2009, not 2006 when the 12
percent VAT rate will have been implemented.
14. ID.; ID.; ID.; TAXES ON INTERCORPORATE DIVIDENDS ARE FINAL
BUT THE INPUT VALUE-ADDED TAX IS GENERALLY CREDITABLE. — [T]axes on
intercorporate dividends are final, but the input VAT is generally creditable.
Under a final withholding tax system, the amount of income tax that is
withheld by a withholding agent is constituted as a full and final payment of
the income tax due from the payee on said income. The liability for the tax
primarily rests upon the payor as a withholding agent. Under a creditable
withholding tax system, taxes withheld on certain payments are meant to
approximate the tax that is due of the payee on said payments. The liability
for the tax rests upon the payee who is mandated by law to still file a tax
return, report the tax base, and pay the difference between the tax withheld
and the tax due.
15. ID.; ID.; ID.; INPUT VALUE-ADDED TAX CREDITS ARE DIFFERENT
FROM TAX CREDITS ON DIVIDENDS RECEIVED BY NONRESIDENT FOREIGN
CORPORATIONS. — From this observation alone, it can already be seen that
not only are dividends alien to the tax base upon which the VAT is imposed,
but their respective methods of withholding are totally different. VAT-
registered persons may not always be nonresident foreign corporations that
declare and pay dividends, while intercorporate dividends are certainly not
goods or properties for sale, barter, exchange, lease or importation.
Certainly, input VAT credits are different from tax credits on dividends
received by nonresident foreign corporations.
16. ID.; ID.; ID.; ITEMIZED DEDUCTIONS FROM GROSS INCOME
PARTAKE OF THE NATURE OF A TAX EXEMPTION. — [I]temized deductions
from gross income partake of the nature of a tax exemption. Interest —
which is among such deductions — refers to the amount paid by a debtor to
a creditor for the use or forbearance of money. It is an expense item that is
paid or incurred within a given taxable year on indebtedness in connection
with a taxpayer's trade, business or exercise of profession. In order to
reduce revenue losses, Congress enacted RA 8424 which reduces the
amount of interest expense deductible by a taxpayer from gross income,
equal to the applicable percentage of interest income subject to final tax. To
assert that reducing the allowable deduction in interest expense is a matter
that is legally related to the proposed VAT amendments is too far-fetched.
Interest expenses are not allowed as credits against output VAT. Neither are
VAT-registered persons always liable for interest.
17. ID.; ID.; THE BICAMERAL CONFERENCE COMMITTEE HAD THE
OPTION OF RETAINING OR MODIFYING THE NO PASS-ON PROVISIONS AND
DETERMINING THEIR EXTENT OR OF DELETING THEM ALTOGETHER. — No
Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its
authority when it deleted the no pass-on provisions found in the
congressional bills. Its authority to make amendments not only implies the
power to make insertions, but also deletions, in order to resolve conflicting
provisions. The no pass-on provision in House Bill (HB) No. 3705 referred to
the petroleum products subject to excise tax (and the raw materials used in
the manufacture of such products), the sellers of petroleum products, and
the generation companies. The analogous provision in Senate Bill (SB) No.
1950 dealt with electricity, businesses other than generation companies, and
services of franchise grantees of electric utilities. In contrast, there was a
marked absence of the no pass-on provision in HB 3555. Faced with such
variances, the BCC had the option of retaining or modifying the no pass-on
provisions and determining their extent, or of deleting them altogether. In
opting for deletion to resolve the variances, it was merely acting within its
discretion. No grave abuse may be imputed to the BCC.
18. ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED TAX
(VAT); THERE IS NO HARD AND FAST RULE THAT 100 PERCENT OF THE INPUT
TAXES WILL ALWAYS BE ALLOWED AS A TAX CREDIT. — Indeed, the tax
credit method under our VAT system is not only practical, but also principally
used in almost all taxing jurisdictions. This does not mean, however, that in
the eyes of Congress through the BCC, our country can neither deviate from
this method nor modify its application to suit our fiscal requirements. The
VAT is usually collected through the tax credit method (and in the past, even
through the cost deduction method or a mixture of these two methods), but
there is no hard and fast rule that 100 percent of the input taxes will always
be allowed as a tax credit.
19. ID.; REPUBLIC ACT NO. 9337; SINCE THE UNUTILIZED INPUT
VALUE-ADDED TAX CAN BE CARRIED TO SUCCEEDING QUARTERS. — Since
the unutilized input VAT can be carried over to succeeding quarters, there is
no undue deprivation of property. Alternatively, it can be passed on to the
consumers; there is no law prohibiting that. Merely speculative and
unproven, therefore, is the contention that the law is arbitrary and
oppressive. Laws that impose taxes are necessarily burdensome,
compulsory, and involuntary. The deferred input tax account — which
accumulates the unutilized input VAT — remains an asset in the accounting
records of a business. It is not at all confiscated by the government. By
deleting Section 112 (B) of the Tax Code, Congress no longer made available
tax credit certificates for such asset account until retirement from or
cessation of business, or changes in or cessation of VAT-registered status.
This is a matter of policy, not legality. The Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of
grave abuse of discretion in the enactment of the law.
20. ID.; ID.; THERE IS NO VESTED RIGHT IN A DEFERRED INPUT TAX
ACCOUNT. — That the unutilized input VAT would be rendered useless is
merely speculative. Although it is recorded as a deferred asset in the books
of a company, it remains to be a mere privilege. It may be written off or
expensed outright; it may also be denied as a tax credit. There is no vested
right in a deferred input tax account; it is a mere statutory privilege. The
State may modify or withdraw such privilege, which is merely an asset
granted by operation of law. Moreover, there is no vested right in generally
accepted accounting principles. These refer to accounting concepts,
measurement techniques, and standards of presentation in a company's
financial statements, and are not rooted in laws of nature, as are the laws of
physical science, for these are merely developed and continually modified
by local and international regulatory accounting bodies. To state otherwise
and recognize such asset account as a vested right is to limit the taxing
power of the State. Unlimited, plenary, comprehensive and supreme, this
power cannot be unduly restricted by mere creations of the State.
21. ID.; ID.; THERE IS NO VIOLATION OF THE EQUAL PROTECTION
CLAUSE SINCE THE LAW APPLIES EQUALLY TO ALL BUSINESSES. — That the
unutilized input VAT would also have an unequal effect on businesses —
some with low, others with high, input-output ratio — is not a legal ground
for invalidating the law. Profit margins are a variable of sound business
judgment, not of legal doctrine. The law applies equally to all businesses; it is
up to each of them to determine the best formula for selling their goods or
services in the face of stiffer competition. There is, thus, no violation of the
equal protection clause. If the implementation of the 70 percent cap would
cause an ad infinitum deferment of input taxes or an unequal effect upon
different types of businesses with varying profit margins and capital
requirements, then the remedy would be an amendment of the law — not an
unwarranted and outright declaration of unconstitutionality.
22. ID.; INCOME TAX; ADDITIONAL IMPOSITION AND ASSUMPTION
ARE WITHIN THE POWER OF CONGRESS TO MAKE. — The matter of business
establishments shouldering 30 percent of output tax and remitting the
amount, as computed, to the government is in effect imposing a tax that is
equivalent to a maximum of 3 percent of gross sales or revenues. This
imposition is arguably another tax on gross — not net — income and thus a
deviation from the concept of VAT as a tax on consumption; it also assumes
that sales or revenues are on cash basis or, if on credit, given credit terms
shorter than a quarter of a year. However, such additional imposition and
assumption are also arguably within the power of Congress to make. The
State may in fact choose to impose an additional 3 percent tax on gross
income, in lieu of the 70 percent cap, and thus subject the income of
businesses to two types of taxes — one on gross, the other on net. These
impositions may constitute double taxation, which is not constitutionally
proscribed.
23. ID.; REPUBLIC ACT NO. 9337; REDUCTION OF TAX CREDITS IS A
QUESTION OF ECONOMIC POLICY, NOT OF LEGAL PERLUSTRATION. — RA
9337 was enacted precisely to achieve the objective of raising revenues to
defray the necessary expenses of government. The means that this law
employs are reasonably related to the accomplishment of such objective,
and not unduly oppressive. The reduction of tax credits is a question of
economic policy, not of legal perlustration. Its determination is vested in
Congress, not in this Court. Since the purpose of the law is to raise revenues,
it cannot be denied that the means employed is reasonably related to the
achievement of that purpose. Moreover, the proper congressional procedure
for its enactment was followed; neither public notice nor public hearings
were denied.
24. ID.; ID.; PRIVATE ENTERPRISES ARE NOT DISCOURAGED. —
[P]rivate enterprises are not discouraged. Tax burdens are never delightful,
but with the imposition of the 70 percent cap, there will be an assurance of a
steady cash flow to the government, which can be translated to the
production of improved goods, rendition of better services, and construction
of better facilities for the people, including all private enterprises. Perhaps,
Congress deems it best to make our economy depend more on businesses
that are easier to monitor, so there will be a more efficient collection of
taxes. Whatever is expected of the outcome of the law, or its wisdom, should
be the sole responsibility of the representatives chosen by the electorate.
25. ID.; ID.; ID.; THE PROFIT MARGIN RATES OF VARIOUS
INDUSTRIES GENERALLY DO NOT CHANGE. — The profit margin rates of
various industries generally do not change. However, the profit margin
figures do, because these are obviously monetary variables that affect
business, along with the level of competition, the quality of goods and
services offered, and the cost of their production. And there will inevitably
be a conscious desire on the part of those who engage in business and those
who consume their output to adapt or adjust accordingly to any
congressional modification of the VAT system.
26. ID.; NATIONAL INTERNAL REVENUE CODE; VALUE-ADDED TAX;
THE VAT SYSTEM CAN ALWAYS BE MODIFIED TO SUIT MODERN FISCAL
DEMANDS. — In addition, it is contended that the VAT should be proportional
in nature. I submit that this proportionality pertains to the rate imposable,
not the credit allowable. Private enterprises are subjected to a proportional
VAT rate, but VAT credits need not be. The VAT is, after all, a human concept
that is neither immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again unlike the
laws of physical science, the VAT system can always be modified to suit
modern fiscal demands. The State, through the Legislative Department, may
even choose to do away with it and revert to our previous system of turnover
taxes, sales taxes and compensating taxes, in which credits may be
disallowed altogether.
27. ID.; REPUBLIC ACT NO. 9337; NO-AMENDMENT RULE WAS NOT
VIOLATED SINCE THERE WAS NO NEW PROVISION INSERTED IN THE
APPROVED BILL. — The no-amendment rule in the Constitution was not
violated by the BCC, because no completely new provision was inserted in
the approved bill. The amendments may be unpopular or even work
hardship upon everyone (this writer included). If so, the remedy cannot be
prescribed by this Court, but by Congress.
28. POLITICAL LAW; SEPARATION OF POWERS; THE COURT IS
DEFERENTIAL TO THE ACTIONS TAKEN BY THE OTHER BRANCHES OF
GOVERNMENT. — "[T]he Court — as a rule — is deferential to the actions
taken by the other branches of government that have primary responsibility
for the economic development of our country." Thus, in upholding the
Philippine ratification of the treaty establishing the World Trade Organization
(WTO), Tañada v. Angara held that "this Court never forgets that the Senate,
whose act is under review, is one of two sovereign houses of Congress and is
thus entitled to great respect in its actions. It is itself a constitutional body,
independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumption, this Court will resolve every doubt
in its favor." As pointed out in Cawaling Jr. v. Comelec, the grounds for nullity
of the law "must be beyond reasonable doubt, for to doubt is to sustain."
Indeed, "there must be clear and unequivocal showing that what the
Constitutions prohibits, the statute permits."
CHICO-NAZARIO, J., concurring opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; ENROLLED BILL
DOCTRINE; EXPLAINED. — Under the said doctrine, the enrolled bill, as
signed by the Speaker of the House of Representatives and the Senate
President, and certified by the Secretaries of both Houses of Congress, shall
be conclusive proof of its due enactment.
2. ID.; JUDICIAL DEPARTMENT; IT IS MORE PRUDENT FOR THE
SUPREME COURT TO REMAIN CONSERVATIVE AND TO CONTINUE ITS
ADHERENCE TO THE ENROLLED BILL DOCTRINE. — I believe that it is more
prudent for this Court to remain conservative and to continue its adherence
to the enrolled bill doctrine, for to abandon the said doctrine would be to
open a Pandora's Box, giving rise to a situation more fraught with evil and
mischief. Statutes enacted by Congress may not attain finality or
conclusiveness unless declared so by this Court. This would undermine the
authority of our statutes because despite having been signed and certified
by the designated officers of Congress, their validity would still be in doubt
and their implementation would be greatly hampered by allegations of
irregularities in their passage by the Legislature. Such an uncertainty in the
statutes would indubitably result in confusion and disorder. In all probability,
it is the contemplation of such a scenario that led an American Judge to
proclaim, thus — . . . Better, far better, that a provision should occasionally
find its way into the statute through mistake, or even fraud, than, that every
Act, state and national, should at any and all times be liable to put in issue
and impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land would
lead to mischiefs absolutely intolerable. . . .
3. ID.; SEPARATION OF POWERS; SUPREME COURT MUST
ATTRIBUTE GOOD FAITH AND ACCORD UTMOST RESPECT TO THE ACTS OF A
CO-EQUAL BRANCH OF GOVERNMENT. — [T]his Court must attribute good
faith and accord utmost respect to the acts of a co-equal branch of
government. While it is true that its jurisdiction has been expanded by the
Constitution, the exercise thereof should not violate the basic principle of
separation of powers. The expanded jurisdiction does not contemplate
judicial supremacy over the other branches of government. Thus, in
resolving the procedural issues raised by the petitioners, this Court should
limit itself to a determination of compliance with, or conversely, the violation
of a specified procedure in the Constitution for the passage of laws by
Congress, and not of a mere internal rule of proceedings of its Houses.
COMMITTEE; CREATION THEREOF IS AUTHORIZED BY THE RULES OF BOTH
HOUSES OF CONGRESS. — It bears emphasis that most of the irregularities
in the enactment of Rep. Act No. 9337 concern the amendments introduced
by the Bicameral Conference Committee. The Constitution is silent on such a
committee, it neither prescribes the creation thereof nor does it prohibit it.
The creation of the Bicameral Conference Committee is authorized by the
Rules of both Houses of Congress. That the Rules of both Houses of Congress
provide for the creation of a Bicameral Conference Committee is within the
prerogative of each House under the Constitution to determine its own rules
of proceedings.
5. ID.; ID.; ID.; A CREATION OF NECESSITY AND PRACTICALITY
CONSIDERING THAT OUR CONGRESS IS COMPOSED OF TWO HOUSES. — The
Bicameral Conference Committee is a creation of necessity and practicality
considering that our Congress is composed of two Houses, and it is highly
improbable that their respective bills on the same subject matter shall
always be in accord and consistent with each other. Instead of all their
members, only the appointed representatives of both Houses shall meet to
reconcile or settle the differences in their bills. The resulting bill from their
meetings, embodied in the Bicameral Conference Report, shall be subject to
approval and ratification by both Houses, voting separately.
6. ID.; ID.; ID.; BOTH HOUSES HAD THE POWER TO AMEND THEIR
RESPECTIVE RULES TO CLARIFY OR LIMIT EVEN FURTHER THE SCOPE OF THE
AUTHORITY WHICH THEY GRANTED THERETO. — It does perplex me that
members of both Houses would again ask the Court to define and limit the
powers of the Bicameral Conference Committee when such committee is of
their own creation. In a number of cases, this Court already made a
determination of the extent of the powers of the Bicameral Conference
Committee after taking into account the existing Rules of both Houses of
Congress. In gist, the power of the Bicameral Conference Committee to
reconcile or settle the differences in the two Houses' respective bills is not
limited to the conflicting provisions of the bills; but may include matters not
found in the original bills but germane to the purpose thereof. If both Houses
viewed the pronouncement made by this Court in such cases as extreme or
beyond what they intended, they had the power to amend their respective
Rules to clarify or limit even further the scope of the authority which they
grant to the Bicameral Conference Committee. Petitioners' grievance that,
unfortunately, they cannot bring about such an amendment of the Rules on
the Bicameral Conference Committee because they are members of the
minority, deserves scant consideration. That the majority of the members of
both Houses refuses to amend the Rules on the Bicameral Conference
Committee is an indication that it is still satisfied therewith. At any rate, this
is how democracy works — the will of the majority shall be controlling.
7. ID.; ID.; ID.; ID.; IF WE HAVE ONE CODE FOR ALL OUR NATIONAL
INTERNAL REVENUE TAXES, THEN THERE IS NO REASON WHY WE CANNOT
HAVE A SINGLE STATUTE AMENDING PROVISIONS THERETO. — Although
House Bills No. 3555 and 3705 were limited to the amendments of the
provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill
No. 1950 had a much wider scope and included amendments of other
provisions of the said Code, such as those on income, percentage, and
excise taxes. It should be borne in mind that the very purpose of these three
Bills and, subsequently, of Rep. Act No. 9337, was to raise additional
revenues for the government to address the dire economic situation of the
country. The National Internal Revenue Code of 1997, as its title suggests, is
the single Code that governs all our national internal revenue taxes. While it
does cover different taxes, all of them are imposed and collected by the
national government to raise revenues. If we have one Code for all our
national internal revenue taxes, then there is no reason why we cannot have
a single statute amending provisions thereof even if they involve different
taxes under separate titles. I hereby submit that the amendments
introduced by the Bicameral Conference Committee to non-VAT provisions of
the National Internal Revenue Code of 1997 are not unconstitutional for they
are germane to the purpose of House Bills No. 3555 and 3705 and Senate
Bill No. 1950, which is to raise national revenues.
8. TAXATION; NATIONAL INTERNAL REVENUE CODE OF 1997;
VALUE-ADDED TAX (VAT); INPUT VAT NOT A PROPERTY TO WHICH THE
TAXPAYER HAS VESTED RIGHTS. — I adhere to the view that the input VAT is
not a property to which the taxpayer has vested rights. Input VAT consists of
the VAT a VAT-registered person had paid on his purchases or importation of
goods, properties, and services from a VAT-registered supplier; more simply,
it is VAT paid. It is not, as averred by petitioner petroleum dealers, a
property that the taxpayer acquired for valuable consideration. A VAT-
registered person incurs input VAT because he complied with the National
Internal Revenue Code of 1997, which imposed the VAT and made the
payment thereof mandatory; and not because he paid for it or purchased it
for a price.
9. ID.; ID.; ID.; VAT-REGISTERED PERSON IS ALLOWED TO CREDIT
HIS INPUT VAT AGAINST HIS OUTPUT VAT. — Generally, when one pays taxes
to the government, he cannot expect any direct and concrete benefit to
himself for such payment. The benefit of payment of taxes shall redound to
the society as a whole. However, by virtue of Section 110 (A) of the National
Internal Revenue Code of 1997, prior to its amendment by Rep. Act No.
9337, a VAT-registered person is allowed, subject to certain substantiation
requirements, to credit his input VAT against his output VAT. . . . The
crediting of the input VAT against the output VAT is a statutory privilege,
granted by Section 110 of the National Internal Revenue Code of 1997. It
gives the VAT-registered person the opportunity to recover the input VAT he
had paid, so that, in effect, the input VAT does not constitute an additional
cost for him. While it is true that input VAT credits are reported as assets in a
VAT-registered person's financial statements and books of account, this
accounting treatment is still based on the statutory provision recognizing the
input VAT as a credit. Without Section 110 of the National Internal Revenue
Code of 1997, then the accounting treatment of any input VAT will also
change and may no longer be booked outright as an asset. Since the
privilege of an input VAT credit is granted by law, then an amendment of
such law may limit the exercise of or may totally withdraw the privilege.
10. ID.; ID.; ID.; OUTPUT VAT; ELUCIDATED. — Output VAT is the
VAT imposed by the VAT-registered person on his own sales of goods,
properties, and services or the VAT he passes on to his buyers. Hence, the
VAT-registered person selling the goods, properties, and services does not
pay for the output VAT; said output VAT is paid for by his consumers and he
only collects and remits the same to the government.
11. ID.; REPUBLIC ACT NO. 9337; IMPOSITION OF THE 70% CAP ON
INPUT VAT CREDITS, IS A LEGITIMATE EXERCISE BY CONGRESS OF ITS LAW-
MAKING POWER. — The amendment of Section 110 of the National Internal
Revenue Code of 1997 by Rep. Act No. 9337, which imposed the 70% cap on
input VAT credits, is a legitimate exercise by Congress of its law-making
power. To say that Congress may not trifle with Section 110 of the National
Internal Revenue Code of 1997 would be to violate a basic precept of
constitutional law — that no law is irrepealable. There can be no vested right
to the continued existence of a statute, which precludes its change or
repeal. It bears to emphasize that Rep. Act No. 9337 does not totally remove
the privilege of crediting the input VAT against the output VAT. It merely
limits the amount of input VAT one may credit against his output VAT per
quarter to an amount equivalent to 70% of the output VAT. What is more,
any input VAT in excess of the 70% cap may be carried-over to the next
quarter. It is certainly a departure from the VAT crediting system under
Section 110 of the National Internal Revenue Code of 1997, but it is an
innovation that Congress may very well introduce, because — VAT will
continue to evolve from its pioneering original structure. Dynamically, it will
be subjected to reforms that will make it conform to many factors, among
which are: the changing requirements of government revenue; the social,
economic and political vicissitudes of the times; and the conflicting interests
in our society. In the course of its evolution, it will be injected with some
oddities and inevitably transformed into a structure which its revisionists
believe will be an improvement overtime.
12. ID.; ID.; PETROLEUM DEALER'S RIGHT TO THE INPUT VAT
CREDIT IS NOT VESTED. — [A]ssuming for the sake of argument, that the
input VAT credit is indeed a property, the petroleum dealers' right thereto
has not vested. A right is deemed vested and subject to constitutional
protection when — ". . . [T]he right to enjoyment, present or prospective, has
become the property of some particular person or persons as a present
interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future benefit, or a
contingent interest in property founded on anticipated continuance of
existing laws, does not constitute a vested right. So, inchoate rights which
have not been acted on are not vested." . . . It should be remembered that
prior to Rep. Act No. 9337, the petroleum dealers' input VAT credits were
inexistent — they were unrecognized and disallowed by law. The petroleum
dealers had no such property called input VAT credits. It is only rational,
therefore, that they cannot acquire vested rights to the use of such input
VAT credits when they were never entitled to such credits in the first place,
at least, not until Rep. Act No. 9337. My view, at this point, when Rep. Act
No. 9337 has not yet even been implemented, is that petroleum dealers'
right to use their input VAT as credit against their output VAT unlimitedly has
not vested, being a mere expectancy of a future benefit and being
contingent on the continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
13. ID.; ID.; ALLOWS THE TAXPAYER TO CARRY-OVER TO THE
SUCCEEDING QUARTERS ANY EXCESS INPUT VAT. — Rep. Act No. 9337, while
imposing the 70% cap on input VAT credits, allows the taxpayer to carry-
over to the succeeding quarters any excess input VAT. The petroleum
dealers presented a situation wherein their input VAT would always exceed
70% of their output VAT, and thus, their excess input VAT will be perennially
carried-over and would remain unutilized. Even though they consistently
questioned the 70% cap on their input VAT credits, the petroleum dealers
failed to establish what is the average ratio of their input VAT vis-Ã -vis their
output VAT per quarter. Without such fact, I consider their objection to the
70% cap arbitrary because there is no basis therefor.
14. ID.; ID.; 70% CAP ON INPUT VAT CREDITS WAS NOT IMPOSED BY
CONGRESS ARBITRARILY. — I find that the 70% cap on input VAT credits was
not imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the
government can collect a minimum of 30% output VAT per taxpayer. This is
to put a VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer
under Section 109 (V) of the National Internal Revenue Code, as amended by
Rep. Act No. 9337. The latter taxpayer is exempt from VAT on the basis that
his sale or lease of goods or properties or services do not exceed
P1,500,000; instead, he is subject to pay a three percent (3%) tax on his
gross receipts in lieu of the VAT. If a taxpayer with presumably a smaller
business is required to pay three percent (3%) gross receipts tax, a type of
tax which does not even allow for any crediting, a VAT-taxpayer with a
bigger business should be obligated, likewise, to pay a minimum of 30%
output VAT (which should be equivalent to 3% of the gross selling price per
good or property or service sold). The cap assures the government a
collection of at least 30% output VAT, contributing to an improved cash flow
for the government. Attention is further called to the fact that the output VAT
is the VAT imposed on the sales by a VAT-taxpayer; it is paid by the
purchasers of the goods, properties, and services, and merely collected
through the VAT-registered seller. The latter, therefore, serves as a
collecting agent for the government. The VAT-registered seller is merely
being required to remit to the government a minimum of 30% of his output
VAT collection.
15. ID.; ID.; COURT'S DISCRETION CANNOT SUBSTITUTE THAT OF
THE CONGRESS. — [W]e cannot substitute our discretion for Congress, and
even though there are provisions in Rep. Act No. 9337 which we may believe
as unwise or iniquitous, but not unconstitutional, we cannot strike them off
by invoking our power of judicial review. In such a situation, the recourse of
the people is not judicial, but rather political. If they severely doubt the
wisdom of the present Congress for passing a statute such as Rep. Act No.
9337, then they have the power to hold the members of said Congress
accountable by using their voting power in the next elections.
DAVIDE, JR., C.J. separate, concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; IT WAS BEYOND THE
AMBIT OF THE AUTHORITY OF THE SENATE TO PROPOSE AMENDMENTS TO
REVENUE BILLS NOT COVERED BY THE HOUSE BILLS. — It must be noted
that the House Bill initiated amendments to provisions pertaining to VAT
only. Doubtless, the Senate has the constitutional power to concur with the
amendments to the VAT provisions introduced in the House Bills or even to
propose its own version of VAT measure. But that power does not extend to
initiation of other tax measures, such as introducing amendments to
provisions on corporate income taxes, percentage taxes, franchise taxes,
and excise taxes like what the Senate did in these cases. It was beyond the
ambit of the authority of the Senate to propose amendments to provisions
not covered by the House Bills or not related to the subject matter of the
House Bills, which is VAT. To allow the Senate to do so would be tantamount
to vesting in it the power to initiate revenue bills — a power that exclusively
pertains to the House of Representatives under Section 24, Article VI of the
Constitution [.]
2. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; LEGISLATIVE
CUSTOM SEVERELY LIMITS THE FREEDOM WITH WHICH NEW SUBJECT
MATTER CAN BE INSERTED INTO THE CONFERENCE BILL. — In Philippine
Judges Association v. Prado, the Court described the function of conference
committee in this wise: "A conference committee may deal generally with
the subject matter or it may be limited to resolving the precise differences
between the two houses. Even where the conference committee is not by
rule limited in its jurisdiction, legislative custom severely limits the freedom
with which new subject matter can be inserted into the conference bill." The
limitation on the power of a conference committee to insert new provisions
was laid down in Tolentino v. Secretary of Finance. There, the Court, while
recognizing the power of a conference committee to include in its report an
entirely new provision that is not found either in the House bill or in the
Senate bill, held that the exercise of that power is subject to the condition
that the said provision is "germane to the subject of the House and Senate
bills."
3. ID.; ID.; ID.; NEW PROVISIONS ON PERCENTAGE AND EXCISE
TAXES INSERTED IN THE AMENDMENTS FOR THE VALUE-ADDED TAX HAS NO
LEG TO STAND ON. — In the present cases, the provisions inserted by the
BCC, namely, Sections 121 (Percentage Tax on Banks and Non-Bank
Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the
NIRC, as amended, are undoubtedly germane to SB No. 1950, which
introduced amendments to the provisions on percentage and excise taxes —
but foreign to HB Nos. 3555 and 3705, which dealt with VAT only. Since the
proposed amendments in the Senate bill relating to percentage and excise
taxes cannot themselves be sustained because they did not take their root
from, or are not related to the subject of, HB Nos. 3705 and 3555, in
violation of Section 24, Article VI of the Constitution, the new provisions
inserted by the BCC on percentage and excise taxes would have no leg to
stand on. I understand very well that the amendments of the Senate and the
BCC relating to corporate income, percentage, franchise, and excise taxes
were designed to "soften the impact of VAT measure on the consumer, i.e.,
by distributing the burden across all sectors instead of putting it entirely on
the shoulders of the consumers" and to alleviate the country's financial
problems by bringing more revenues for the government. However, these
commendable intentions do not justify a deviation from the Constitution,
which mandates that the initiative for filing revenue bills should come from
the House of Representatives, not from the Senate. After all, these aims may
still be realized by means of another bill that may later be initiated by the
House of Representatives.
PUNO, J., concurring and dissenting opinion:
1. POLITICAL LAW; JUDICIAL DEPARTMENT; POWER OF JUDICIAL
REVIEW; LIMITED TO THE REVIEW OF "ACTUAL CASES AND
CONTROVERSIES." — The power of judicial review under Article VIII, Section
5 (2) of the 1987 Constitution is limited to the review of "actual cases and
controversies." As rightly stressed by retired Justice Vicente V. Mendoza, this
requirement gives the judiciary "the opportunity, denied to the legislature, of
seeing the actual operation of the statute as it is applied to actual facts and
thus enables it to reach sounder judgment" and "enhances public
acceptance of its role in our system of government." It also assures that the
judiciary does not intrude on areas committed to the other branches of
government and is confined to its role as defined by the Constitution.
Apposite thereto is the doctrine of ripeness whose basic rationale is "to
prevent the courts, through premature adjudication, from entangling
themselves in abstract disagreements." Central to the doctrine is the
determination of "whether the case involves uncertain or contingent future
events that may not occur as anticipated, or indeed may not occur at all."
The ripeness requirement must be satisfied for each challenged legal
provision and parts of a statute so that those which are "not immediately
involved are not thereby thrown open for a judicial determination of
constitutionality."
2. ID.; ID.; ID.; THE COURT WILL NOT RENDER A CONJECTURAL
JUDGMENT BASED ON HYPOTHETICAL FACTS. — It is manifest that the
constitutional challenge to Sections 4 to 6 of R.A. No. 9337 cannot hurdle the
requirement of ripeness. These sections give the President the power to
raise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain
fact-based conditions. We are not endowed with the infallible gift of
prophesy to know whether these conditions are certain to happen. The
power to adjust the tax rate given to the President is futuristic and may or
may not be exercised. The Court is therefore beseeched to render a
conjectural judgment based on hypothetical facts. Such a supplication has to
be rejected.
COMMITTEE; HAS LIMITED POWERS AND CANNOT BE ALLOWED TO ACT AS IF
IT WERE A "THIRD HOUSE" OF CONGRESS. — In Tolentino v. Secretary of
Finance, I ventured the view that a Bicameral Conference Committee has
limited powers and cannot be allowed to act as if it were a "third house" of
Congress. I further warned that unless its roving powers are reigned in, a
Bicameral Conference Committee can wreck the lawmaking process which is
a cornerstone of the democratic, republican regime established in our
Constitution. The passage of time fortifies my faith that there ought to be no
legal u-turn on this preeminent principle.
4. ID.; ID.; ID.; ITS ONLY POWER CAN GO NO FURTHER THAN
SETTLING DIFFERENCES IN THEIR BILLS OR JOINT RESOLUTIONS. — I
respectfully submit that it is only by strictly following the contours of powers
of a Bicameral Conference Committee, as delineated by the rules of the
House and the Senate, that we can prevent said Committee from acting as a
"third" chamber of Congress. Under the clear rules of both the Senate and
House, its power can go no further than settling differences in their bills or
joint resolutions. . . . Under both rules, it is obvious that a Bicameral
Conference Committee is a mere agent of the House or the Senate with
limited powers. The House contingent in the Committee cannot, on its own,
settle differences which are substantial in character. If it is confronted with
substantial differences, it has to go back to the chamber that created it "for
the latter's appropriate action." In other words, it must take the proper
instructions from the chambers that created it. It cannot exercise its
unbridled discretion. Where there is no difference between the bills, it
cannot make any change. Where the difference is substantial, it has to
return to the chamber of its origin and ask for appropriate instructions. It
ought to be indubitable that it cannot create a new law, i.e., that which has
never been discussed in either chamber of Congress. Its parameters of
power are not porous, for they are hedged by the clear limitation that its
only power is to settle differences in bills and joint resolutions of the two
chambers of Congress.
5. TAXATION; REPUBLIC ACT NO. 9337'S DELETION OF THE "NO
PASS ON PROVISION" ON BOTH THE SALES OF ELECTRICITY AND PETROLEUM
PRODUCTS BY THE BICAMERAL CONFERENCE COMMITTEE IS NOT
WARRANTED BY THE RULES OF EITHER THE SENATE OR THE HOUSE. — In
the guise of reconciling disagreeing provisions of the House and the Senate
bills on the matter, the Bicameral Conference Committee deleted the "no
pass on provision" on both the sales of electricity and petroleum products.
This action by the Committee is not warranted by the rules of either the
Senate or the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing provisions in the bills or
joint resolutions of the two houses of Congress. The House and the Senate
bills both prohibited the passing on to consumers of the VAT on sales of
electricity. The Bicameral Conference Committee cannot override this
unequivocal decision of the Senate and the House. Nor is it clear that there is
a conflict between the House and Senate versions on the "no pass on
provisions" of the VAT on sales of petroleum products. The House version
contained a "no pass on provision" but the Senate had none. Elementary
logic will tell us that while there may be a difference in the two versions, it
does not necessarily mean that there is a disagreement or conflict between
the Senate and the House. The silence of the Senate on the issue cannot be
interpreted as an outright opposition to the House decision prohibiting the
passing on of the VAT to the consumers on sales of petroleum products.
Silence can even be conformity, albeit implicit in nature. But granting for the
nonce that there is conflict between the two versions, the conflict cannot
escape the characterization as a substantial difference. The seismic
consequence of the deletion of the "no pass on provision" of the VAT on
sales of petroleum products on the ability of our consumers, especially on
the roofless and the shirtless of our society, to survive the onslaught of
spiraling prices ought to be beyond quibble. The rules require that the
Bicameral Conference Committee should not, on its own, act on this
substantial conflict. It has to seek guidance from the chamber that created it.
It must receive proper instructions from its principal, for it is the law of
nature that no spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the
members of the Bicameral Conference Committee. They bypassed their
principal and ran riot with the exercise of powers that the rules never
bestowed on them.
6. ID.; ID.; CONSTITUTIONALLY OBNOXIOUS ARE THE ADDED
RESTRICTIONS ON LOCAL GOVERNMENT'S USE OF INCREMENTAL REVENUE
FROM THE VALUE-ADDED TAX. — Even more constitutionally obnoxious are
the added restrictions on local government's use of incremental revenue
from the VAT in Section 21 of R.A. No. 9337 which were not present in the
Senate or House Bills. . . . These amendments did not harmonize conflicting
provisions between the constituent bills of R.A. No. 9337 but are entirely
new and extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee's authority and
must be struck down. I cannot therefore subscribe to the thesis of the
majority that "the changes introduced by the Bicameral Conference
Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent
that is wholly foreign to the subject embraced by the original provisions."
7. POLITICAL LAW; LEGISLATIVE DEPARTMENT; BICAMERAL
CONFERENCE COMMITTEE; TEST OF GERMANENESS IS OVERLY BROAD AND
IS THE FOUNTAINHEAD OF MISCHIEF. — The test of germaneness is overly
broad and is the fountainhead of mischief for it allows the Bicameral
Conference Committee to change provisions in the bills of the House and the
Senate when they are not even in disagreement. Worse still, it enables the
Committee to introduce amendments which are entirely new and have not
previously passed through the coils of scrutiny of the members of both
houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a "third house" of Congress with super veto
power over bills passed by the Senate and the House. We cannot concede
that super veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution.
8. ID.; ID.; CLEAR INTENT OF OUR FUNDAMENTAL LAW IS TO
INSTALL A LAW-MAKING STRUCTURE COMPOSED ONLY OF TWO HOUSES. —
The clear intent of our fundamental law is to install a lawmaking structure
composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective
constituents. The institution of this lawmaking structure is unmistakable from
the following provisions: (1) requiring that legislative power shall be vested
in a bicameral legislature; (2) providing for quorum requirements; (3)
requiring that appropriation, revenue or tariff bills, bills authorizing increase
of public debt, bills of local application, and private bills originate exclusively
in the House of Representatives; (4) requiring that bills embrace one subject
expressed in the title thereof; and (5) mandating that bills undergo three
readings on separate days in each House prior to passage into law and
prohibiting amendments on the last reading thereof. A Bicameral Conference
Committee with untrammeled powers will destroy this lawmaking structure.
At the very least, it will diminish the free and open debate of proposed
legislations and facilitate the smuggling of what purports to be laws.
9. ID.; ID.; IN A REPUBLICAN FORM OF GOVERNMENT, LAWS CAN
ONLY BE ENACTED BY ALL THE DULY ELECTED REPRESENTATIVES OF THE
PEOPLE. — It cannot be overemphasized that in a republican form of
government, laws can only be enacted by all the duly elected
representatives of the people. It cuts against conventional wisdom in
democracy to lodge this power in the hands of a few or in the claws of a
committee. It is for these reasons that the argument that we should overlook
the excesses of the Bicameral Conference Committee because its report is
anyway approved by both houses is a futile attempt to square the circle for
an unconstitutional act is void and cannot be redeemed by any subsequent
ratification.
10. ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; WHEN
THE VIOLATIONS AFFECT PRIVATE RIGHTS OR IMPAIR THE CONSTITUTION,
THE COURT HAS ALL THE POWER TO STRIKE THEM DOWN. — Neither can we
shut our eyes to the unconstitutional acts of the Bicameral Conference
Committee by holding that the Court cannot interpose its checking powers
over mere violations of the internal rules of Congress. In Arroyo, et al. v. de
Venecia, et al., we ruled that when the violations affect private rights or
impair the Constitution, the Court has all the power, nay, the duty to strike
them down.
YNARES-SANTIAGO, J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; THE RULE-MAKING
POWER OF CONGRESS SHOULD TAKE ITS BEARINGS FROM THE
CONSTITUTION. — Indeed, Section 16 (3), Article VI of the 1987 Constitution
explicitly allows each House to determine the rules of its proceedings.
However, the rules must not contravene constitutional provisions. The rule-
making power of Congress should take its bearings from the Constitution. If
in the exercise of this rule-making power, Congress failed to set parameters
in the functions of the committee and allowed the latter unbridled authority
to perform acts which Congress itself is prohibited, like the passage of a law
without undergoing the requisite three-reading and the so-called no-
amendment rule, then the same amount to grave abuse of discretion which
this Court is empowered to correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers, therefore, it is the
duty of the Court to declare as void a legislative enactment, either from want
of constitutional power to enact or because the constitutional forms or
conditions have not been observed. When the Court declares as
unconstitutional a law or a specific provision thereof because procedural
requirements for its passage were not complied, the Court is by no means
asserting its ascendancy over the Legislature, but simply affirming the
supremacy of the Constitution as repository of the sovereign will. The
judicial branch must ensure that constitutional norms for the exercise of
powers vested upon the two other branches are properly observed. This is
the very essence of judicial authority conferred upon the Court under
Section 1, Article VII of the 1987 Constitution.
2. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; ITS AUTHORITY
WAS LIMITED TO THE RECONCILIATION OF DISAGREEING PROVISIONS OF
THE RESOLUTION OF DIFFERENCES OR INCONSISTENCIES. — I fully subscribe
to the theory advanced in the Dissenting Opinion of Chief Justice Hilario G.
Davide, Jr. in Tolentino v. Secretary of Finance that the authority of the
bicameral conference committee was limited to the reconciliation of
disagreeing provisions or the resolution of differences or inconsistencies.
Thus, it could only either (a) restore, wholly or partly, the specific provisions
of the House bill amended by the Senate bill, (b) sustain, wholly or partly,
the Senate's amendments, or (c) by way of a compromise, to agree that
neither provisions in the House bill amended by the Senate nor the latter's
amendments thereto be carried into the final form of the former. Otherwise
stated, the Bicameral Conference Committee is authorized only to adopt
either the version of the House bill or the Senate bill, or adopt neither. It
cannot, as the ponencia proposed, "try to arrive at a compromise," such as
introducing provisions not included in either the House or Senate bill, as it
would allow a mere ad hoc committee to substitute the will of the entire
Congress and without undergoing the requisite three-reading, which are both
constitutionally proscribed. To allow the committee unbridled discretion to
overturn the collective will of the whole Congress defies logic considering
that the bills are passed presumably after study, deliberation and debate in
both houses. A lesser body like the Bicameral Conference Committee should
not be allowed to substitute its judgment for that of the entire Congress,
whose will is expressed collectively through the passed bills.
3. ID.; ID.; ID.; THE PROVISIONS OF THE CONSTITUTION SHOULD
READ INTO THE RULES AS IMPOSING LIMITS ON WHAT THE COMMITTEE CAN
OR CANNOT DO. — When the Bicameral Conference Committee goes beyond
its limited function by substituting its own judgment for that of either of the
two houses, it violates the internal rules of Congress and contravenes
material restrictions imposed by the Constitution, particularly on the
passage of law. While concededly, the internal rules of both Houses do not
explicitly limit the Bicameral Conference Committee to a consideration only
of conflicting provisions, it is understood that the provisions of the
Constitution should be read into these rules as imposing limits on what the
committee can or cannot do. As such, it cannot perform its delegated
function in violation of the three-reading requirement and the no-
amendment rule.
4. ID.; ID.; ID.; ID.; "COMPROMISING THE DISAGREEING
PROVISIONS" BY SUBSTITUTING IT WITH ITS OWN VERSION CLEARLY
VIOLATE THE THREE-READING REQUIREMENT. — Thus, before a bill becomes
a law, it must pass three readings. Hence, the ponencia's submission that
despite its limited authority, the Bicameral Conference Committee could
"compromise the disagreeing provisions" by substituting it with its own
version — clearly violate the three-reading requirement, as the committee's
version would no longer undergo the same since it would be immediately put
into vote by the respective houses. In effect, it is not a bill that was passed
by the entire Congress but by the members of the ad hoc committee only,
which of course is constitutionally infirm.
5. ID.; ID.; ID.; ID.; NO-AMENDMENT RULE SHOULD BE CONSTRUED
AS A PROHIBITION FROM INTRODUCING AMENDMENTS AND MODIFICATIONS
TO NON-DISAGREEING PROVISIONS OF THE HOUSE AND SENATE BILLS. — I
disagree that the no-amendment rule referred only to "the procedure to be
followed by each house of Congress with regard to bills initiated in each of
said respective houses" because it would relegate the no-amendment rule to
a mere rule of procedure. To my mind, the no-amendment rule should be
construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of
the House and Senate bills. In sum, the committee could only either adopt
the version of the House bill or the Senate bill, or adopt neither. As Justice
Reynato S. Puno said in his Dissenting Opinion in Tolentino v. Secretary of
Finance, there is absolutely no legal warrant for the bold submission that a
Bicameral Conference Committee possesses the power to add/delete
provisions in bills already approved on third reading by both Houses or an ex
post veto power.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE DELEGATION
OF LEGISLATIVE POWER; POWER OF TAXATION CANNOT BE DELEGATED BY
THE CENTRAL LEGISLATIVE BODY TO THE EXECUTIVE OR JUDICIAL
DEPARTMENT OF THE GOVERNMENT. — Taxation is an inherent attribute of
sovereignty. It is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of separation
of powers. The rationale of this doctrine may be traced from the democratic
principle of "no taxation without representation." The power of taxation
being so pervasive, it is in the best interest of the people that such power be
lodged only in the Legislature. Composed of the people's representatives, it
is "closer to the pulse of the people and . . . are therefore in a better position
to determine both the extent of the legal burden the people are capable of
bearing and the benefits they need." Also, this set-up provides security
against the abuse of power. As Chief Justice Marshall said: "In imposing a
tax, the legislature acts upon its constituents. The power may be abused;
but the interest, wisdom, and justice of the representative body, and its
relations with its constituents, furnish a sufficient security." Consequently,
Section 24, Article VI of our Constitution enshrined the principle of "no
taxation without representation" by providing that "all . . . revenue bills . . .
shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments." This provision generally confines
the power of taxation to the Legislature.
2. ID.; ID.; ID.; ID.; EXCEPTIONS. — Of course, the rule which forbids
the delegation of the power of taxation is not absolute and inflexible. It
admits of exceptions. Retired Justice Jose C. Vitug enumerated such
exceptions, to wit: (1) delegations to local governments (to be exercised by
the local legislative bodies thereof) or political subdivisions; (2) delegations
allowed by the Constitution; and (3) delegations relating merely to
administrative implementation that may call for some degree of
discretionary powers under a set of sufficient standards expressed by law.
3. TAXATION; REPUBLIC ACT NO. 9337; THE LEGISLATURE
ABDICATED ITS POWER WHEN IT GRANTED THE PRESIDENT THE STANDBY
AUTHORITY TO INCREASE THE VALUE-ADDED TAX FROM 10% TO 12%. —
R.A. No. 9337, in granting to the President the stand-by authority to increase
the VAT rate from 10% to 12%, the Legislature abdicated its power by
delegating it to the President. This is constitutionally impermissible. The
Legislature may not escape its duties and responsibilities by delegating its
power to any other body or authority. Any attempt to abdicate the power is
unconstitutional and void, on the principle that potestas delegata non
delegare potest. As Judge Cooley enunciated: "One of the settled maxims in
constitutional law is, that the power conferred upon the legislature to make
laws cannot be delegated by that department to any other body or authority.
Where the sovereign power of the state has located the authority, there it
must remain; and by the constitutional agency alone the laws must be made
until the Constitution itself is changed. The power to whose judgment,
wisdom, and patriotism this high prerogative has been entrusted cannot
relieve itself of the responsibility by choosing other agencies upon which the
power shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people have seen
fit to confide this sovereign trust."
4. POLITICAL LAW; LEGISLATIVE DEPARTMENT; TAX RATES OR
VALUE-ADDED TAX RATES IS NOT ONE OF THE ENUMERATIONS THAT MAY BE
FIXED BY THE PRESIDENT. — [I]t is not allowed by the Constitution. Section
28 (2), Article VI of the Constitution enumerates the charges or duties, the
rates of which may be fixed by the President pursuant to a law passed by
Congress[.] . . . Noteworthy is the absence of tax rates or VAT rates in the
enumeration. If the intention of the Framers of the Constitution is to permit
the delegation of the power to fix tax rates or VAT rates to the President,
such could have been easily achieved by the mere inclusion of the term "tax
rates" or "VAT rates" in the enumeration. It is a dictum in statutory
construction that what is expressed puts an end to what is implied.
Expressium facit cessare tacitum. This is a derivative of the more familiar
maxim express mention is implied exclusion or expressio unius est exclusio
alterius. Considering that Section 28 (2), Article VI expressly speaks only of
"tariff rates, import and export quotas, tonnage and wharfage dues and
other duties and imposts," by no stretch of imagination can this enumeration
be extended to include the VAT.
5. ID.; ID.; TEST TO DETERMINE WHETHER A STATUTE CONSTITUTES
AN UNDUE DELEGATION OF LEGISLATIVE POWER OR NOT. — In testing
whether a statute constitutes an undue delegation of legislative power or
not, it is usual to inquire whether the statute was complete in all its terms
and provisions when it left the hands of the Legislature so that nothing was
left to the judgment of any other appointee or delegate of the legislature.
6. TAXATION; REPUBLIC ACT NO. 9337; ALLOWS THE PRESIDENT TO
DETERMINE FOR HERSELF WHETHER THE VALUE-ADDED TAX SHALL BE
INCREASED OR NOT AT ALL. — The two conditions set forth by law would
have been sufficient had it not been for the fact that the President, being at
the helm of the entire officialdom, has more than enough power of control to
bring about the existence of such conditions. Obviously, R.A. No. 9337 allows
the President to determine for herself whether the VAT rate shall be
increased or not at all. The fulfillment of the conditions is entirely placed in
her hands. If she wishes to increase the VAT rate, all she has to do is to
strictly enforce the VAT collection so as to exceed the 2-4/5% ceiling. The
same holds true with the national government deficit. She will just limit
government expenses so as not to exceed the 1-1/2% ceiling. On the other
hand, if she does not wish to increase the VAT rate, she may discourage the
Secretary of Finance from making the recommendation. That the President's
exercise of an authority is practically within her control is tantamount to
giving no conditions at all. I believe this amounts to a virtual surrender of
legislative power to her. It must be stressed that the validity of a law is not
tested by what has been done but by what may be done under its provisions.
7. POLITICAL LAW; CONSTITUTIONAL LAW; BILL OF RIGHTS;
SUBSTANTIVE DUE PROCESS, ELUCIDATED. — Substantive due process
requires the intrinsic validity of the law in interfering with the rights of the
person to his property. The inquiry in this regard is not whether or not the
law is being enforced in accordance with the prescribed manner but whether
or not, to begin with, it is a proper exercise of legislative power. To be so,
the law must have a valid governmental objective, i.e., the interest of the
public as distinguished from those of a particular class, requires the
intervention of the State. This objective must be pursued in a lawful manner,
or in other words, the means employed must be reasonably related to the
accomplishment of the purpose and not unduly oppressive.
8. TAXATION; BASIC PRINCIPLES; FISCAL ADEQUACY; EXPLAINED. —
One of the principles of sound taxation is fiscal adequacy. The proceeds of
tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of revenue vis-
Ã -vis the needs of government would be in keeping with the principle.
9. ID.; ID.; NOT TO BE EXERCISED AT ONE'S WHIM. — Equating the
grant of authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our Senators
must have forgotten that for every increase of taxes, the burden always
redounds to the people. Unlike the additional allowance given to a studious
son that comes from the pocket of the granting parent alone, the increase in
the VAT rate would be shouldered by the masses. Indeed, mandating them
to pay the increased rate as an award to the President is arbitrary and
unduly oppressive. Taxation is not a power to be exercised at one's whim.
10. POLITICAL LAW; LEGISLATIVE DEPARTMENT; ANY REVENUE
MUST BEGIN OR START SOLELY AND ONLY IN THE HOUSE. — With the
foregoing definitions in mind, it can be reasonably concluded that when
Section 24, Article VI provides that revenue bills shall originate exclusively
from the House of Representatives, what the Constitution mandates is that
any revenue statute must begin or start solely and only in the House. Not the
Senate. Not both Chambers of Congress. But there is more to it than that. It
also means that "an act for taxation must pass the House first." It is no
consequence what amendments the Senate adds.
11. ID.; ID.; SENATE COULD NOT PROPOSE TAX MATTERS NOT
INCLUDED IN THE HOUSE BILLS. — Clearly, Senate Bill No. 1950 is not based
on any bill passed by the House of Representatives. It has a legislative
identity and existence separate and apart from House Bills No. 3555 and
3705. Instead of concurring or proposing amendments, Senate Bill No. 1950
merely "takes into consideration" the two House Bills. To take into
consideration means "to take into account." Consideration, in this sense,
means "deliberation, attention, observation or contemplation. Simply put,
the Senate in passing Senate Bill No. 1950, a tax measure, merely took into
account House Bills No. 3555 and 3705, but did not concur with or amend
either or both bills. As a matter of fact, it did not even take these two House
Bills as a frame of reference. . . . Thus, I am of the position that the Senate
could not, without violating the germaneness rule and the principle of
"exclusive origination," propose tax matters not included in the House Bills.
CALLEJO, SR., J., concurring and dissenting opinion:
1. POLITICAL LAW; LEGISLATIVE DEPARTMENT; TWO DISTINCTIONS
BETWEEN THE U.S. FEDERAL CONSTITUTION'S AND OUR CONSTITUTION'S
PRESCRIBED CONGRESSIONAL PROCEDURE FOR ENACTING LAWS. — Two
distinctions are readily apparent between the two procedures: 1. Unlike the
US Federal Constitution, our Constitution prescribes the "three-reading" rule
or that no bill shall become a law unless it shall have been read on three
separate days in each house except when its urgency is certified by the
President; and 2. Unlike the US Federal Constitution, our Constitution
prescribes the "no-amendment" rule or that no amendments shall be
allowed upon the last reading of the bill.
2. ID.; ID.; "THREE-READING" AND "NO-AMENDMENT" RULES;
MECHANISMS INSTITUTED TO REMEDY THE "EVILS" INHERENT IN A
BICAMERAL SYSTEM OF LEGISLATURE. — The "three-reading" and "no-
amendment" rules, absent in the US Federal Constitution, but expressly
mandated by Article VI, Section 26 (2) of our Constitution are mechanisms
instituted to remedy the "evils" inherent in a bicameral system of legislature,
including the conference committee system. Sadly, the ponencia's refusal to
apply Article VI, Section 26 (2) of the Constitution on the Bicameral
Conference Committee and the amendments it introduced to R.A. No. 9337
has "effectively dismantled" the "three-reading rule" and "no-amendment
rule."
3. ID.; ID.; ID.; RATIONALE. — At this point, it is well to recall the
rationale for the "no-amendment rule" and the "three-reading rule" in Article
VI, Section 26 (2) of the Constitution. The proscription on amendments upon
the last reading is intended to subject all bills and their amendments to
intensive deliberation by the legislators and the ample ventilation of issues
to afford the public an opportunity to express their opinions or objections
thereon. Analogously, it is said that the "three-reading rule" operates "as a
self-binding mechanism that allows the legislature to guard against the
consequences of its own future passions, myopia, or herd behavior. By
requiring that bills be read and debated on successive days, legislature may
anticipate and forestall future occasions on which it will be seized by
deliberative pathologies." As Jeremy Bentham, a noted political analyst, put
it: "[t]he more susceptible a people are of excitement and being led astray,
so much the more ought they to place themselves under the protection of
forms which impose the necessity of reflection, and prevent surprises."
4. ID.; ID.; BICAMERAL CONFERENCE COMMITTEE; THE "TAKE IT OR
LEAVE IT" STANCE VIS-Ã€-VIS CONFERENCE COMMITTEE REPORTS OPEN THE
POSSIBILITY OF AMENDMENTS. — This "take it or leave it" stance vis-Ã -vis
conference committee reports opens the possibility of amendments, which
are substantial and not even germane to the original bills of either house,
being introduced by the conference committees and voted upon by the
legislators without knowledge of their contents. This practice cannot be
countenanced as it patently runs afoul of the essence of Article VI, Section
26 (2) of the Constitution. Worse, it is tantamount to Congress surrendering
its legislative functions to the conference committees.
5. ID.; ID.; ID.; RATIFICATION BY CONGRESS DID NOT CURE THE
UNCONSTITUTIONAL ACT THEREOF OF DELETING THE "NO PASS ON
PROVISION." — That both the Senate and the House of Representatives
approved the Bicameral Conference Committee Report which deleted the
"no pass on provision" did not cure the unconstitutional act of the said
committee. As succinctly put by Chief Justice Davide in his dissent in
Tolentino, "[t]his doctrine of ratification may apply to minor procedural flaws
or tolerable breaches of the parameters of the bicameral conference
committee's limited powers but never to violations of the Constitution.
Congress is not above the Constitution."
6. ID.; ID.; ENROLLED BILL DOCTRINE; EXPLAINED. — Under the
"enrolled bill doctrine," the signing of a bill by the Speaker of the House and
the Senate President and the certification of the Secretaries of both houses
of Congress that it was passed are conclusive of its due enactment.
AZCUNA, J., concurring and dissenting opinion:
1. TAXATION; REPUBLIC ACT NO. 9337; THERE IS NO ABDICATION
BY CONGRESS OF ITS POWER TO FIX THE RATE OF THE TAX SINCE THE RATE
INCREASE PROVIDED UNDER THE LAW IS DEFINITE AND CERTAIN TO OCCUR.
— Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional
abdication of Congress of its power to tax through its delegation to the
President of the decision to increase the rate of the tax from 10% to 12%,
effective January 1, 2006, after any of two conditions has been satisfied. The
two conditions are: (i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2-4/5%); or (ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1-1/2%). A scrutiny
of these "conditions" shows that one of them is certain to happen on January
1, 2006. . . . Accordingly, there is here no abdication by Congress of its
power to fix the rate of the tax since the rate increase provided under the
law, from 10% to 12%, is definite and certain to occur, effective January 1,
2006. All that the President will do is state which of the two conditions
occurred and thereupon implement the rate increase.
2. ID.; ID.; A PROPER IMPLEMENTATION OF THE EXPANDED VALUE-
ADDED TAX SHOULD CAUSE ONLY THE APPROPRIATE INCREMENTAL
INCREASE IN PRICES. — [T]he Court required respondents to submit a copy
of the rules to implement the E-VAT, particularly as to the impact of the tax
on prices of affected commodities, specially oil and electricity. For the onset
of the law last July 1, 2005 was confusing, resulting in across-the-board
increases of 10% in the prices of commodities. This is not supposed to be the
effect of the law, as was made clear during the oral arguments, because the
law also contains provisions that mitigate the impact of the E-VAT through
reduction of other kinds of taxes and duties, and other similar measures,
specially as to goods that go into the supply chain of the affected products. A
proper implementation of the E-VAT, therefore, should cause only the
appropriate incremental increase in prices, reflecting the net incremental
effect of the tax, which is not necessarily 10%, but possibly less, depending
on the products involved.
3. POLITICAL LAW; LEGISLATIVE DEPARTMENT; NECESSARY LEEWAY
SHOULD BE GIVEN TO CONGRESS AS LONG AS THE CHANGES ARE GERMANE
TO THE BILL BEING CHANGED. — For my part, I would rather give the
necessary leeway to Congress, as long as the changes are germane to the
bill being changed, the bill which originated from the House of
Representatives, and these are so, since these were precisely the mitigating
measures that go hand-on-hand with the E-VAT, and are, therefore, essential
— and hopefully sufficient — means to enable our people to bear the
sacrifices they are being asked to make. Such an approach is in accordance
with the Enrolled Bill Doctrine that is the prevailing rule in this jurisdiction.
(Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I
find are the provisions on corporate income taxes, which are not germane to
the E-VAT law, and are not found in the Senate and House bills.
TINGA, J., dissenting opinion:
1. TAXATION; REPUBLIC ACT NO. 9337 (E-VAT LAW); WILL
EXTERMINATE OUR COUNTRY'S SMALL TO MEDIUM ENTERPRISES. — The E-
VAT Law, as it stands, will exterminate our country's small to medium
enterprises. This will be the net effect of affirming Section 8 of the law, which
amends Sections 110 of the National Internal Revenue Code (NIRC) by
imposing a seventy percent (70%) cap on the creditable input tax a VAT-
registered person may apply every quarter and a mandatory sixty (60)-
month amortization period on the input tax on goods purchased or imported
in a calendar month if the acquisition cost of such goods exceeds One Million
Pesos (P1,000,000.00).
REVIEW; TAXES MAY BE INHERENTLY PUNITIVE, BUT WHEN THE FINE LINE
BETWEEN DAMAGE AND DESTRUCTION IS CROSSED, THE COURTS MUST
STEP FORTH AND CUT THE HANGMAN'S NOOSE. — Taxes may be inherently
punitive, but when the fine line between damage and destruction is crossed,
the courts must step forth and cut the hangman's noose. Justice Holmes
once confidently asserted that "the power to tax is not the power to destroy
while this Court sits," and we should very well live up to this expectation not
only of the revered Holmes, but of the Filipino people who rely on this Court
as the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
3. ID.; LEGISLATIVE DEPARTMENT; POWER TO ASCERTAIN THE
FACTS OR CONDITIONS AS THE BASIS OF THE TAKING INTO EFFECT OF A
LAW MAY BE DELEGATED BY CONGRESS. — As the majority correctly points
out, the power to ascertain the facts or conditions as the basis of the taking
into effect of a law may be delegated by Congress, and that the details as to
the enforcement and administration of an exercise of taxing power may be
delegated to executive agencies, including the power to determine the
existence of facts on which its operation depends.
4. TAXATION; REPUBLIC ACT NO. 9337; THERE IS CLEARLY NO
DELEGATION OF THE LEGISLATIVE POWER TO TAX BY CONGRESS TO THE
EXECUTIVE BRANCH SINCE THE PRESIDENT IS NOT GIVEN ANY DISCRETION
IN REFUSING TO RAISE THE VALUE-ADDED TAX TO 12%. — At first blush, it
does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT
from 10% to 12%, no matter the circumstance. Yet a closer analysis of the
proviso reveals that this is not exactly the operative effect of the law. The
qualifier "shall" denotes a mandatory, rather than discretionary function on
the part of the President to raise the rate of VAT to 12% upon the existence
of any of the two listed conditions. Since the President is not given any
discretion in refusing to raise the VAT rate to 12%, there is clearly no
delegation of the legislative power to tax by Congress to the executive
branch. The use of the word "shall" obviates any logical construction that
would allow the President leeway in not raising the tax rate. More so, it is
accepted that the principle of constitutional construction that every
presumption should be indulged in favor of constitutionality and the court in
considering the validity of the 'statute in question should give it such
reasonable construction as can be reached to bring it within the fundamental
law. While all reasonable doubts should be resolved in favor, of the
constitutionality of a statute, it should necessarily follow that the
construction upheld should be one that is not itself noxious to the
Constitution.
5. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNDUE DELEGATION
OF LEGISLATIVE POWER; ENACTMENT OF A LAW SHOULD BE DISTINGUISHED
FROM ITS IMPLEMENTATION. — The enactment of a law should be
distinguished from its implementation. Even if it is Congress which exercises
the plenary power of taxation, it is not the body that administers the
implementation of the tax. Under Section 2 of the National Internal Revenue
Code (NIRC), the assessment and collection of all national internal revenue
taxes, and the enforcement of all forfeitures, penalties and fines connected
therewith had been previously delegated to the Bureau of Internal Revenue,
under the supervision and control of the Department of Finance.
6. ID.; ID.; IT IS NOT THE LAW BUT THE REVENUE BILL WHICH IS
REQUIRED BY THE CONSTITUTION TO "ORIGINATE EXCLUSIVELY" IN THE
HOUSE OF REPRESENTATIVES. — Still, the origination clause deserves
obeisance in this jurisdiction, simply because it is provided in the
Constitution. At the same time, its proper interpretation is settled precedent,
as enunciated in Tolentino: To begin with, it is not the law — but the revenue
bill — which is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole. The possibility of a third
version by the conference committee will be discussed later. At this point,
what is important to note is that, as a result of the Senate action, a distinct
bill may be produced. To insist that a revenue statute — and not only the bill
which initiated the legislative process culminating in the enactment of the
law — must substantially be the same as the House bill would be to deny the
Senate's power not only to "concur with amendments" but also to" propose
amendments." It would be to violate the coequality of legislative power of
the two houses of Congress and in fact make the House superior to the
Senate. The vested power of the Senate to "propose or concur with
amendments" necessarily implies the ability to adduce transformations from
the original House bill into the final law. Since the House and Senate sit
separately in sessions, the only opportunity for the Senate to introduce its
amendments would be in the Bicameral Conference Committee, which
emerges only after both the House and the Senate have approved their
respective bills.
7. ID.; ID.; "NO-AMENDMENT RULE"; REFERS ONLY TO THE
PROCEDURE TO BE FOLLOWED BY EACH HOUSE OF CONGRESS WITH
REGARD TO BILLS INITIATED IN THE HOUSE CONCERNED. — The majority
points out that the "no amendment rule" refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in the house
concerned, before said bills are transmitted to the other house for its
concurrence or amendment. I agree with this statement. Clearly, the
procedure under Section 26 (2), Article VI only relates to the passage of a bill
before the House and Senate, and not the process undertaken afterwards in
the Bicameral Conference Committee. Indeed, Sections 26 and 27 of Article
VI, which detail the procedure how a bill becomes a law, are silent as to what
occurs between the passage by both houses of their respective bills, and the
presentation to the President of "every bill passed by the Congress."
Evidently, "Congress" means both Houses, such that a bill approved by the
Senate but not by the House is not presented to the President for approval.
There is obviously a need for joint concurrence by the House and Senate of a
bill before it is transmitted to the President, but the Constitution does not
provide how such concurrence is acquired. This lacuna has to be filled,
otherwise no bill may be transmitted to the President.
8. ID.; ID.; GERMANENESS STANDARD; SHOULD BE APPRECIATED IN
ITS NORMAL BUT TOTAL SENSE. — The germaneness standard which should
guide Congress or the Bicameral Conference Committee should be
appreciated in its normal but total sense. In that regard, my views contrast
with that of Justice Panganiban, who asserts that provisions that are not
"legally germane" should be stricken down. The legal notion of germaneness
is just but one component, along with other factors such as economics and
politics, which guides the Bicameral Conference Committee, or the
legislature for that matter, in the enactment of laws. After all, factors such
as economics or politics are expected to cast a pervasive influence on the
legislative process in the first place, and it is essential as well to allow such
"non-legal" elements to be considered in ascertaining whether Congress has
complied with the criteria of germaneness. Congress is a political body, and
its rationale for legislating may be guided by factors other than established
legal standards. I deem it unduly restrictive on the plenary powers of
Congress to legislate, to coerce the body to adhere to judge-made standards,
such as a standard of "legal germaneness." The Constitution is the only legal
standard that Congress is required to abide by in its enactment of laws.
9. TAXATION; REPUBLIC ACT NO. 9337; IT WOULD BE MYOPIC TO
CONSIDER THAT THE SUBJECT MATTER OF THE HOUSE BILL IS SOLELY THE
VALUE-ADDED TAX SYSTEM RATHER THAN THE GENERATION OF REVENUE.
— The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions relating
to the VAT, but the entire revenue generating mechanism in place. If, for
example, amendments to non-VAT related provisions of the NIRC were
intended to offset the expanded coverage for the VAT, then such
amendments are germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the
House Bill is solely the VAT system, rather than the generation of revenue.
The majority has sufficiently demonstrated that the legislative intent behind
the bills that led to the E-VAT Law was the generation of revenue to counter
the country's dire fiscal situation. The mere fact that the law is popularly
known as the E-VAT Law, or that most of its provisions pertain to the VAT, or
indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the VAT
system.
10. ID.; ID.; RESTRICTIONS ON THE USE BY LOCAL GOVERNMENT
UNITS OF THEIR INCREMENTAL REVENUE FROM THE VAT ARE ALIEN TO THE
PRINCIPAL PURPOSE OF REVENUE GENERATION. — I do believe that the test
of germaneness was violated by the E-VAT Law in one regard. Section 21 of
the law, which was not contained in either the House or Senate Bills,
imposes restrictions on the use by local government units of their
incremental revenue from the VAT. These restrictions are alien to the
principal purposes of revenue generation, or the purposes of restructuring
the VAT system. I could not see how the provision, which relates to
budgetary allocations, is germane to the E-VAT Law. Since it was introduced
only in the Bicameral Conference Committee, the test of germaneness is
essential, and the provision does not pass muster. I join Justice Puno and the
Chief Justice in voting to declare Section 21 as unconstitutional.
11. ID.; ID.; THE "NO PASS ON" PROVISIONS ADOPTED BY THE
HOUSE ESSENTIALLY DIFFERS FROM THAT OF THE SENATE NECESSARILY
REQUIRED THE CORRECTIVE RELIEF FROM THE BICAMERAL CONFERENCE
COMMITTEE. — Moreover, the fact that the nature of the "no pass on"
provisions adopted by the House essentially differs from that of the Senate
necessarily required the corrective relief from the Bicameral Conference
Committee. The Committee could have either insisted on the House version,
the Senate version, or both versions, and it is not difficult to divine that any
of these steps would have obtained easy approval. Hence, the deletion
altogether of the "no pass on" provisions existed as a tangible solution to the
possible impasse, and the Committee should be accorded leeway to
implement such a compromise, especially considering that the deletion
would have remained germane to the law, and would not be constitutionally
prohibited since the prohibition on amendments under Section 26 (2), Article
VI does not apply to the Committee.
REVIEW; THE SUPREME COURT CANNOT SIMPLY DECREE TO CONGRESS
WHAT LAW OR PROVISIONS TO ENACT. — An outright declaration that the
deletion of the two elementally different "no-pass on" provisions is
unconstitutional, is of dubious efficacy in this case. Had such pronouncement
gained endorsement of a majority of the Court, it could not result in the ipso
facto restoration of the provision, the omission of which was ultimately
approved in both the House and Senate. Moreover, since the House version
of the "no pass on" is quite different from that of the Senate, there would be
a question as to whether the House version, the Senate version, or both
versions would be reinstated. And of course, if it were the Court which would
be called upon to choose, such would be way beyond the bounds of judicial
power. Indeed, to intimate that the Court may require Congress to reinstate
a provision that failed to meet legislative approval would result in a blatant
violation of the principle of separation of powers, with the Court effectively
dictating to Congress the content of its legislation. The Court cannot simply
decree to Congress what laws or provisions to enact, but is limited to
reviewing those enactments which are actually ratified by the legislature.
13. ID.; ID.; ID.; IT IS THE DUTY OF THE COURTS TO NULLIFY LAWS
THAT CONTRAVENE THE DUE PROCESS CLAUSE OF THE BILL OF RIGHTS. — It
is the duty of the courts to nullify laws that contravene the due process
clause of the Bill of Rights. This task is at the heart not only of judicial
review, but of the democratic system, for the fundamental guarantees in the
Bill of Rights become merely hortatory if their judicial enforcement is
unavailing. Even if the void law in question is a tax statute, or one that
encompasses national economic policy, the courts should not shirk from
striking it down notwithstanding any notion of deference to the executive or
legislative branch on questions of policy. Neither Congress nor the President
has the right to enact or enforce unconstitutional laws.
14. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; BY NO MEANS THE
ONLY CONSTITUTIONAL YARDSTICK BY WHICH THE VALIDITY OF A TAX LAW
CAN BE MEASURED. — The Bill of Rights is by no means the only
constitutional yardstick by which the validity of a tax law can be measured.
Nonetheless, it stands as the most unyielding of constitutional standards,
given its position of primacy in the fundamental law way above the articles
on governmental power. If the question lodged, for example, hinges on the
proper exercise of legislative powers in the enactment of the tax law, leeway
can be appreciated in favor of affirming the legislature's inherent power to
levy taxes. On the other hand, no quarter can be ceded, no concession
yielded, on the people's fundamental rights as enshrined in the Bill of Rights,
even if the sacrifice is ostensibly made "in the national interest." It is my
understanding that "the national interests," however comported, always
subsumes in the first place recognition and enforcement of the Bill of Rights,
which manifests where we stand as a democratic society.
15. ID.; ID.; ID.; DUE PROCESS; PURPOSE. — The constitutional
safeguard of due process is embodied in the fiat "No person shall be
deprived of life, liberty or property without due process of law." The purpose
of the guaranty is to prevent governmental encroachment against the life,
liberty and property of individuals; to secure the individual from the arbitrary
exercise of the powers of the government, unrestrained by the established
principles of private rights and distributive justice; to protect property from
confiscation by legislative enactments, from seizure, forfeiture, and
destruction without a trial and conviction by the ordinary mode of judicial
procedure; and to secure to all persons equal and impartial justice and the
benefit of the general law.
16. ID.; ID.; ID.; ID.; MAY BE UTILIZED TO STRIKE DOWN A
TAXATION STATUTE. — In Magnano Co. v. Hamilton, the U.S. Supreme
Court recognized that the due process clause may be utilized to strike
down a taxation statute, "if the act be so arbitrary as to compel the
conclusion that it does not involve an exertion of the taxing power, but
constitutes, in substance and effect, the direct exertion of a different and
forbidden power, as, for example, the confiscation of property." Locally,
Sison v. Ancheta has long provided sanctuary for persons assailing the
constitutionality of taxing statutes. . . . Sison pronounces more concretely
how a tax statute may contravene the due process clause. Arbitrariness,
confiscation, overstepping the state's jurisdiction, and lack of a public
purpose are all grounds for nullity encompassed under the due process
invocation.
17. ID.; ID.; ID.; ID.; IT IS DIFFICULT TO PUT INTO QUANTIFIABLE
TERMS HOW ONEROUS A TAXATION STATUTE MUST BE BEFORE IT
CONTRAVENES THE DUE PROCESS CLAUSE. — It is difficult though to put into
quantifiable terms how onerous a taxation statute must be before it
contravenes the due process clause. After all, the inherent nature of taxation
is to cause pain and injury to the taxpayer, albeit for the greater good of
society. Perhaps whatever collective notion there may be of what constitutes
an arbitrary, confiscatory, and unreasonable tax might draw more from the
fairy tale/legend traditions of absolute monarchs and the oppressed
peasants they tax. Indeed, it is easier to jump to the conclusion that a tax is
oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
18. ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW;
SUPREME COURT IS NOT IMPOTENT FROM DECLARING A PROVISION OF LAW
AS VIOLATIVE OF THE DUE PROCESS CLAUSE IF IT IS CLEAR THAT ITS
IMPLEMENTATION WILL CAUSE THE ILLEGAL DEPRIVATION OF LIFE, LIBERTY
OR PROPERTY. — If there is cause to characterize my arguments as
speculative, it is only because the E-VAT Law has yet to be implemented. No
person as of yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet this should
not mean that the Court is impotent from declaring a provision of law as
violative of the due process clause if it is clear that its implementation will
cause the illegal deprivation of life, liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical
certainty, and the extent of the loss quantifiable through easy reference to
the most basic of business practices.
19. ID.; CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS;
CLEAR AND PRESENT DANGER TEST SQUARELY APPLIES THERETO. — Indeed,
the Court has long responded to strike down prospective actions, even if the
injury has not yet even occurred. One of the most significant legal principles
of the last century, the "clear and present danger" doctrine in free speech
cases, in fact emanates from the prospectivity, and not the actuality of
danger. The Court has not been hesitant to nullify acts which might cause
injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the "clear
and present danger rule" beyond the confines of freedom of expression to
the realm of freedom of religion, as noted by Justice Puno in his ponencia in
Estrada v. Escritor. Justice Teodoro Padilla goes further in his concurring
opinion in Basco v. PAGCOR, and asserts that the clear and present danger
test squarely applies to the due process clause: "The courts, as the decision
states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall
within their authority, except only when such policies pose a clear and
present danger to the life, liberty or property of the individual." I see no
reason why the clear and present danger test cannot apply in this case, or
any case wherein a taxing statute poses a clear and present danger to the
life, liberty or property of the individual. The application of this standard
frees the Court from inutility in the face of patently unconstitutional tax laws
that have been enacted but are yet to be fully operational.
20. ID.; STATUTORY CONSTRUCTION; ANY PROVISION OF LAW THAT
DIRECTLY CONTRADICTS THE CONSTITUTION IS UNWISE. — In the same vein,
the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed
provisions of the E-VAT law are basically unwise. But any provision of law
that directly contradicts the Constitution, especially the Bill of Rights, are
similarly unwise, as they run inconsistent with the fundamental law of the
land, the enunciated state policies and the elemental guarantees assured by
the State to its people. Not every unwise law is unconstitutional, but every
unconstitutional law is unwise, for an unconstitutional law contravenes a
primordial principle or guarantee on which our polity is founded.
21. ID.; JUDICIAL DEPARTMENT; POWER OF JUDICIAL REVIEW; THE
COURT IS EMPOWERED TO STRIKE DOWN THE LAW IF THE POLICY OF THE
LAW AND/OR THE MEANS BY WHICH SUCH POLICY IS IMPLEMENTED RUN
COUNTER TO THE CONSTITUTION. — The Separate Opinion of Justice
Panganiban notes that "[t]he Court cannot step beyond the confines of its
constitutional power, if there is absolutely no clear showing of grave abuse
of discretion in the enactment of the law." This, I feel, is an unduly narrow
view of judicial review, implying that such merely encompasses the
procedural aspect by which a law is enacted. If the policy of the law, and/or
the means by which such policy is implemented run counter to the
Constitution, then the Court is empowered to strike down the law, even if the
legislative and executive branches act within their discretion in legislating
and signing the law. It is also asserted that if the implementation of the 70%
cap imposes an unequal effect on different types of businesses with varying
profit margins and capital requirements, then the remedy would be an
amendment of the law. Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can take
cold comfort in the ability of the legislature to amend its enactments as the
defense against unconstitutional laws, what remains then as the function of
judicial review? This legislative capacity to amend unconstitutional laws runs
concurrently with the judicial capacity to strike down unconstitutional laws.
In fact, the long-standing tradition has been reliance on the judicial branch,
and not the legislative branch, for salvation from unconstitutional laws.
22. TAXATION; NATIONAL INTERNAL REVENUE CODE (NIRC); VALUE-
ADDED TAX (VAT); ELUCIDATED. — VAT is distinguishable from the standard
excise or percentage taxes in that it is imposable not only on the final
transaction involving the end user, but on previous stages as well so long as
there was a sale involved. Thus, VAT does not simply pertain to the extra
percentage paid by the buyer of a fast-food meal, but also that paid by
restaurant itself to its suppliers of raw food products. This multi-stage
system is more acclimated to the vagaries of the modern industrial climate,
which has long surpassed the stage when there was only one level of
transfer between the farmer who harvests the crop and the person who eats
the crop. Indeed, from the extraction or production of the raw material to its
final consumption by a user, several transactions or sales materialize. The
VAT system assures that the government shall reap income for every
transaction that is had, and not just on the final sale or transfer. The
European Union, which has long required its member states to apply the VAT
system, provided the following definition of the tax which I deem clear and
comprehensive: The principle of the common system of value added tax
involves the application to goods and services of a general tax on
consumption exactly proportional to the price of the goods and services,
whatever the number of transactions that take place in the production and
distribution process before the stage at which tax is charged. On each
transaction, value added tax, calculated on the price of the goods or
services at the rate applicable to such goods or services, shall be chargeable
after deduction of the amount of value added tax borne directly by the
various cost components.
23. ID.; ID.; ID.; GENERALLY NOT INTENDED TO BE A TAX ON
VALUE-ADDED BUT RATHER AS A TAX ON CONSUMPTION. — There is another
key characteristic of the VAT — that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or the
consumer, that ultimately shoulders the tax. Despite its name, VAT is
generally, not intended to be a tax on value added, but rather as a tax on
consumption. Hence, there is a mechanism in the VAT system that enables
firms to offset the tax they have paid on their own purchases of goods and
services against the tax they charge on their sales of goods and services.
Section 105 of the NIRC assures that "the amount of tax may be shifted or
passed on to the buyer transferee or lessee of the goods, properties or
services." The assailed provisions of the E-VAT law strike at the heart of this
accepted principle.
24. ID.; ID.; ID.; REMITTANCE OF THE TAX ON A PER TRANSACTION
BASIS IS IMPOSSIBLE. — And there is one final basic element of the VAT
system integral to this disquisition: the mode by which the tax is remitted to
the government. In simple theory, the VAT payable can be remitted to the
government immediately upon the occurrence of the transaction, but such a
demand proves excessively unwieldy. The number of VAT covered
transactions a modern enterprise may contract in a single day, plus the
recognized principle that it is the final end user who ultimately shoulders the
tax; render the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government
but to the seller, who then collates the VAT received and remits it to the
government every quarter. The process may seem simple if cast in this
manner, but there is a wrinkle, due to the offsetting mechanism designed to
ultimately make the end consumer bear the cost of the VAT.
25. ID.; ID.; ID.; INPUT TAX; DEFINED. — This mechanism is
employed through the introduction of two concepts, the input tax and the
output tax. Section 110 (A) of the National Internal Revenue Code defines
the input tax as the VAT due from or paid by a VAT-registered person on the
importation of goods or local purchase of goods and services in the course of
trade or business, from a VAT registered person.
26. ID.; ID.; ID.; ALLOWS FOR A MECHANISM BY WHICH THE
BUSINESS IS ABLE TO RECOVER THE INPUT VALUE-ADDED TAX THAT IT PAID.
— Since VAT is a final tax that is supposed to be ultimately shouldered by
the end consumer, the VAT system allows for a mechanism by which the
business is able to recover the input VAT that it paid. This comes into play
when the business, having transformed the raw materials into consumer
goods, sells these goods to the public. As widely known, the consumer pays
to the business an additional amount of 10% of the purchase price as VAT.
As to the business, this VAT payments it collects from the consumer
represents output VAT, which is formally described under Section 110 (A) of
the NIRC as "the value-added tax due on the sale or lease of taxable goods
or properties or services by" by any VAT-registered person. The output VAT
collected by the business from the consumers accumulates, until the end of
every quarter, when the enterprise is obliged to remit the collected output
VAT to the government. This is where the crediting mechanism comes into
play. Since the business is entitled to recover the prepaid input VAT, it does
so in every quarter by applying the amount of prepaid input VAT against the
collected output VAT which is to be remitted. If the output VAT collected
exceeds the prepaid input VAT, then the amount of input VAT is deducted
from the output VAT, and it is entitled to remit only the remainder as output
VAT to the government. . . . On the other hand, if the input VAT prepaid
exceeds the output VAT collected, then the business need not remit any
amount as output VAT for the quarter. Moreover, the difference between the
input VAT and the output VAT may be credited as input VAT by the business
in the succeeding quarter.
27. ID.; REPUBLIC ACT NO. 9337; ALL HOPE FOR ENTREPRENEURIAL
STABILITY IS DASHED WITH THE IMPOSITION OF THE 70% CAP. — All hope for
entrepreneurial stability is dashed with the imposition of the 70% cap. Under
the E-VAT Law, the business, regardless of stability or financial capability, is
obliged to remit to the government every quarter at least 30% of the output
VAT collected from customers, or roughly 3% of the amount of gross sales.
Thus, if a quarterly gross sales of Y Business totaled P1,000,000, and Y is
prudent enough to keep its capital expenses down to P980,000, it would then
appear on paper that Y incurred a profit of P20,000. However, with the 70%
cap, Y would be obliged to remit to the government P30,000, thus wiping out
the profit margin for the quarter. Y would be entitled to credit the excess
input VAT it prepaid for the next quarter, but the continuous operation of the
70% cap obviates whatever benefits this may give, and cause the
accumulation of the unutilized creditable input VAT which should be
returned to the business. . . . The 70% cap is not merely an unwise
imposition. It is a burden designed, either through sheer heedlessness or
cruel calculation, to kill off the small and medium enterprises that are the
soul, if not the heart, of our economy. It is not merely an undue taking of
property, but constitutes an unjustified taking of life as well.
28. ID.; ID.; THE MAJORITY FAILS TO CONSIDER TIME VALUE FOR
MONEY. — The majority fails to consider one of the most important concepts
in finance, time value for money. Simply put, the value of one peso is worth
more today than in 2006. Money that you hold today is worth more because
you can invest it and earn interest. By reason of the 70% cap, the amount of
input VAT credit that remains unutilized would continue to accumulate for
months and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time
value of money. Even assuming that the business eventually recovers the
input VAT credit, the sum recovered would have decreased in practical
value.
29. ID.; ID.; THE EFFECT OF THE 70% CAP IS TO EFFECTIVELY
IMPOSE A TAX AMOUNTING TO 3% OF GROSS REVENUE. — Only stable
businesses with substantial cash flows, or extraordinarily successful
enterprises will be able to remain in operation should the 70% cap be
retained. The effect of the 70% cap is to effectively impose a tax amounting
to 3% of gross revenue. The amount may seem insignificant to those without
working knowledge of the ways of business, but anybody who is actually
familiar with business would be well aware the profit margins of the retailing
and distribution sectors typically amount to less than 1% of the gross
revenues. A taxpayer has to earn a margin of at least 3% on gross revenue
in order to recoup the losses sustained due to the 70% cap. But as stated
earlier, profits are chancy, and the entrepreneur does not have full control of
the conditions that lead to profit.
30. ID.; ID.; THE EFFECT OF THE 70% CAP REMAINS CONSTANT
REGARDLESS OF AN INCREASE IN VOLUME OF THE GOODS SOLD. — Even
more galling is the fact that the 70% cap, oppressive as it already is to the
business establishment, even limits the options of the business to recover
the unutilized input VAT credit. During the deliberations, the argument was
raised that the problem presented by the 70% cap was a business problem,
which can only be solved by business. Yet there is only one viable option for
the enterprise to resolve the problem, and that is to increase the selling price
of goods. It would be incorrect to assume that increase the volume of the
goods sold could solve the problem, since for items with the same
purchasing cost, the effect of the 70% cap remains constant regardless of an
increase in volume.
31. ID.; ID.; BASIC ITEMS OF EXPENDITURE CANNOT SIMPLY BE
REDUCED AS TO DO SO WILL IMPAIR THE ABILITY OF THE BUSINESS TO
OPERATE ON A DAILY BASIS. — It is easy to admonish both the consumer and
the enterprise to cut back on expenditures to survive the new E-VAT Law.
However, this can be realistically expected only of the consumer. The
small/medium enterprise cannot just cut back easily on expenditures in
order to survive the implementation of the E-VAT Law. For such businesses,
expenditures do not normally contemplate unnecessary expenses such as
executive perks which can be dispensed with or without injury to the
enterprises. These expenditures pertain to expenses necessary for the
survival of the enterprise, such as wages, overhead and purchase of raw
materials. Those three basic items of expenditure cannot simply be reduced,
as to do so will impair the ability of the business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these
impositions under the E-VAT Law, as there must also be a corresponding
increase in the amount of gross sales. To do so though, would require an
increase in the selling price, dampening consumer enthusiasm, and further
impairing the ability of the enterprise to recover from the E-VAT Law. This is
your basic Catch-22 situation — no matter which means the enterprise
employs to recover from the E-VAT Law, it will still go down in flames.
32. ID.; ID.; THE 70% CAP DOES NOT INCREASE THE
GOVERNMENT'S REVENUE. — And what legitimate, germane purposes does
this lethal 70% cap serve? It certainly does not increase the government's
revenue since the unutilized creditable input VAT should be entered in the
government books as a debt payable as it is supposed to be eventually
repaid to the taxpayer, and so on the contrary it increases the government's
debts. I do see that the 70% cap temporarily allows the government to brag
to the world of an increased cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the barrio in order to show
off money and maintain the pretense of prosperity to visiting city relatives.
The illusion of wealth is hardly a legitimate state purpose, especially if
projected at the expense of the very business life of the country.
33. ID.; ID.; THE REFUND OR TAX CREDIT CERTIFICATE MAY ONLY
BE ISSUED UPON THE TWO INSTANCES. — This provision, which could have
provided foreseeable and useful relief to the VAT-registered person, was
deleted under the new E-VAT Law. At present, the refund or tax credit
certificate may only be issued upon two instances: on zero-rated or
effectively zero-rated sales, and upon cancellation of VAT registration due to
retirement from or cessation of business. This is the cruelest cut of all. Only
after the business ceases to be may the State be compelled to repay the
entire amount of the unutilized input tax. It is like a macabre form of
sweepstakes wherein the winner is to be paid his fortune only when he is
already dead. Aanhin pa ang damo kung patay na ang kabayo.
34. ID.; ID.; INABILITY TO IMMEDIATELY CREDIT THE UNUTILIZED
INPUT VALUE-ADDED TAX COULD CAUSE SUCH PREPAID AMOUNT TO BE
RECOGNIZED IN THE ACCOUNTING BOOKS AS A LOSS. — Moreover, the
inability to immediately credit or otherwise recover the unutilized input VAT
could cause such prepaid amount to actually be recognized in the accounting
books as a loss. Under international accounting practices, the unutilized
input VAT due to the 70% cap would not even be recognized as a deferred
asset. The same would not hold true if the 70% cap were eliminated. Under
the International Accounting Standards, the unutilized input VAT credit is
recognized as an asset "to the extent that it is probable that future taxable
profit will be available against which the unused tax losses and unused tax
credits can be utili[z]ed". Thus, if the immediate accreditation of the input
VAT credit can be obtained, as it would without the 70% cap, the asset could
be recognized. However, the same Standards hold that "[t]o the extent that
it is not probable that taxable profit will be available against which the
unused tax losses or unused tax credits can be utilised, the deferred tax
asset is not recognised." As demonstrated, the continuous operation of the
70% cap precludes the recovery of input VAT prepaid months or years prior.
Moreover, the inability to claim a refund or tax credit certificate until after
the business has already ceased virtually renders it improbable for the input
VAT to be recovered. As such, under the International Accounting Standards,
it is with all likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss. What heretofore was recognized as an
asset would now, with the imposition of the 70% cap, be now considered as
a loss, enhancing the view that the 70% cap is ultimately confiscatory in
nature.
35. ID.; ID.; UNUTILIZED INPUT VALUE-ADDED TAX CREDIT MAY BE
RECOGNIZED AS AN ASSET. — Tellingly, the BIR itself has recognized that
unutilized input VAT is one of those assets, corporate attributes or property
rights that, in the event of a merger, are transferred to the surviving
corporation by operation of law. Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State
recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion. Even under the
International Accounting Standards I adverted to above, the unutilized input
VAT credit may be recognized as an asset "to the extent that it is probable
that future taxable profit will be available against which the unused tax
losses and unused tax credits can be utilised". If not probable, it would be
recognized as a loss. Since these international standards, duly recognized by
the Securities and Exchange Commission as controlling in this jurisdiction,
attribute tangible gain or loss to the VAT credit, it necessarily follows that
there is proprietary value attached to such gain or loss.
36. ID.; ID.; PREPAID INPUT TAX REPRESENTS UNUTILIZED PROFIT.
— Moreover, the prepaid input tax represents unutilized profit, which can
only be utilized if it is refunded or credited to output taxes. To assert that the
input VAT is merely a privilege is to correspondingly claim that the business
profit is similarly a mere privilege. The Constitution itself recognizes the right
to profit by private enterprises. As I stated earlier, one of the enunciated
State policies under the Constitution is the recognition of the indispensable
role of the private sector, the encouragement of private enterprise, and the
provision of incentives to needed investments. Moreover, the Constitution
also requires the State to recognize the right of enterprises to reasonable
returns on investments, and to expansion and growth. This, I believe,
encompasses profit.
37. ID.; ID.; AMORTIZATION PLAN WILL PROVE ESPECIALLY FATAL
TO START-UPS AND OTHER NEW BUSINESSES. — However, this amortization
plan will prove especially fatal to start-ups and other new businesses, which
need to purchase capital goods in order to start up their new businesses. It is
a known fact in the financial community that a majority of businesses start
earning profit only after the second or third year, and many enterprises do
not even get to survive that long. The first few years of a business are the
most crucial to its survival, and any financial benefits it can obtain in those
years, no matter how miniscule, may spell the difference between life and
death. For such emerging businesses, it is already difficult under the present
system to recover the prepaid input VAT from the output VAT collected from
customers because initial sales volumes are usually low. With this further
limitation, diminishing as it does any opportunity to have a sustainable cash
flow, the ability of new businesses to survive the first three years becomes
even more endangered.
38. ID.; ID.; EXISTING SMALL TO MEDIUM ENTERPRISES ARE
IMPERILED BY THE 60 MONTH AMORTIZATION RESTRICTION. — Even existing
small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The
additional purchase of capital goods bears as a means of adding value to the
consumer good, as a means to justify the increased selling price. However,
the purchase of capital goods in excess of P1,000,000.00 would impose
another burden on the small to medium enterprise by further restricting their
ability to immediately recover the entire prepaid input VAT (which would
exceed at least P100,000.00), as they would be compelled to wait for at least
five years before they can do so. Another hurdle is imposed for such small to
medium enterprise to obtain the profit margin critical to survival. For some
lucky enterprises who may be able to survive the injury brought about by the
70% cap, this 60 month amortization period might instead provide the
mortal head wound.
39. ID.; ID.; INCREASED ADMINISTRATIVE BURDEN ON THE
TAXPAYER SHOULD NOT BE DISCOUNTED. — Moreover, the increased
administrative burden on the taxpayer should not be discounted, considering
this Court's previous recognition of the aims of the VAT system to
"rationalize the system of taxes on goods and services, [and] simplify tax
administration." With the amortization requirement, the taxpayer would be
forced to segregate assets into several classes and strictly monitor the useful
life of assets so that proper classification can be made. The administrative
requirements of the taxpayer in order to monitor the input VAT from the
purchase of capital assets thus has exponentially increased.
40. ID.; ID.; 5% WITHHOLDING VALUE-ADDED TAX ON SALES;
DELETION OF THE CREDIT APPARATUS EFFECTIVELY COMPELS THE PRIVATE
ENTERPRISE TRANSACTING WITH THE GOVERNMENT TO SHOULDER THE
OUTPUT VALUE-ADDED TAX. — The principle that the Government and its
subsidiaries may deduct and withhold a final value-added tax on its
purchase of goods and services is not new, as the NIRC had allowed such
deduction and withholding at the rate of 3% of the gross payment for the
purchase of goods, and 6% of the gross receipts for services. However, the
NIRC had also provided that this tax withheld would also be creditable
against the VAT liability of the seller or contractor, a mechanism that was
deleted by the E-VAT law. The deletion of this credit apparatus effectively
compels the private enterprise transacting with the government to shoulder
the output VAT that should have been paid by the government in excess of
5% of the gross selling price, and at the same time unduly burdens the
private enterprise by precluding it from applying any creditable input VAT on
the same transaction. Notably, the removal of the credit mechanism runs
contrary to the essence of the VAT system, which characteristically allows
the crediting of input taxes against output taxes. Without such crediting
mechanism, which allows the shifting of the VAT to only the final end user,
the tax becomes a straightforward tax on business or income. The effect on
the enterprise doing business with the government would be that two taxes
would be imposed on the income by the business derived on such
transaction: the regular personal or corporate income tax on such income,
and this final withholding tax of 5%.
41. ID.; ID.; ID.; THE END RESULT OF THE DISCRIMINATION IS
DOUBLE TAXATION. — It unfairly discriminates against entities which
contract with the government by imposing an additional tax on the income
derived from such transactions. The end result of such discrimination is
double taxation on income that is both oppressive and confiscatory. . . .
Double taxation means taxing for the same tax period the same thing or
activity twice, when it should be taxed but once, for the same purpose and
with the same kind of character of tax. Double taxation is not expressly
forbidden in our constitution, but the Court has recognized it as obnoxious
"where the taxpayer is taxed twice for the benefit of the same governmental
entity or by the same jurisdiction for the same purpose." Certainly, both the
5% final tax withheld and the general corporate income tax are both paid for
the benefit of the national government, and for the same incidence of
taxation, the sale/lease of goods and services to the government.
42. ID.; ID.; ID.; EFFECTIVELY DISCOURAGES PRIVATE ENTERPRISES
TO DO BUSINESS WITH THE STATE. — This imposition would be grossly unfair
for private entities that transact with the government, especially on a regular
basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects
only those persons or establishments that choose to do business with the
government. However, it is an acknowledged fact that the government and
its subsidiaries rely on contracts with private enterprises in order to be able
to carry out innumerable functions of the State. This provision effectively
discourages private enterprises to do business with the State, as it would
impose on the business a higher rate of tax if it were to transact with the
State, as compared to transactions with other private entities.
43. ID.; BASIC PRINCIPLE; INTELLIGENT TAX POLICY SHOULD
EXTEND BEYOND THE SINGULAR-MINDED GOAL OF RAISING STATE FUNDS.
— I do lament though that our government's wholehearted adoption of the
VAT system is endemic of what I deem a flaw in our national tax policy in the
last few decades. The power of taxation, inherent in the State and ever so
powerful, has been generally employed by our financial planners for a
solitary purpose: the raising of revenue. Revenue generation is a legitimate
purpose of taxation, but standing alone, it is a woefully unsophisticated
design. Intelligent tax policy should extend beyond the singular-minded goal
of raising State funds — the old-time philosophy behind the taxing schemes
of war-mongering monarchs and totalitarian states — and should sincerely
explore the concept of taxation as a means of providing genuine incentives
to private enterprise to spur economic growth; of promoting egalitarian
social justice that would allow everyone to their fair share of the nation's
wealth.
DECISION
AUSTRIA-MARTINEZ, J : p
The expenses of government, having for their object the interest

of all, should be borne by everyone, and the more man enjoys the
advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal

allocation for education, increased emoluments for health workers, and
wider coverage for full value-added tax benefits . . . these are the reasons
why Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the
wisdom of which, the Court even with its extensive constitutional power of
review, cannot probe. The petitioners in these cases, however, question not
only the wisdom of the law, but also perceived constitutional infirmities in its
passage.
Every law enjoys in its favor the presumption of constitutionality. Their
arguments notwithstanding, petitioners failed to justify their call for the
invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House
Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 3555 2 was introduced on first reading on January 7,
2005. The House Committee on Ways and Means approved the bill, in
substitution of House Bill No. 1468, which Representative (Rep.) Eric D.
Singson introduced on August 8, 2004. The President certified the bill on
January 7, 2005 for immediate enactment. On January 27, 2005, the House
of Representatives approved the bill on second and third reading.
House Bill No. 3705 3 on the other hand, substituted House Bill No.
3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381
introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555.
The House Committee on Ways and Means approved the bill on February 2,
2005. The President also certified it as urgent on February 8, 2005. The
House of Representatives approved the bill on second and third reading on
February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved
Senate Bill No. 1950 4 on March 7, 2005, "in substitution of Senate Bill
Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555
and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while
Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M.
Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the
bill on March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of
the House of Representatives for a committee conference on the disagreeing
provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions
of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after
having met and discussed in full free and conference," recommended the
approval of its report, which the Senate did on May 10, 2005, and with the
House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and
Senate version was transmitted to the President, who signed the same into
law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date
came, the Court issued a temporary restraining order, effective immediately
and continuing until further orders, enjoining respondents from enforcing
and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the
hearing, the Court speaking through Mr. Justice Artemio V. Panganiban,
voiced the rationale for its issuance of the temporary restraining order on
July 1, 2005, to wit:
J. PANGANIBAN
. . . But before I go into the details of your presentation, let me just tell
you a little background. You know when the law took effect on
July 1, 2005, the Court issued a TRO at about 5 o'clock in the
afternoon. But before that, there was a lot of complaints aired on
television and on radio. Some people in a gas station were
complaining that the gas prices went up by 10%. Some people
were complaining that their electric bill will go up by 10%. Other
times people riding in domestic air carrier were complaining that
the prices that they'll have to pay would have to go up by 10%.
While all that was being aired, per your presentation and per our
own understanding of the law, that's not true. It's not true that
the e-vat law necessarily increased prices by 10% uniformly isn't
it?
ATTY. BANIQUED
No, Your Honor. ACTIcS
J. PANGANIBAN
It is not?
ATTY. BANIQUED
It's not, because, Your Honor, there is an Executive Order that granted
the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN
That's correct . . .
ATTY. BANIQUED
. . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN
. . . mitigating measures . . .
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
As a matter of fact a part of the mitigating measures would be the

elimination of the Excise Tax and the import duties. That is why,
it is not correct to say that the VAT as to petroleum dealers
increased prices by 10%.
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
And therefore, there is no justification for increasing the retail price by

10% to cover the E-Vat tax. If you consider the excise tax and the
import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am
just trying to deliver a point that different industries, different
products, different services are hit differently. So it's not correct
to say that all prices must go up by 10%.
ATTY. BANIQUED
You're right, Your Honor.
J. PANGANIBAN
Now. For instance, Domestic Airline companies, Mr. Counsel, are at
present imposed a Sales Tax of 3%. When this E-Vat law took
effect the Sales Tax was also removed as a mitigating measure.
So, therefore, there is no justification to increase the fares by
10% at best 7%, correct?
ATTY. BANIQUED
I guess so, Your Honor, yes.
J. PANGANIBAN
There are other products that the people were complaining on that first
day, were being increased arbitrarily by 10%. And that's one
reason among many others this Court had to issue TRO because
of the confusion in the implementation. That's why we added as
an issue in this case, even if it's tangentially taken up by the
pleadings of the parties, the confusion in the implementation of
the E-vat. Our people were subjected to the mercy of that
confusion of an across the board increase of 10%, which you
yourself now admit and I think even the Government will admit is
incorrect. In some cases, it should be 3% only, in some cases it
should be 6% depending on these mitigating measures and the
location and situation of each product, of each service, of each
company, isn't it?
ATTY. BANIQUED
Yes, Your Honor.
J. PANGANIBAN
Alright. So that's one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take
time to clarify all these by means of a more detailed
implementing rules, in case the law is upheld by this Court. . . . 6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et
al., filed a petition for prohibition on May 27, 2005. They question the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT
on sale of services and use or lease of properties. These questioned provisions
contain a uniform proviso authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1,
2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
Petitioners argue that the law is unconstitutional, as it constitutes

abandonment by Congress of its exclusive authority to fix the rate of taxes
under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for
certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337.
Aside from questioning the so-called stand-by authority of the
President to increase the VAT rate to 12%, on the ground that it amounts to
an undue delegation of legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the two conditions
being satisfied violates the due process clause embodied in Article III,
Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous because it
does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year; and (3)
the increase in the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted
to the President by the Bicameral Conference Committee is a violation of the
"no-amendment rule" upon last reading of a bill laid down in Article VI, Section
26(2) of the Constitution.
G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by the
Association of Pilipinas Shell Dealers, Inc., et al., assailing the following
provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring
that the input tax on depreciable goods shall be amortized over a
60-month period, if the acquisition, excluding the VAT
components, exceeds One Million Pesos (P1,000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a
70% limit on the amount of input tax to be credited against the
output tax; andEIDTAa

3) Section 12, amending Section 114 (c) of the NIRC, authorizing
the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, to deduct a 5%
final withholding tax on gross payments of goods and services,
which are subject to 10% VAT under Sections 106 (sale of goods
and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being

arbitrary, oppressive, excessive, and confiscatory.
Petitioners' argument is premised on the constitutional right of non-
deprivation of life, liberty or property without due process of law under
Article III, Section 1 of the Constitution. According to petitioners, the
contested sections impose limitations on the amount of input tax that may
be claimed. Petitioners also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due
process of law. Petitioners further contend that like any other property or
property right, the input tax credit may be transferred or disposed of, and
that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional
guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has
a high ratio of input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the Constitution, and that
it is the smaller businesses with higher input tax to output tax ratio that will
suffer the consequences thereof for it wipes out whatever meager margins
the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis
Joseph G. Escudero filed this petition for certiorari on June 30, 2005. They
question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue
delegation of legislative power, in violation of Article VI, Section
28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction
in deleting the no pass on provisions present in Senate Bill No.
1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections
27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151, 236, 237 and
288, which were present in Senate Bill No. 1950, violates Article
VI, Section 24(1) of the Constitution, which provides that all
appropriation, revenue or tariff bills shall originate exclusively in
the House of Representatives
G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for
certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the
law on the ground that the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they
collect, thus violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures. Petitioner Garcia
further claims that allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section 28(1) of the
Constitution.
RESPONDENTS' COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of
respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys
the presumption of constitutionality and petitioners failed to cast doubt on
its validity.
Relying on the case of Tolentino vs. Secretary of Finance , 235 SCRA
630 (1994), respondents argue that the procedural issues raised by
petitioners, i.e., legality of the bicameral proceedings, exclusive origination
of revenue measures and the power of the Senate concomitant thereto, have
already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is
complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners' argument that the increase to
12%, as well as the 70% limitation on the creditable input tax, the 60-month
amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is
arbitrary, oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the
government's fiscal reform agenda. A reform in the value-added system of
taxation is the core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:

PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108 of the NIRC, violate the following provisions
of the Constitution:
a. Article VI, Section 28(1), and

2. Whether Section 8 of R.A. No. 9337, amending Sections
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337,
amending Section 114(C) of the NIRC, violate the following provisions
of the Constitution:
b. Article III, Section 1
RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general principles and
concepts of value-added tax (VAT), as the confusion and inevitably, litigation,
breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale,
barter, exchange or lease of goods or properties and services. 8 Being an
indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer, 9 with the seller acting merely as a tax
collector. 10 The burden of VAT is intended to fall on the immediate buyers and
ultimately, the end-consumers. cEAHSC
In contrast, a direct tax is a tax for which a taxpayer is directly liable on

the transaction or business it engages in, without transferring the burden to
someone else. 11 Examples are individual and corporate income taxes, transfer
taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been
in existence, albeit in a different mode. Prior to 1978, the system was a single-
stage tax computed under the "cost deduction method" and was payable only
by the original sellers. The single-stage system was subsequently modified, and
a mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable. 13 Under the "tax credit method," an
entity can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports. 14
It was only in 1987, when President Corazon C. Aquino issued Executive
Order No. 273, that the VAT system was rationalized by imposing a multi-stage
tax rate of 0% or 10% on all sales using the "tax credit method." 15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16
R.A. No. 8241 or the Improved VAT Law, 17 R.A. No. 8424 or the Tax Reform Act
of 1997, 18 and finally, the presently beleaguered R.A. No. 9337, also referred to
by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in
Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the
House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of
input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No.
1950 regarding other kinds of taxes in addition to the value-
added tax.
Petitioners now beseech the Court to define the powers of the Bicameral
Conference Committee.
It should be borne in mind that the power of internal regulation and

discipline are intrinsic in any legislative body for, as unerringly elucidated by
Justice Story, "[i]f the power did not exist, it would be utterly
impracticable to transact the business of the nation, either at all, or at
least with decency, deliberation, and order." 19 Thus, Article VI, Section 16
(3) of the Constitution provides that "each House may determine the rules of its
proceedings." Pursuant to this inherent constitutional power to promulgate and
implement its own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee. — In the event that the
House does not agree with the Senate on the amendment to any bill or
joint resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel

shall, as much as possible, adhere to and support the House Bill. If the
differences with the Senate are so substantial that they materially
impair the House Bill, the panel shall report such fact to the House for
the latter's appropriate action.

Sec. 89. Conference Committee Reports . — . . . Each report
shall contain a detailed, sufficiently explicit statement of the changes
in or amendments to the subject measure.
xxx xxx xxx

The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The House
shall vote on the Conference Committee Report in the same manner
and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the
House of Representatives on the provision of any bill or joint resolution,
the differences shall be settled by a conference committee of both
Houses which shall meet within ten (10) days after their composition.
The President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments to the
subject measure, and shall be signed by a majority of the members of
each House panel, voting separately.
A comparative presentation of the conflicting House and Senate
provisions and a reconciled version thereof with the explanatory
statement of the conference committee shall be attached to the report.
xxx xxx xxx
The creation of such conference committee was apparently in response

to a problem, not addressed by any constitutional provision, where the two
houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that
one of the most basic powers of the legislative branch is to formulate and
implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its
internal rules or how it conducts its business of passing legislation? Note that
in the present petitions, the issue is not whether provisions of the rules of
both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference committee
has strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary , 20 the Court
En Banc, unanimously reiterated and emphasized its adherence to the
"enrolled bill doctrine," thus, declining therein petitioners' plea for the Court
to go behind the enrolled copy of the bill. Assailed in said case was
Congress's creation of two sets of bicameral conference committees, the
lack of records of said committees' proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of
one of the provisions in the compromise bill submitted by the bicameral
conference committee. It was argued that such irregularities in the passage
of the law nullified R.A. No. 9006, or the Fair Election Act. ADCETI
Striking down such argument, the Court held thus:

Under the "enrolled bill doctrine," the signing of a bill by the
Speaker of the House and the Senate President and the certification of
the Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Court's
consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the
internal rules of Congress, e.g., creation of the 2nd or 3rd
Bicameral Conference Committee by the House. This Court is
not the proper forum for the enforcement of these internal
rules of Congress, whether House or Senate. Parliamentary
rules are merely procedural and with their observance the
courts have no concern. Whatever doubts there may be as to
the formal validity of Rep. Act No. 9006 must be resolved in its
favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms
of expression, all deny to the courts the power to inquire
into allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the
absence of showing that there was a violation of a
constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun , it was held: "At any rate,
courts have declared that 'the rules adopted by deliberative
bodies are subject to revocation, modification or waiver at the
pleasure of the body adopting them.' And it has been said
that "Parliamentary rules are merely procedural, and with
their observance, the courts have no concern. They may
be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary
usage will not invalidate the action (taken by a
deliberative body) when the requisite number of
members have agreed to a particular measure." 21
(Emphasis supplied)
The foregoing declaration is exactly in point with the present cases,

where petitioners allege irregularities committed by the conference
committee in introducing changes or deleting provisions in the House and
Senate bills. Akin to the Fariñas case, 22 the present petitions also raise an
issue regarding the actions taken by the conference committee on matters
regarding Congress' compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature is the power to
formulate rules for its proceedings and the discipline of its members.
Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole concern of
Congress to instill discipline among the members of its conference
committee if it believes that said members violated any of its rules of
proceedings. Even the expanded jurisdiction of this Court cannot apply to
questions regarding only the internal operation of Congress, thus, the Court
is wont to deny a review of the internal proceedings of a co-equal branch of
government.
Moreover, as far back as 1994 or more than ten years ago, in the case
o f Tolentino vs. Secretary of Finance , 23 the Court already made the
pronouncement that "[i]f a change is desired in the practice [of the
Bicameral Conference Committee] it must be sought in Congress
since this question is not covered by any constitutional provision
but is only an internal rule of each house." 24 To date, Congress has not
seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient legislative
action.
Nevertheless, just to put minds at ease that no blatant irregularities
tainted the proceedings of the bicameral conference committees, the Court
deems it necessary to dwell on the issue. The Court observes that there was
a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill
No. 1950 on the other, reveals that there were indeed disagreements. As
pointed out in the petitions, said disagreements were as follows:
House Bill No. 3555 House Bill No. 3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT Provides for 12% VAT Provides for a single
on every sale of goods in general on sales of rate of 10% VAT on sale
or properties (amending goods or properties and of goods or properties
Sec. 106 of NIRC); 12% reduced rates for sale of (amending Sec. 106 of
VAT on importation of certain locally NIRC), 10% VAT on
goods (amending Sec. manufactured goods and sale of services including
107 of NIRC); and 12% petroleum products and sale of electricity by
VAT on sale of services raw materials to be used generation companies,
and use or lease of in the manufacture thereof transmission and
properties (amending (amending Sec. 106 of distribution companies,
Sec. 108 of NIRC) NIRC); 12% VAT on and use or lease of
importation of goods and properties (amending
reduced rates for certain Sec. 108 of NIRC)
imported products
including petroleum
products (amending Sec.
107 of NIRC); and 12%
VAT on sale of services
and use or lease of
properties and a reduced
rate for certain services
including power
generation (amending
Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT Provides that the VAT
imposed on power imposed on sales of
generation and on the electricity by generation
sale of petroleum companies and services of
products shall be transmission companies
absorbed by generation and distribution
companies or sellers, companies, as well as
respectively, and shall those of franchise
not be passed on to grantees of electric
consumers utilities shall not apply
to residential end-users.
VAT shall be absorbed by
generation, transmission,
and distribution
companies.
With regard to 70% limit on input tax credit
Provides that the input No similar provision Provides that the input
tax credit for capital tax credit for capital
goods on which a VAT goods on which a VAT
has been paid shall be has been paid shall be
equally distributed over equally distributed over
5 years or the depreciable 5 years or the depreciable
life of such capital goods; life of such capital goods;
the input tax credit for the input tax credit for
goods and services other goods and services other
than capital goods shall than capital goods shall
not exceed 5% of the not exceed 90% of the
total amount of such output VAT.
goods and services; and
for persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount
of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income
and excise taxes
No similar provision No similar provision Provided for amendments

to several NIRC
provisions regarding
corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the
Senate bill were with regard to (1) what rate of VAT is to be imposed; (2)
whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed
in the Senate bill, or both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as proposed in
the House bill; (3) in what manner input tax credits should be limited; (4)
and whether the NIRC provisions on corporate income taxes, percentage,
franchise and excise taxes should be amended. CSaHDT
There being differences and/or disagreements on the foregoing

provisions of the House and Senate bills, the Bicameral Conference
Committee was mandated by the rules of both houses of Congress to act on
the same by settling said differences and/or disagreements. The Bicameral
Conference Committee acted on the disagreeing provisions by making the
following changes:
1. With regard to the disagreement on the rate of VAT to be
imposed, it would appear from the Conference Committee Report that the
Bicameral Conference Committee tried to bridge the gap in the difference
between the 10% VAT rate proposed by the Senate, and the various rates
with 12% as the highest VAT rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate would be retained until
certain conditions arise, i.e., the value-added tax collection as a percentage
of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or
National Government deficit as a percentage of GDP of the previous year
exceeds 1 1/2%, when the President, upon recommendation of the Secretary
of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT
imposed on electricity generation, transmission and distribution companies
should not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the
Bicameral Conference Committee chose to settle such disagreement by
altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits
should be limited or not, the Bicameral Conference Committee decided to
adopt the position of the House by putting a limitation on the amount of
input tax that may be credited against the output tax, although it crafted its
own language as to the amount of the limitation on input tax credits and the
manner of computing the same by providing thus:
(A) Creditable Input Tax. — . . .
xxx xxx xxx
Provided, The input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds one million Pesos (P1,000,000.00):
PROVIDED, however, that if the estimated useful life of the capital good
is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. — If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be paid
by the VAT-registered person. If the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters:
PROVIDED that the input tax inclusive of input VAT carried over from
the previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: PROVIDED,
HOWEVER, THAT any input tax attributable to zero-rated sales by a
VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC

on corporate income tax, franchise, percentage and excise taxes, the
conference committee decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950, with some changes as
to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives
and Senate Rules, the Bicameral Conference Committee is mandated to
settle the differences between the disagreeing provisions in the House bill
and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize." 25 To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific provisions
of either the House bill or Senate bill, (b) decide that neither provisions in the
House bill or the provisions in the Senate bill would be carried into the final
form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to
reconcile and harmonize the disagreeing provisions for it did not inject any
idea or intent that is wholly foreign to the subject embraced by the original
provisions.
The so-called stand-by authority in favor of the President, whereby the
rate of 10% VAT wanted by the Senate is retained until such time that
certain conditions arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the difference in the
rate of VAT proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT should be
imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of
the proceedings of the Bicameral Conference Committee held on May 10,
2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason
for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a beneficiary of
legislative grace, neither should any sector be discriminated on. The
VAT is an indirect tax. It is a pass on-tax . And let's keep it plain and
simple. Let's not confuse the bill and put a no pass-on provision. Two-
thirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the
thinking of the Senate is basically simple, let's keep the VAT simple. 26
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-
on provision "never really enjoyed the support of either House." 27
With regard to the amount of input tax to be credited against output
tax, the Bicameral Conference Committee came to a compromise on the
percentage rate of the limitation or cap on such input tax credit, but again,
the change introduced by the Bicameral Conference Committee was totally
within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue
bill in the House of Representatives, one of the major objectives was to "plug
a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y
introducing limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent disadvantage."
28
As to the amendments to NIRC provisions on taxes other than the

value-added tax proposed in Senate Bill No. 1950, since said provisions were
among those referred to it, the conference committee had to act on the
same and it basically adopted the version of the Senate. ACDTcE
Thus, all the changes or modifications made by the Bicameral

Conference Committee were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. In the earlier cases of
Philippine Judges Association vs. Prado 29 a n d Tolentino vs. Secretary of
Finance, 30 the Court recognized the long-standing legislative practice of
giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino case,
it was held that:
. . . it is within the power of a conference committee to include in
its report an entirely new provision that is not found either in the House
bill or in the Senate bill. If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an "amendment
in the nature of a substitute," so long as such amendment is germane
to the subject of the bills before the committee. After all, its report was
not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that
in this case the Conference Committee acted as a third
legislative chamber is thus without any basis. 31 (Emphasis
supplied)
B.R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution
on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has
passed three readings on 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.
Petitioners' argument that the practice where a bicameral conference

committee is allowed to add or delete provisions in the House bill and the
Senate bill after these had passed three readings is in effect a circumvention
of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution),
fails to convince the Court to deviate from its ruling in the Tolentino case
that:
Nor is there any reason for requiring that the Committee's Report
in these cases must have undergone three readings in each of the two
houses. If that be the case, there would be no end to negotiation since
each house may seek modification of the compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. 32 (Emphasis
supplied)
The Court reiterates here that the "no-amendment rule" refers

only to the procedure to be followed by each house of Congress
with regard to bills initiated in each of said respective houses,
before said bill is transmitted to the other house for its concurrence
or amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead to
absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said
bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean
that the introduction by the Bicameral Conference Committee of
amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.
C.R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding
the NIRC provisions on corporate income taxes and percentage, excise
taxes. Petitioners refer to the following provisions, to wit:
Section 27
Rates of Income Tax on Domestic
Corporation
Tax on Resident Foreign
28(A)(1) Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
Percentage Tax on domestic
117
carriers and
keepers of Garage
119 Tax on franchises
Tax on banks and Non-Bank
121
Financial
Intermediaries
Excise Tax on manufactured oils
148
and
other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or
commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC
did not at all originate from the House. They aver that House Bill No. 3555
proposed amendments only regarding Sections 106, 107, 108, 110 and 114
of the NIRC, while House Bill No. 3705 proposed amendments only to
Sections 106, 107, 108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which amendments
were not found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the proposed
amendments did not originate from the House, such amendments are a
violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions of the
NIRC dealing mainly with the value-added tax. Upon transmittal of said
House bills to the Senate, the Senate came out with Senate Bill No. 1950
proposing amendments not only to NIRC provisions on the value-added tax
but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value-
added tax, which is the only kind of tax being amended in the House bills,
still within the purview of the constitutional provision authorizing the Senate
to propose or concur with amendments to a revenue bill that originated from
the House? ATHCac
The foregoing question had been squarely answered in the Tolentino

case, wherein the Court held, thus:
. . . To begin with, it is not the law — but the revenue bill —
which is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. . . . At this
point, what is important to note is that, as a result of the Senate action,
a distinct bill may be produced. To insist that a revenue statute —
and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially
be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments " but also to
"propose amendments." It would be to violate the coequality of
legislative power of the two houses of Congress and in fact make the
House superior to the Senate.
xxx xxx xxx

. . . Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to
originate in the House.
xxx xxx xxx
Indeed, what the Constitution simply means is that the initiative

for filing revenue, tariff or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are
expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the
enactment of such laws. 33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated

in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24
of the Constitution does not contain any prohibition or limitation on the
extent of the amendments that may be introduced by the Senate to the
House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC
provisions that had not been touched in the House bills are still in
furtherance of the intent of the House in initiating the subject revenue bills.
The Explanatory Note of House Bill No. 1468, the very first House bill
introduced on the floor, which was later substituted by House Bill No. 3555,
stated:
One of the challenges faced by the present administration is the
urgent and daunting task of solving the country's serious financial
problems. To do this, government expenditures must be strictly
monitored and controlled and revenues must be significantly
increased. This may be easier said than done, but our fiscal authorities
are still optimistic the government will be operating on a balanced
budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the
administration. It is supported with a credible package of
revenue measures that include measures to improve tax
administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555,
declared that:
In the budget message of our President in the year 2005, she
reiterated that we all acknowledged that on top of our agenda must be
the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector
deficit and eventually achieve a balanced budget by the year 2009, we
need to seize windows of opportunities which might seem
poignant in the beginning, but in the long run prove effective
and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the
relevance given our present conditions. 34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the
House of Representatives is to bring in sizeable revenues for the government
to supplement our country's serious financial problems, and improve tax
administration and control of the leakages in revenues from income taxes
and value-added taxes. As these house bills were transmitted to the Senate,
the latter, approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It can provide
for ways that would soften the impact of the VAT measure on the consumer,
i.e., by distributing the burden across all sectors instead of putting it entirely
on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
Recto on why the provisions on income tax on corporation were included is
worth quoting:
All in all, the proposal of the Senate Committee on Ways and
Means will raise P64.3 billion in additional revenues annually even
while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only
P48.7 billion amount is from the VAT on twelve goods and services. The
rest of the tab — P10.5 billion — will be picked by corporations.
What we therefore prescribe is a burden sharing between

corporate Philippines and the consumer. Why should the latter bear all
the pain? Why should the fiscal salvation be only on the burden of the
consumer?

The corporate world's equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008 only. This
will raise P10.5 billion a year. After that, the rate will slide back, not to
its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We
intend to keep the length of their sacrifice brief. We would like to
assure them that not because there is a light at the end of the tunnel,
this government will keep on making the tunnel long. AaITCH
The responsibility will not rest solely on the weary shoulders of

the small man. Big business will be there to share the burden. 35
As the Court has said, the Senate can propose amendments and in
fact, the amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which is to raise
revenues for the government.
Likewise, the Court finds the sections referring to other percentage and
excise taxes germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as
they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his
sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero
the present excise tax on bunker fuel, to lessen the effect of a VAT on
this product.
For electric utilities like Meralco, we will wipe out the franchise
tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil
products, so as not to destroy the VAT chain, we will however bring
down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
xxx xxx xxx
What do all these exercises point to? These are not contortions of
giving to the left hand what was taken from the right. Rather, these
sprang from our concern of softening the impact of VAT, so that the
people can cushion the blow of higher prices they will have to pay as a
result of VAT. 36
The other sections amended by the Senate pertained to matters of tax

administration which are necessary for the implementation of the changes in
the VAT system.
To reiterate, the sections introduced by the Senate are germane to the
subject matter and purposes of the house bills, which is to supplement our
country's fiscal deficit, among others. Thus, the Senate acted within its
power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108 of the NIRC, violate the following provisions of the Constitution:
A. No Undue Delegation of Legislative Power

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a
certain condition is met, constitutes undue delegation of the legislative power
to tax.
The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is hereby
further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. —

(A) Rate and Base of Tax. — There shall be levied,
assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor: provided, that the President,
upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the
following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of
GDP of the previous year exceeds one and one-half
percent (1 1/2%).
SEC. 5. Section 107 of the same Code, as amended, is hereby
SEC. 107. Value-Added Tax on Importation of Goods. —
(A) In General. — There shall be levied, assessed and
collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods
from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%) after any of the
following conditions has been satisfied. EITcaD

percent (1 1/2%).
SEC. 6. Section 108 of the same Code, as amended, is hereby
SEC. 108.Value-added Tax on Sale of Services and Use or
Lease of Properties —
(A) Rate and Base of Tax. — There shall be levied,

assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or
exchange of services: provided, that the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following
conditions has been satisfied.
percent (1 1/2%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the

President to increase the VAT rate is a virtual abdication by Congress of its
exclusive power to tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within
specified limits, and may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the
government.

They argue that the VAT is a tax levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services, which
cannot be included within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or tribute payable
upon merchandise to the government and usually imposed on goods or
merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that
delegating to the President the legislative power to tax is contrary to
republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not
pass to the President the decision to impose taxes. They also argue that the
law also effectively nullified the President's power of control, which includes
the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to
cause, influence or create the conditions provided by the law to bring about
either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and
revolting the situation that the imposition of the 12% rate would be subject
to the whim of the Secretary of Finance, an unelected bureaucrat, contrary
to the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable recommendation
and he may not even give his recommendation. Moreover, they allege that
no guiding standards are provided in the law on what basis and as to how he
will make his recommendation. They claim, nonetheless, that any
recommendation of the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter, such that,
ultimately, it is the President who decides whether to impose the increased
tax rate or not.
A brief discourse on the principle of non-delegation of powers is
instructive.
The principle of separation of powers ordains that each of the three
great branches of government has exclusive cognizance of and is supreme in
matters falling within its own constitutionally allocated sphere. 37 A logical
corollary to the doctrine of separation of powers is the principle of non-
delegation of powers, as expressed in the Latin maxim: potestas delegata
non delegari potest which means "what has been delegated, cannot be
delegated." 38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by
the delegate through the instrumentality of his own judgment and not
through the intervening mind of another. 39
With respect to the Legislature, Section 1 of Article VI of the
Constitution provides that "the Legislative power shall be vested in the
Congress of the Philippines which shall consist of a Senate and a House of
Representatives." The powers which Congress is prohibited from delegating
are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as the
authority to make a complete law — complete as to the time when it
shall take effect and as to whom it shall be applicable — and to
determine the expediency of its enactment. 40 Thus, the rule is that in
order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is
purely legislative in nature — that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of
its use or the manner of its exercise, which determines the validity of its
delegation.
Nonetheless, the general rule barring delegation of legislative powers
is subject to the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2)
of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section
23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies. DaAISH
In every case of permissible delegation, there must be a showing that

the delegation itself is valid. It is valid only if the law (a) is complete in itself,
setting forth therein the policy to be executed, carried out, or implemented
by the delegate; 41 and (b) fixes a standard — the limits of which are
sufficiently determinate and determinable — to which the delegate must
conform in the performance of his functions. 42 A sufficient standard is one
which defines legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it. It indicates the circumstances under
which the legislative command is to be effected. 43 Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is
not allowed to step into the shoes of the legislature and exercise a power
essentially legislative. 44
In People vs. Vera, 45 the Court, through eminent Justice Jose P. Laurel,
expounded on the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.
xxx xxx xxx
'The true distinction', says Judge Ranney, 'is between the
delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised
under and in pursuance of the law. The first cannot be done; to
the latter no valid objection can be made.'
xxx xxx xxx
It is contended, however, that a legislative act may be made to
the effect as law after it leaves the hands of the legislature. It is true
that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of
the United States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power to
ascertain facts is such a power which may be delegated. There
is nothing essentially legislative in ascertaining the existence
of facts or conditions as the basis of the taking into effect of a
law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to
relax the rule prohibiting delegation of legislative authority on account
of the complexity arising from social and economic forces at work in
this modern industrial age, the orthodox pronouncement of Judge
Cooley in his work on Constitutional Limitations finds restatement in
Prof. Willoughby's treatise on the Constitution of the United States in
the following language — speaking of declaration of legislative power
to administrative agencies: The principle which permits the
legislature to provide that the administrative agent may
determine when the circumstances are such as require the
application of a law is defended upon the ground that at the
time this authority is granted, the rule of public policy, which
is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to
do, determines that, under given circumstances, certain
executive or administrative action is to be taken, and that,
under other circumstances, different or no action at all is to be
taken. What is thus left to the administrative official is not the
legislative determination of what public policy demands, but
simply the ascertainment of what the facts of the case require
to be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the
ascertainment of the contingency upon which the Act shall
take effect may be left to such agencies as it may designate.
The legislature, then, may provide that a law shall take effect
upon the happening of future specified contingencies leaving
to some other person or body the power to determine when
the specified contingency has arisen. (Emphasis supplied). 46
In Edu vs. Ericta, 47 the Court reiterated:

What cannot be delegated is the authority under the Constitution
to make laws and to alter and repeal them; the test is the
completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not there
is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The
legislative does not abdicate its functions when it describes
what job must be done, who is to do it, and what is the scope
of his authority. For a complex economy, that may be the only way
in which the legislative process can go forward. A distinction has
rightfully been made between delegation of power to make the
laws which necessarily involves a discretion as to what it shall
be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to be exercised
under and in pursuance of the law, to which no valid objection
can be made. The Constitution is thus not to be regarded as denying
the legislature the necessary resources of flexibility and practicability.
(Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the

power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority. 49 While the power to tax cannot be delegated
to executive agencies, details as to the enforcement and administration of
an exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as
basis for the enactment of legislation is not of itself a legislative function,
but is simply ancillary to legislation. Thus, the duty of correlating information
and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to
others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such
information is proper. 51 The Constitution as a continuously operative charter
of government does not require that Congress find for itself every fact upon
which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of
legislative policy to particular facts and circumstances impossible for
Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has
been satisfied:
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1 1/2%).

The case before the Court is not a delegation of legislative power. It is
simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters outside of
the control of the executive.
No discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word shall is used in the common
proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of
discretion. 53 Where the law is clear and unambiguous, it must be taken to
mean exactly what it says, and courts have no choice but to see to it that the
mandate is obeyed. 54
Thus, it is the ministerial duty of the President to immediately impose
the 12% rate upon the existence of any of the conditions specified by
Congress. This is a duty which cannot be evaded by the President. Inasmuch
as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a
person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA
GURO Party List, et al. that the law effectively nullified the President's power
of control over the Secretary of Finance by mandating the fixing of the tax
rate by the President upon the recommendation of the Secretary of Finance.
The Court cannot also subscribe to the position of petitioners Pimentel, et al.
that the word shall should be interpreted to mean may in view of the phrase
"upon the recommendation of the Secretary of Finance." Neither does the
Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the
President, it simply means that as head of the Department of Finance he is
the assistant and agent of the Chief Executive. The multifarious executive
and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such
departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or
reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position
and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the
language of Attorney-General Cushing, is "subject to the direction of the
President." 55

In the present case, in making his recommendation to the President on
the existence of either of the two conditions, the Secretary of Finance is not
acting as the alter ego of the President or even her subordinate. In such
instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take
effect. 56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of
the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the
agent of Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
DcITHE
Congress simply granted the Secretary of Finance the authority to

ascertain the existence of a fact, namely, whether by December 31, 2005,
the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%). If either of these two instances
has occurred, the Secretary of Finance, by legislative mandate, must submit
such information to the President. Then the 12% VAT rate must be imposed
by the President effective January 1, 2006. There is no undue delegation
of legislative power but only of the discretion as to the execution of
a law. This is constitutionally permissible. 57 Congress does not
abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative
process can go forward. 58
As to the argument of petitioners ABAKADA GURO Party List, et al. that
delegating to the President the legislative power to tax is contrary to the
principle of republicanism, the same deserves scant consideration. Congress
did not delegate the power to tax but the mere implementation of the law.
The intent and will to increase the VAT rate to 12% came from Congress and
the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the
Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has
ample powers to cause, influence or create the conditions to bring about
either or both the conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on allegations which
are manifestly conjectural, as these may not exist at all. The Court deals
with facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.
B.The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate
imposes an unfair and additional tax burden on the people. Petitioners also
argue that the 12% increase, dependent on any of the 2 conditions set forth
in the contested provisions, is ambiguous because it does not state if the
VAT rate would be returned to the original 10% if the rates are no longer
satisfied. Petitioners also argue that such rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if
any of the two conditions set forth therein are satisfied, the President shall
increase the VAT rate to 12%. The provisions of the law are clear. It does not
provide for a return to the 10% rate nor does it empower the President to so
revert if, after the rate is increased to 12%, the VAT collection goes below
the 2 4/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1 1/2%.
Therefore, no statutory construction or interpretation is needed.
Neither can conditions or limitations be introduced where none is provided
for. Rewriting the law is a forbidden ground that only Congress may tread
upon. 60
Thus, in the absence of any provision providing for a return to the 10%
rate, which in this case the Court finds none, petitioners' argument is, at
best, purely speculative. There is no basis for petitioners' fear of a
fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6 are
no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or
subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was
allegedly an incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not
the only condition. There is another condition, i.e., the national government
deficit as a percentage of GDP of the previous year exceeds one and one-
half percent (1 1/2%).
Respondents explained the philosophy behind these alternative
conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic
or fiscal meaning. If VAT/GDP is less than 2.8%, it means that
government has weak or no capability of implementing the VAT or that
VAT is not effective in the function of the tax collection. Therefore,
there is no value to increase it to 12% because such action will also be
ineffectual.

2. Nat'l Gov't Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or
less means the fiscal condition of government has reached a relatively
sound position or is towards the direction of a balanced budget
position. Therefore, there is no need to increase the VAT rate since the
fiscal house is in a relatively healthy position. Otherwise stated, if the
ratio is more than 1.5%, there is indeed a need to increase the VAT
rate. 62
That the first condition amounts to an incentive to the President to

increase the VAT collection does not render it unconstitutional so long as
there is a public purpose for which the law was passed, which in this case, is
mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise
in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax
system was originally stated by Adam Smith in his Canons of Taxation
(1776), as:
IV. Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible over
and above what it brings into the public treasury of the state. 63
It simply means that sources of revenues must be adequate to meet

government expenditures and their variations. 64
The dire need for revenue cannot be ignored. Our country is in a
quagmire of financial woe. During the Bicameral Conference Committee
hearing, then Finance Secretary Purisima bluntly depicted the country's
gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in
right now. We are in a position where 90 percent of our revenue is
used for debt service. So, for every peso of revenue that we currently
raise, 90 goes to debt service. That's interest plus amortization of our
debt. So clearly, this is not a sustainable situation. That's the first fact.
The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is approximately equal
to our GDP. Again, that shows you that this is not a sustainable
situation.
The third thing that I'd like to point out is the environment that
we are presently operating in is not as benign as what it used to be the
past five years.
What do I mean by that?
In the past five years, we've been lucky because we were
operating in a period of basically global growth and low interest rates.
The past few months, we have seen an inching up, in fact, a rapid
increase in the interest rates in the leading economies of the world.
And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the
financial markets.
When the President made her speech in July last year, the
environment was not as bad as it is now, at least based on the forecast
of most financial institutions. So, we were assuming that raising 80
billion would put us in a position where we can then convince them to
improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just
within this room, we tried to access the market for a billion dollars
because for this year alone, the Philippines will have to borrow 4 billion
dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access
last week and the market was not as favorable and up to now we have
not accessed and we might pull back because the conditions are not
very good.
So given this situation, we at the Department of Finance believe

that we really need to front-end our deficit reduction. Because it is
deficit that is causing the increase of the debt and we are in what we
call a debt spiral. The more debt you have, the more deficit you have
because interest and debt service eats and eats more of your revenue.
We need to get out of this debt spiral. And the only way, I think, we can
get out of this debt spiral is really have a front-end adjustment in our
revenue base. 65
The image portrayed is chilling. Congress passed the law hoping for
rescue from an inevitable catastrophe. Whether the law is indeed sufficient
to answer the state's economic dilemma is not for the Court to judge. In the
Fariñas case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair
Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government
policy is within the exclusive dominion of the political branches of the
government. It is not for this Court to look into the wisdom or propriety
of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is
the best means to achieve the desired results, whether, in short, the
legislative discretion within its prescribed limits should be exercised in
a particular manner are matters for the judgment of the legislature,
and the serious conflict of opinions does not suffice to bring them
within the range of judicial cognizance. 66
In the same vein, the Court in this case will not dawdle on the purpose
of Congress or the executive policy, given that it is not for the judiciary to
"pass upon questions of wisdom, justice or expediency of legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and
110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and cEaCTS

b. Article III, Section 1
A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that
Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and
Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is
premised on the constitutional right against deprivation of life, liberty of
property without due process of law, as embodied in Article III, Section 1 of
the Constitution.
Petitioners also contend that these provisions violate the constitutional
guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather
broad standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC
imposes a limitation on the amount of input tax that may be credited
against the output tax. It states, in part: "[P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the
output VAT: . . ."
Input Tax is defined under Section 110(A) of the NIRC, as amended, as
the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including lease
or use of property, in the course of trade or business, from a VAT-registered
person, and Output Tax is the value-added tax due on the sale or lease of
taxable goods or properties or services by any person registered or required
to register under the law.
Petitioners claim that the contested sections impose limitations on the
amount of input tax that may be claimed. In effect, a portion of the input tax
that has already been paid cannot now be credited against the output tax.
Petitioners' argument is not absolute. It assumes that the input tax
exceeds 70% of the output tax, and therefore, the input tax in excess of 70%
remains uncredited. However, to the extent that the input tax is less than
70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a
business's books of accounts and remains creditable in the succeeding
quarter/s. This is explicitly allowed by Section 110(B), which provides that "if
the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-
registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have
not been applied against the output taxes. Such unused input tax may be
used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not
ad infinitum, as petitioners exaggeratedly contend. Their analysis of the
effect of the 70% limitation is incomplete and one-sided. It ends at the net
effect that there will be unapplied/unutilized inputs VAT for a given quarter.
It does not proceed further to the fact that such unapplied/unutilized input
tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax
credit certificate under Section 112(B).
Therefore, petitioners' argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to
comprehend the operation of the 70% limitation on the input tax. According
to petitioner, the limitation on the creditable input tax in effect allows VAT-
registered establishments to retain a portion of the taxes they collect, which
violates the principle that tax collection and revenue should be for public
purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on
to him by the seller, when he buys goods. Output tax meanwhile is the tax
due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the
seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person
shall be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR); 69 and
Third, if the input taxes exceed the output taxes, the excess shall be
carried over to the succeeding quarter or quarters. Should the input taxes
result from zero-rated or effectively zero-rated transactions, any excess over
the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes, at the taxpayer's option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the
input tax. Thus, a person can credit his input tax only up to the extent of
70% of the output tax. In layman's term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited
up to 70% of the value-added taxes that is due to him on a taxable
transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the
seller will subsequently remit such input tax to the BIR. The party directly
liable for the payment of the tax is the seller. 71 What only needs to be done
is for the person/taxpayer to apply or credit these input taxes, as evidenced
by receipts, against his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue
that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered person's
entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be
borne in mind for persons have no vested rights in statutory privileges. The
state may change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested by virtue of
such rights. 72
Under the previous system of single-stage taxation, taxes paid at every
level of distribution are not recoverable from the taxes payable, although it
becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the
output tax was introduced. 73 This was adopted by the Expanded VAT Law
(R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A. No. 8424). 75 The
right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove, or in this case,
limit.
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the
NIRC, which provides:
SEC. 110. Tax Credits. —
(A) Creditable Input Tax. — . . .
Provided, That the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000.00):
Provided, however, That if the estimated useful life of the capital goods
is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to

amortize the creditable input tax on purchase or importation of capital goods
with acquisition cost of P1 Million pesos, exclusive of the VAT component.
Such spread out only poses a delay in the crediting of the input tax.
Petitioners' argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of
the creditable input tax in this case amounts to a 4-year interest-free loan to
the government. 76 In the same breath, Congress also justified its move by
saying that the provision was designed to raise an annual revenue of 22.6
billion. 77 The legislature also dispelled the fear that the provision will fend
off foreign investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where despite a
17.5% non-creditable VAT, foreign investments were not deterred. 78 Again,
for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot
intervene. TAcSaC
With regard to the 5% creditable withholding tax imposed on payments

made by the government for taxable transactions, Section 12 of R.A. No.
9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. —
(C) Withholding of Value-added Tax. — The Government or
any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the withholding
agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made.
Section 114(C) merely provides a method of collection, or as stated by

respondents, a more simplified VAT withholding system. The government in
this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of
value-added taxes to be withheld — 3% on gross payments for purchases of
goods; 6% on gross payments for services supplied by contractors other
than by public works contractors; 8.5% on gross payments for services
supplied by public work contractors; or 10% on payment for the lease or use
of properties or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease or
property rights payment to nonresidents, were deleted, and a uniform rate of
5% is applied.
The Court observes, however, that the law the used the word final. In
tax usage, final, as opposed to creditable, means full. Thus, it is provided in
Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax
Reform Act of 1997), the concept of final withholding tax on income was
explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. — Under the final withholding tax
system the amount of income tax withheld by the withholding agent is
constituted as full and final payment of the income tax due from the
payee on the said income. The liability for payment of the tax rests
primarily on the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding agent. . . .
(B) Creditable Withholding Tax. — Under the creditable
withholding tax system, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due of the payee
on said income. . . . Taxes withheld on income payments covered by
the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of
these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions

with the government are subject to a 5% rate, which constitutes as full
payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard
input VAT (deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is
clear that Congress intended to treat differently taxable transactions with
the government. 80 This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the tax
liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. —
(C) Withholding of Creditable Value-added Tax . — The
Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations
(GOCCs) shall, before making payment on account of each purchase of
goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this
Code, deduct and withhold the value-added tax due at the rate of three
percent (3%) of the gross payment for the purchase of goods and six
percent (6%) on gross receipts for services rendered by contractors on
every sale or installment payment which shall be creditable against
the value-added tax liability of the seller or contractor:
Provided, however, That in the case of government public works
contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to
ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word
creditable exhibits Congress's intention to treat transactions with the
government differently. Since it has not been shown that the class subject to
the 5% final withholding tax has been unreasonably narrowed, there is no
reason to invalidate the provision. Petitioners, as petroleum dealers, are not
the only ones subjected to the 5% final withholding tax. It applies to all those
who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as
petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated
Value-Added Tax Regulations 2005 issued by the BIR, provides that should
the actual input tax exceed 5% of gross payments, the excess may form part
of the cost. Equally, should the actual input tax be less than 5%, the
difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable
input tax, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners' stance is purely hypothetical, argumentative, and again,
one-sided. The Court will not engage in a legal joust where premises are
what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth, 82
"full of sound and fury, signifying nothing."
What's more, petitioners' contention assumes the proposition that
there is no profit or value-added. It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
The equal protection clause under the Constitution means that "no
person or class of persons shall be deprived of the same protection of laws
which is enjoyed by other persons or other classes in the same place and in
like circumstances." 83
The power of the State to make reasonable and natural classifications
for the purposes of taxation has long been established. Whether it relates to
the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection,
the State's power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if
the entity has a high ratio of input tax, or invests in capital equipment, or
has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not
make any classification in the subject of taxation, the kind of property, the
rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners' alleged distinctions are based on
variables that bear different consequences. While the implementation of the
law may yield varying end results depending on one's profit margin and
value-added, the Court cannot go beyond what the legislature has laid down
and interfere with the affairs of business.
The equal protection clause does not require the universal application
of the laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is equality
among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other
in certain particulars and different from all others in these same particulars.
85
Petitioners brought to the Court's attention the introduction of Senate

Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. — Madrigal
on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
proposed legislation seeks to amend the 70% limitation by increasing the
same to 90%. This, according to petitioners, supports their stance that the
70% limitation is arbitrary and confiscatory. On this score, suffice it to say
that these are still proposed legislations. Until Congress amends the law, and
absent any unequivocal basis for its unconstitutionality, the 70% limitation
stays. aHTCIc
B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of

property of the same class shall be taxed at the same rate. Different articles
may be taxed at different amounts provided that the rate is uniform on the
same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0%
or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties.
These same sections also provide for a 0% rate on certain sales and
transaction.
Neither does the law make any distinction as to the type of industry or
trade that will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the 5% final
withholding tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects
of taxation, and only demands uniformity within the particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding
P1,500,000.00. 88 Also, basic marine and agricultural food products in their
original state are still not subject to the tax, 89 thus ensuring that prices at
the grassroots level will remain accessible. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: 90
The disputed sales tax is also equitable. It is imposed only on
sales of goods or services by persons engaged in business with an
aggregate gross annual sales exceeding P200,000.00. Small corner
sari-sari stores are consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine products, so that the
costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the
reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with

low profit margins, and unduly favors those with high profit margins.
Congress was not oblivious to this. Thus, to equalize the weighty burden the
law entails, the law, under Section 116, imposed a 3% percentage tax on
VAT-exempt persons under Section 109(v), i.e., transactions with gross
annual sales and/or receipts not exceeding P1.5 Million. This acts as a
equalizer because in effect, bigger businesses that qualify for VAT coverage
and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the
impact of the imposition of the tax on those previously exempt. Excise taxes
on petroleum products 91 and natural gas 92 were reduced. Percentage tax
on domestic carriers was removed. 93 Power producers are now exempt from
paying franchise tax. 94
Aside from these, Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. Domestic, foreign,
and non-resident corporations are now subject to a 35% income tax rate,
from a previous 32%. 95 Intercorporate dividends of non-resident foreign
corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporation's domicile was increased to 20%. 96 The
Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt
from income taxes anymore. 97 Even the sale by an artist of his works or
services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of
taxation, which would otherwise rest largely on the consumers. It cannot
therefore be gainsaid that R.A. No. 9337 is equitable.
C.Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input
tax is anything but regressive. It is the smaller business with higher input
tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer's ability to
pay. This principle was also lifted from Adam Smith's Canons of Taxation ,
and it states:
I. The subjects of every state ought to contribute towards the
support of the government, as nearly as possible, in proportion to
their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
TSacCH
Taxation is progressive when its rate goes up depending on the

resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is
regressive. The principle of progressive taxation has no relation with the VAT
system inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income. In other
words, the VAT paid eats the same portion of an income, whether big or
small. The disparity lies in the income earned by a person or profit margin
marked by a business, such that the higher the income or profit margin, the
smaller the portion of the income or profit that is eaten by VAT. A converso,
the lower the income or profit margin, the bigger the part that the VAT eats
away. At the end of the day, it is really the lower income group or businesses
with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of
indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The Court stated in the Tolentino
case, thus:
The Constitution does not really prohibit the imposition of indirect
taxes which, like the VAT, are regressive. What it simply provides is
that Congress shall 'evolve a progressive system of taxation.' The
constitutional provision has been interpreted to mean simply that
'direct taxes are . . . to be preferred [and] as much as possible, indirect
taxes should be minimized.' (E. FERNANDO, THE CONSTITUTION OF
THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect
taxes, would have been prohibited with the proclamation of Art. VIII,
§17 (1) of the 1973 Constitution from which the present Art. VI, §28 (1)
was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this
imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions
to other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC) 99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this
case, it is just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on the plight of
the masses. But it does not have the panacea for the malady that the law
seeks to remedy. As in other cases, the Court cannot strike down a law as
unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong
there is a remedy, and that the judiciary should stand ready to afford
relief. There are undoubtedly many wrongs the judicature may not
correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the
judiciary is the repository of remedies for all political or social ills; We
should not forget that the Constitution has judiciously allocated the
powers of government to three distinct and separate compartments;
and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of
each, knowing full well that one is not the guardian of the others and
that, for official wrong-doing, each may be brought to account, either
by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino 101 holds true then, as it still
holds true now. All things considered, there is no raison d'Ãªtre for the
unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the
petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are
hereby DISMISSED.
There being no constitutional impediment to the full enforcement and
implementation of R.A. No. 9337, the temporary restraining order issued by the
Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
Carpio, J., concurs.
Davide, Jr., C.J., pls. see separate concurring and dissenting opinion.
Puno, J., pls. see concurring and dissenting opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., concurs in the result.
Ynares-Santiago, J., concurring and dissenting opinion.
Sandoval-Gutierrez, J., pls. see my concurring and dissenting opinion.
Corona, J., I join Mrs. Justice Gutierrez in her concurring and dissenting
opinion.
Carpio-Morales, J., I concur. I also concur with the dissent of J. Tinga on
Section 8 of the law.
Callejo, Sr., J., pls. see my concurring and dissenting opinion.
Azcuna, J., pls. see separate concurring and dissenting opinion.
Tinga, J., see dissenting and concurring opinion.
Chico-Nazario, J., pls. see separate concurring opinion.
Garcia, J., I also concur with J. Puno insofar as the deletion of no pass on
provision (illegible portion) including section 21.
Separate Opinions
DAVIDE, JR., C.J., separate concurring and dissenting opinion:
While I still hold on to my position expressed in my dissenting opinion

in the first VAT cases, 1 I partly yield to the application to the cases at bar of
the rule on "germaneness" therein enunciated. Thus, I concur with the
ponencia of my highly-esteemed colleague Mme. Justice Ma. Alicia Austria-
Martinez except as regards its ruling on the issue of whether Republic Act
No. 9337 violates Section 24, Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT)
system by broadening its base and raising the rate so as to generate more
revenues for the government that can assuage the economic predicament
that our country is now facing. This recently enacted law stemmed from
three legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill
(SB) 1950. The first (HB No. 3555) called for the amendment of Sections 106,
107, 108, 109, 110, and 111 of the National Internal Revenue Code (NIRC) as
amended; while the second (HB No. 3705) proposed amendments to
Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It is
significant to note that all these Sections specifically deal with VAT. And
indubitably, these bills are revenue bills in that they are intended to levy
taxes and raise funds for the government. 2
On the other hand, SB No. 1950 introduced amendments to "Sections
27, 28, 34, 106, 108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125,
148, 236, 237, and 288" of the NIRC, as amended. Among the provisions
sought to be amended, only Sections 106, 108, 109, 110, 111, 112, 113, 114,
and 116 pertain to VAT. And while Sections 236, 237, and 288 are
administrative provisions pertaining to registration requirements and
issuance of receipts commercial invoices, the proposed amendments thereto
are related to VAT. Hence, the proposed amendments to these Sections were
validly taken cognizance of and properly considered by the Bicameral
Conference Committee (BCC). DHATcE
However, I am of the opinion that the inclusion into the law of the
amendments proposed in SB No. 1950 to the following provisions (with
modifications on the rates of taxes) is invalid.
Provision Subject matter
Rate of income tax on domestic

Section 27
corporations
Section 28(A)(1) Rate of income tax on resident foreign

corporation
Rate of income tax on non-resident

Section 28(B)(1)
foreign
corporation

Section 28(B)(5-b) Rate of income tax on intra-corporate
dividends
received by non-resident foreign
corporation
Section 34(B)(1) Deductions from gross income
Percentage tax on domestic carriers and

Section 117
keepers
of garages
Section 119 Tax on franchises
Excise tax on manufactured oils and other

Section 148
fuels
Obviously, these provisions do not deal with VAT. It must be noted that
the House Bills initiated amendments to provisions pertaining to VAT only.
Doubtless, the Senate has the constitutional power to concur with the
amendments to the VAT provisions introduced in the House Bills or even to
propose its own version of VAT measure. But that power does not extend to
initiation of other tax measures, such as introducing amendments to
provisions on corporate income taxes, percentage taxes, franchise taxes,
and excise taxes like what the Senate did in these cases. It was beyond the
ambit of the authority of the Senate to propose amendments to provisions
not covered by the House Bills or not related to the subject matter of the
House Bills, which is VAT. To allow the Senate to do so would be tantamount
to vesting in it the power to initiate revenue bills — a power that exclusively
pertains to the House of Representatives under Section 24, Article VI of the
Constitution, which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments. ADaECI
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank

Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of the
NIRC, as amended, have been included by the BCC in R.A. N0. 9337 even
though they were not found in the Senate and House Bills.
I n Philippine Judges Association v. Prado, 3 the Court described the
function of a conference committee in this wise: "A conference committee
may deal generally with the subject matter or it may be limited to resolving
the precise differences between the two houses. Even where the conference
committee is not by rule limited in its jurisdiction, legislative custom
severely limits the freedom with which new subject matter can be
inserted into the conference bill."
The limitation on the power of a conference committee to insert new
provisions was laid down in Tolentino v. Secretary of Finance . 4 There, the
Court, while recognizing the power of a conference committee to include in
its report an entirely new provision that is not found either in the House bill
or in the Senate bill, held that the exercise of that power is subject to the
condition that the said provision is "germane to the subject of the
House and Senate bills."
As pointed out by the petitioners, Tolentino differs from the present
cases in the sense that in that case the amendments introduced in the
Senate bill were on the same subject matter treated in the House bill,
which was VAT, and the new provision inserted by the conference committee
had relation to that subject matter. Specifically, HB No. 11197 called for the
(1) amendment of Sections 99, 100, 102, 103, 104, 105, 106, 107, 108, 110,
112, 115, 116, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of
Sections 113 and 114 of the NIRC, as amended. SB No. 1630, on the other
hand, proposed the (1) amendment of Sections 99, 100, 102, 103, 104, 105,
107, 108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2)
repeal of Sections 113, 114, and 116 of the NIRC, as amended. In short, all
the provisions sought to be changed in the Senate bill were covered in the
House bill. Although the new provisions inserted by the conference
committee were not found in either the House or Senate bills, they were
germane to the general subject of the bills.
In the present cases, the provisions inserted by the BCC, namely,
Sections 121 (Percentage Tax on Banks and Non-Bank Financial
Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as
amended, are undoubtedly germane to SB No. 1950, which introduced
amendments to the provisions on percentage and excise taxes — but foreign
to HB Nos. 3555 and 3705, which dealt with VAT only. Since the proposed
amendments in the Senate bill relating to percentage and excise taxes
cannot themselves be sustained because they did not take their root from,
or are not related to the subject of, HB Nos. 3705 and 3555, in violation of
Section 24, Article VI of the Constitution, the new provisions inserted by the
BCC on percentage and excise taxes would have no leg to stand on. DCcTHa
I understand very well that the amendments of the Senate and the BCC
relating to corporate income, percentage, franchise, and excise taxes were
designed to "soften the impact of VAT measure on the consumer, i.e., by
distributing the burden across all sectors instead of putting it entirely on the
shoulders of the consumers" and to alleviate the country's financial problems
by bringing more revenues for the government. However, these
commendable intentions do not justify a deviation from the Constitution,
which mandates that the initiative for filing revenue bills should come from
the House of Representatives, not from the Senate. After all, these aims may
still be realized by means of another bill that may later be initiated by the
House of Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as
it amends provisions pertaining to VAT. However, I vote to declare as
unconstitutional Sections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which,
respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the
NIRC, as amended because these amendments deal with subject matters
which were not touched or covered by the bills emanating from the House of
Representatives, thereby violating Section 24 of Article VI of the
Constitution.
PUNO, J., concurring and dissenting:
The main opinion of Madam Justice Martinez exhaustively discusses the

numerous constitutional and legal issues raised by the petitioners. Be that as
it may, I wish to raise the following points, viz:
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 as
violative of the principle of non-delegation of legislative power. These
sections authorize the President, upon recommendation of the Secretary of
Finance, to raise the value-added tax (VAT) rate to 12% effective January
1, 2006, upon satisfaction of the following conditions: viz:

previous year exceeds one and one-half percent (1 1/2%).
The power of judicial review under Article VIII, section 5(2) of the 1987
Constitution is limited to the review of "actual cases and controversies." 1
As rightly stressed by retired Justice Vicente V. Mendoza, this requirement
gives the judiciary "the opportunity, denied to the legislature, of seeing the
actual operation of the statute as it is applied to actual facts and thus
enables it to reach sounder judgment" and "enhances public acceptance of
its role in our system of government." 2 It also assures that the judiciary does
not intrude on areas committed to the other branches of government and is
confined to its role as defined by the Constitution. 3 Apposite thereto is the
doctrine of ripeness whose basic rationale is "to prevent the courts, through
premature adjudication, from entangling themselves in abstract
disagreements." 4 Central to the doctrine is the determination of "whether
the case involves uncertain or contingent future events that may not
occur as anticipated, or indeed may not occur at all." 5 The ripeness
requirement must be satisfied for each challenged legal provision and
parts of a statute so that those which are "not immediately involved are
not thereby thrown open for a judicial determination of constitutionality." 6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A.
No. 9337 cannot hurdle the requirement of ripeness. These sections give
the President the power to raise the VAT rate to 12% on January 1,
2006 upon satisfaction of certain fact-based conditions. We are not
endowed with the infallible gift of prophesy to know whether these
conditions are certain to happen. The power to adjust the tax rate given to
the President is futuristic and may or may not be exercised. The Court is
therefore beseeched to render a conjectural judgment based on hypothetical
facts. Such a supplication has to be rejected. AcSCaI
Second. With due respect, I submit that the most important

constitutional issue posed by the petitions at bar relates to the parameters
of power of a Bicameral Conference Committee. Most of the issues in
the petitions at bar arose because the Bicameral Conference Committee
concerned exercised powers that went beyond reconciling the differences
between Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In
Tolentino v. Secretary of Finance , 7 I ventured the view that a Bicameral
Conference Committee has limited powers and cannot be allowed to act as
if it were a "third house" of Congress. I further warned that unless its
roving powers are reigned in, a Bicameral Conference Committee can
wreck the lawmaking process which is a cornerstone of the democratic,
republican regime established in our Constitution. The passage of time
fortifies my faith that there ought to be no legal u-turn on this preeminent
principle. I wish, therefore, to reiterate my reasons for this unbending view,
viz: 8
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House
of Representatives on the provision of any bill or joint resolution,
the differences shall be settled by a conference committee of
both Houses which shall meet within ten days after their
composition.
Each Conference Committee Report shall contain a detailed

and sufficiently explicit statement of the changes in or
amendments to the subject measure, and shall be signed by the
conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in
near identical language. Section 85 of the Rules of the House of
Representatives pertinently provides:
In the event that the House does not agree with the Senate
on the amendments to any bill or joint resolution, the differences
may be settled by a conference committee of both chambers.
. . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the
subject measure. (Emphasis supplied)
The Jefferson's Manual has been adopted as a supplement to our
parliamentary rules and practice. Section 456 of Jefferson's Manual
similarly confines the powers of a conference committee, viz:
The managers of a conference must confine themselves to
the differences committed to them . . . and may not include
subjects not within the disagreements, even though germane to
a question in issue.
This rule of antiquity has been honed and honored in practice by
the Congress of the United States. Thus, it is chronicled by Floyd
Biddick, Parliamentarian Emeritus of the United States Senate, viz:
Committees of conference are appointed for the sole
purpose of compromising and adjusting the differing and
conflicting opinions of the two Houses and the committees of
conference alone can grant compromises and modify
propositions of either Houses within the limits of the
disagreement. Conferees are limited to the consideration of
differences between the two Houses.
Congress shall not insert in their report matters not
committed to them by either House, nor shall they strike from
the bill matters agreed to by both Houses. No matter on which
there is nothing in either the Senate or House passed versions of
a bill may be included in the conference report and actions to the
contrary would subject the report to a point of order. (Emphasis
ours)
In fine, there is neither a sound nor a syllable in the Rules of the
Senate and the House of Representatives to support the thesis of the
respondents that a bicameral conference committee is clothed with an
ex post veto power.
But the thesis that a Bicameral Conference Committee can wield
ex post veto power does not only contravene the rules of both the
Senate and the House. It wages war against our settled ideals of
representative democracy. For the inevitable, catastrophic effect of the
thesis is to install a Bicameral Conference Committee as the Third
Chamber of our Congress, similarly vested with the power to make
laws but with the dissimilarity that its laws are not the subject of a free
and full discussion of both Houses of Congress. With such a vagrant
power, a Bicameral Conference Committee acting as a Third Chamber
will be a constitutional monstrosity. ScCEIA
It needs no omniscience to perceive that our Constitution did not

provide for a Congress composed of three chambers. On the contrary,
section 1, Article VI of the Constitution provides in clear and certain
language: "The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of
Representatives . . ." Note that in vesting legislative power exclusively
to the Senate and the House, the Constitution used the word "shall." Its
command for a Congress of two houses is mandatory. It is not
mandatory sometimes.
In vesting legislative power to the Senate, the Constitution
means the Senate ". . . composed of twenty-four Senators . . . elected
at large by the qualified voters of the Philippines . . . " Similarly, when
the Constitution vested the legislative power to the House, it means
the House ". . . composed of not more than two hundred and fifty
members . . . who shall be elected from legislative districts . . . and
those who . . . shall be elected through a party-list system of registered
national, regional, and sectoral parties or organizations." The
Constitution thus, did not vest on a Bicameral Conference Committee
with an ad hoc membership the power to legislate for it exclusively
vested legislative power to the Senate and the House as co-equal
bodies. To be sure, the Constitution does not mention the Bicameral
Conference Committees of Congress. No constitutional status is
accorded to them. They are not even statutory creations. They owe
their existence from the internal rules of the two Houses of Congress.
Yet, respondents peddle the disconcerting idea that they should be
recognized as a Third Chamber of Congress and with ex post veto
power at that.
The thesis that a Bicameral Conference Committee can exercise
law making power with ex post veto power is freighted with mischief.
Law making is a power that can be used for good or for ill, hence, our
Constitution carefully laid out a plan and a procedure for its exercise.
Firstly, it vouchsafed that the power to make laws should be exercised
by no other body except the Senate and the House. It ought to be
indubitable that what is contemplated is the Senate acting as a full
Senate and the House acting as a full House. It is only when the Senate
and the House act as whole bodies that they truly represent the
people. And it is only when they represent the people that they can
legitimately pass laws. Laws that are not enacted by the people's
rightful representatives subvert the people's sovereignty. Bicameral
Conference Committees, with their ad hoc character and limited
membership, cannot pass laws for they do not represent the people.
The Constitution does not allow the tyranny of the majority. Yet, the
respondents will impose the worst kind of tyranny — the tyranny of the
minority over the majority. Secondly, the Constitution delineated in
deft strokes the steps to be followed in making laws. The overriding
purpose of these procedural rules is to assure that only bills that
successfully survive the searching scrutiny of the proper committees of
Congress and the full and unfettered deliberations of both Houses can
become laws. For this reason, a bill has to undergo three (3)
mandatory separate readings in each House. In the case at bench, the
additions and deletions made by the Bicameral Conference Committee
did not enjoy the enlightened studies of appropriate committees. It is
meet to note that the complexities of modern day legislations have
made our committee system a significant part of the legislative
process. Thomas Reed called the committee system as "the eye, the
ear, the hand, and very often the brain of the house." President
Woodrow Wilson of the United States once referred to the government
of the United States as "a government by the Chairmen of the Standing
Committees of Congress . . ." Neither did these additions and deletions
of the Bicameral Conference Committee pass through the coils of
collective deliberation of the members of the two Houses acting
separately. Due to this shortcircuiting of the constitutional procedure of
making laws, confusion shrouds the enactment of R.A. No. 7716. Who
inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not
be a riddle wrapped in an enigma. It cannot be, for Article II, section 28
of the Constitution mandates the State to adopt and implement a
"policy of full public disclosure of all its transactions involving public
interest." The Constitution could not have contemplated a Congress of
invisible and unaccountable John and Mary Does. A law whose rationale
is a riddle and whose authorship is obscure cannot bind the people. ECcaDT
All these notwithstanding, respondents resort to the legal

cosmetology that these additions and deletions should govern the
people as laws because the Bicameral Conference Committee Report
was anyway submitted to and approved by the Senate and the House
of Representatives. The submission may have some merit with respect
to provisions agreed upon by the Committee in the process of
reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In
these instances, the conflicting provisions had been previously
screened by the proper committees, deliberated upon by both Houses
and approved by them. It is, however, a different matter with respect
to additions and deletions which were entirely new and which were
made not to reconcile inconsistencies between S.B. No. 1630 and H.B.
No. 11197. The members of the Bicameral Conference Committee did
not have any authority to add new provisions or delete provisions
already approved by both Houses as it was not necessary to discharge
their limited task of reconciling differences in bills. At that late stage of
law making, the Conference Committee cannot add/delete provisions
which can become laws without undergoing the study and deliberation
of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the
Senate and the House cannot enact a law which will not undergo these
mandatory three (3) readings required by the Constitution. If the
Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both

Houses to either approve or disapprove the said additions and
deletions is more of an optical illusion. These additions and deletions
are not submitted separately for approval. They are tucked to the
entire bill. The vote is on the bill as a package, i.e., together with the
insertions and deletions. And the vote is either "aye" or "nay," without
any further debate and deliberation. Quite often, legislators vote "yes"
because they approve of the bill as a whole although they may object
to its amendments by the Conference Committee. This lack of real
choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of
conference committees must be accepted without amendment or
else rejected in toto. The impulse is to get done with the matter
and so the motion to accept has undue advantage, for some
members are sure to prefer swallowing unpalatable provisions
rather than prolong controversy. This is the more likely if the
report comes in the rush of business toward the end of a session,
when to seek further conference might result in the loss of the
measure altogether. At any time in the session there is some risk
of such a result following the rejection of a conference report, for
it may not be possible to secure a second conference, or delay
may give opposition to the main proposal chance to develop
more strength.
In a similar vein, Prof. Jack Davies commented that "conference
reports are returned to assembly and Senate on a take-it or leave-it-
basis, and the bodies are generally placed in the position that to leave-
it is a practical impossibility." Thus, he concludes that "conference
committee action is the most undemocratic procedure in the legislative
process."
The respondents also contend that the additions and deletions
made by the Bicameral Conference Committee were in accord with
legislative customs and usages. The argument does not persuade for it
misappreciates the value of customs and usages in the hierarchy of
sources of legislative rules of procedure. To be sure, every legislative
assembly has the inherent right to promulgate its own internal rules. In
our jurisdiction, Article VI, section 16(3) of the Constitution provides
that "Each House may determine the rules of its proceedings . . . ." But
it is hornbook law that the sources of Rules of Procedure are many and
hierarchical in character. Mason laid them down as follows:
xxx xxx xxx

1. Rules of Procedure are derived from several sources. The
principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages .
2. The rules from the different sources take precedence
in the order listed above except that judicial decisions, since they
are interpretations of rules from one of the other sources, take
the same precedence as the source interpreted. Thus, for
example, an interpretation of a constitutional provision takes
precedence over a statute.
3. Whenever there is conflict between rules from these
sources the rule from the source listed earlier prevails over the
rule from the source listed later. Thus, where the Constitution
requires three readings of bills, this provision controls over any
provision of statute, adopted rules, adopted manual, or of
parliamentary law, and a rule of parliamentary law controls over
a local usage but must give way to any rule from a higher source
of authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions

made by the Bicameral Conference Committee violated the procedure
fixed by the Constitution in the making of laws. It is reasonless for
respondents therefore to justify these insertions as sanctioned by
customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an

enrolled bill to bar any judicial inquiry on whether Congress observed
our constitutional procedure in the passage of R.A. No. 7716. The
enrolled bill theory is a historical relic that should not continuously rule
us from the fossilized past. It should be immediately emphasized that
the enrolled bill theory originated in England where there is no written
constitution and where Parliament is supreme. In this jurisdiction, we
have a written constitution and the legislature is a body of limited
powers. Likewise, it must be pointed out that starting from the decade
of the 40s, even American courts have veered away from the rigidity
and unrealism of the conclusiveness of an enrolled bill. Prof. Sutherland
observed:
xxx xxx xxx
Where the failure of constitutional compliance in the
enactment of statutes is not discoverable from the face of the act
itself but may be demonstrated by recourse to the legislative
journals, debates, committee reports or papers of the governor,
courts have used several conflicting theories with which to
dispose of the issue. They have held: (1) that the enrolled bill is
conclusive and like the sheriff's return cannot be attacked; (2)
that the enrolled bill is prima facie correct and only in case the
legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid; (3) that
although the enrolled bill is prima facie correct, evidence from
the journals, or other extrinsic sources is admissible to strike the
bill down; (4) that the legislative journal is conclusive and the
enrolled bills is valid only if it accords with the recital in the
journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches
in view of strong dissent and dissatisfaction against the philosophical
underpinnings of the conclusiveness of an enrolled bill. Prof. Sutherland
further observed:
. . . . Numerous reasons have been given for this rule.
Traditionally, an enrolled bill was "a record" and as such was not
subject to attack at common law. Likewise, the rule of
conclusiveness was similar to the common law rule of the
inviolability of the sheriff's return. Indeed, they had the same
origin, that is, the sheriff was an officer of the king and likewise
the parliamentary act was a regal act and no official might
dispute the king's word. Transposed to our democratic system of
government, courts held that as the legislature was an official
branch of government the court must indulge every presumption
that the legislative act was valid. The doctrine of separation of
powers was advanced as a strong reason why the court should
treat the acts of a co-ordinate branch of government with the
same respect as it treats the action of its own officers; indeed, it
was thought that it was entitled to even greater respect, else the
court might be in the position of reviewing the work of a
supposedly equal branch of government. When these arguments
failed, as they frequently did, the doctrine of convenience was
advanced, that is, that it was not only an undue burden upon the
legislature to preserve its records to meet the attack of persons
not affected by the procedure of enactment, but also that it
unnecessarily complicated litigation and confused the trial of
substantive issues.
Although many of these arguments are persuasive and are
indeed the basis for the rule in many states today, they are not
invulnerable to attack. The rule most relied on — the sheriff's
return or sworn official rule — did not in civil litigation deprive
the injured party of an action, for always he could sue the sheriff
upon his official bond. Likewise, although collateral attack was
not permitted, direct attack permitted raising the issue of fraud,
and at a later date attack in equity was also available; and that
the evidence of the sheriff was not of unusual weight was
demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and
therefore unimpeachable is likewise misleading, for the
correction of records is a matter of established judicial
procedure. Apparently, the justification is either the historical one
that the king's word could not be questioned or the separation of
powers principle that one branch of the government must treat
as valid the acts of another.TcCDIS
Persuasive as these arguments are, the tendency today is

to avoid reaching results by artificial presumptions and thus it
would seem desirable to insist that the enrolled bill stand or fall
on the basis of the relevant evidence which may be submitted for
or against it. (Emphasis ours)
Thus, as far back as the 1940s, Prof. Sutherland confirmed that ".
. . the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule leaving
only a prima facie presumption of validity which may be attacked by
any authoritative source of information.
Third. I respectfully submit that it is only by strictly following the

contours of powers of a Bicameral Conference Committee, as delineated
by the rules of the House and the Senate, that we can prevent said
Committee from acting as a "third" chamber of Congress. Under the clear
rules of both the Senate and House, its power can go no further than
settling differences in their bills or joint resolutions. Sections 88 and 89,
Rule XIV of the Rules of the House of Representatives provide as
follows:
House does not agree with the Senate on the amendment to any bill or
joint resolution, the differences may be settled by the conference
in or amendments to the subject measure.
xxx xxx xxx
shall vote on the Conference Committee Report in the same manner
and procedure as it votes a bill on third and final reading.
Section 35, Rule XII of the Rules of the Senate states:

each House panel, voting separately. HICEca
The House rule brightlines the following: (1) the power of the Conference
Committee is limited . . . it is only to settle differences with the Senate; (2)
if the differences are substantial, the Committee must report to the House
for the latter's appropriate action; and (3) the Committee report has to be
voted upon in the same manner and procedure as a bill on third and final
reading. Similarly, the Senate rule underscores in crimson that (1) the
power of the Committee is limited— to settle differences with the House;
(2) it can make changes or amendments only in the discharge of this limited
power to settle differences with the House; and (3) the changes or
amendments are merely recommendatory for they still have to be
approved by the Senate.
Under both rules, it is obvious that a Bicameral Conference
Committee is a mere agent of the House or the Senate with limited powers.
The House contingent in the Committee cannot, on its own, settle
differences which are substantial in character. If it is confronted with
substantial differences, it has to go back to the chamber that created it "for
the latter's appropriate action." In other words, it must take the proper
instructions from the chambers that created it. It cannot exercise its
unbridled discretion. Where there is no difference between the bills, it
cannot make any change. Where the difference is substantial, it has to
return to the chamber of its origin and ask for appropriate instructions. It
ought to be indubitable that it cannot create a new law, i.e., that which
has never been discussed in either chamber of Congress. Its parameters
of power are not porous, for they are hedged by the clear limitation that
its only power is to settle differences in bills and joint resolutions of the two
chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit that the
following acts of the Bicameral Conference Committee constitute grave
abuse of discretion amounting to lack or excess of jurisdiction and should be
struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is
common in both Senate Bill No. 1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 3705 9 provides:
Section 106 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties. —
xxx xxx xxx
Provided, further, that notwithstanding the provision of the
second paragraph of Section 105 of this Code, the Value-added Tax
herein levied on the sale of petroleum products under Subparagraph
(1) hereof shall be paid and absorbed by the sellers of petroleum
products who shall be prohibited from passing on the cost of
such tax payments, either directly or indirectly[,] to any
consumer in whatever form or manner, it being the express intent
of this act that the Value-added Tax shall be borne and absorbed
exclusively by the sellers of petroleum products . . . .
Sec. 3 of the same House bill provides:

Section 108 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties. —
Provided, further, that notwithstanding the provision of the
second paragraph of Section 105 of this Code, the Value-added Tax
imposed under this paragraph shall be paid and absorbed by the
subject generation companies who shall be prohibited from
passing on the cost of such tax payments, either directly or
indirectly[,] to any consumer in whatever form or manner, it
being the express intent of this act that the Value-added Tax shall be
borne and absorbed exclusively [by] the power-generating companies.
CADSHI
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:

Value-added Tax on sale of Services and Use or Lease of
Properties. —
. . . Provided, that the VAT on sales of electricity by generation
companies, and services of transmission companies and distribution
companies, as well as those of franchise grantees of electrical utilities
shall not apply to residential end-users: Provided, that the Value-added
Tax herein levied shall be absorbed and paid by the generation,
transmission and distribution companies concerned. The said
companies shall not pass on such tax payments to NAPOCOR or
ultimately to the consumers, including but not limited to residential
end users, either as costs or in any other form whatsoever, directly or
indirectly. . . . .
Even the faintest eye contact with the above provisions will reveal
that: (a) both the House bill and the Senate bill prohibited the passing on
to consumers of the VAT on sales of electricity and (b) the House bill
prohibited the passing on to consumers of the VAT on sales of petroleum
products while the Senate bill is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the
Senate bills on the matter, the Bicameral Conference Committee
deleted the "no pass on provision" on both the sales of electricity
and petroleum products. This action by the Committee is not warranted
by the rules of either the Senate or the House. As aforediscussed, the only
power of a Bicameral Conference Committee is to reconcile disagreeing
provisions in the bills or joint resolutions of the two houses of Congress. The
House and the Senate bills both prohibited the passing on to consumers of
the VAT on sales of electricity. The Bicameral Conference Committee
cannot override this unequivocal decision of the Senate and the
House. Nor is it clear that there is a conflict between the House and Senate
versions on the "no pass on provisions" of the VAT on sales of petroleum
products. The House version contained a "no pass on provision" but the
Senate had none. Elementary logic will tell us that while there may be
a difference in the two versions, it does not necessarily mean that
there is a disagreement or conflict between the Senate and the
House. The silence of the Senate on the issue cannot be interpreted as an
outright opposition to the House decision prohibiting the passing on of the
VAT to the consumers on sales of petroleum products. Silence can even be
conformity, albeit implicit in nature. But granting for the nonce that there is
conflict between the two versions, the conflict cannot escape the
characterization as a substantial difference. The seismic consequence of
the deletion of the "no pass on provision" of the VAT on sales of petroleum
products on the ability of our consumers, especially on the roofless and
the shirtless of our society, to survive the onslaught of spiraling prices
ought to be beyond quibble. The rules require that the Bicameral Conference
Committee should not, on its own, act on this substantial conflict. It has to
seek guidance from the chamber that created it. It must receive proper
instructions from its principal, for it is the law of nature that no spring can
rise higher than its source. The records of both the Senate and the House do
not reveal that this step was taken by the members of the Bicameral
Conference Committee. They bypassed their principal and ran riot with the
exercise of powers that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added
restrictions on local government's use of incremental revenue from
the VAT in Section 21 of R.A. No. 9337 which were not present in the
Senate or House Bills. Section 21 of R.A. No. 9337 provides:
Fifty percent of the local government unit's share from VAT shall
be allocated and used exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary
education to finance the construction of buildings,
purchases of school furniture and in-service teacher
trainings;
2. Ten percent (10%) for health insurance premiums of
enrolled indigents as a counterpart contribution of the local
government to sustain the universal coverage of the
national health insurance program;
3. Fifteen percent (15%) for environmental conservation to
fully implement a comprehensive national reforestation
program; and
4. Ten percent (10%) for agricultural modernization to
finance the construction of farm-to-market roads and
irrigation facilities.
Such allocations shall be segregated as separate trust funds by
the national treasury and shall be over and above the annual
appropriation for similar purposes.
These amendments did not harmonize conflicting provisions

between the constituent bills of R.A. No. 9337 but are entirely new and
extraneous concepts which fall beyond the median thereof. They
transgress the limits of the Bicameral Conference Committee's authority and
must be struck down.
I cannot therefore subscribe to the thesis of the majority that "the
changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing
provisions for it did not inject any idea or intent that is wholly foreign
to the subject embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above
provisions by holding that "all the changes or modifications were germane
to subjects of the provisions referred to it for reconciliation."
With due respect, it is high time to re-examine the test of
germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of
mischief for it allows the Bicameral Conference Committee to change
provisions in the bills of the House and the Senate when they are not even in
disagreement. Worse still, it enables the Committee to introduce
amendments which are entirely new and have not previously passed through
the coils of scrutiny of the members of both houses. The Constitution did not
establish a Bicameral Conference Committee that can act as a "third
house" of Congress with super veto power over bills passed by the Senate
and the House. We cannot concede that super veto power without
wrecking the delicate architecture of legislative power so carefully laid down
in our Constitution. The clear intent of our fundamental law is to install a
lawmaking structure composed only of two houses whose members would
thoroughly debate proposed legislations in representation of the will of
their respective constituents. The institution of this lawmaking structure is
unmistakable from the following provisions: (1) requiring that legislative
power shall be vested in a bicameral legislature; 10 (2) providing for quorum
requirements; 11 (3) requiring that appropriation, revenue or tariff bills, bills
authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives; 12 (4) requiring that
bills embrace one subject expressed in the title thereof; 13 and (5) mandating
that bills undergo three readings on separate days in each House prior to
passage into law and prohibiting amendments on the last reading thereof. 14
A Bicameral Conference Committee with untrammeled powers will destroy
this lawmaking structure. At the very least, it will diminish the free and open
debate of proposed legislations and facilitate the smuggling of what
purports to be laws.
On this point, Mr. Robert Luce's disconcerting observations are
apropos:
"Their power lies chiefly in the fact that reports of conference
committees must be accepted without amendment or else rejected in
toto. The impulse is to get done with the matters and so the
motion to accept has undue advantage, for some members are
sure to prefer swallowing unpalatable provisions rather than
prolong controversy. This is more likely if the report comes in the
rush of business toward the end of the session, when to seek further
conference might result in the loss of the measure altogether. At any
time in the session there is some risk of such a result following the
rejection of a conference report, for it may not be possible to secure a
second conference, or delay may give opposition to the main proposal
chance to develop more strength.
xxx xxx xxx

Entangled in a network of rule and custom, the Representative
who resents and would resist this theft of his rights, finds himself
helpless. Rarely can be vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record himself
as protesting against some one feature while accepting the measure as
whole. Worst of all, he cannot by argument or suggested change, try to
improve what the other branch has done.
This means more than the subversion of individual rights. It
means to a degree the abandonment of whatever advantage
the bicameral system may have. By so much it in effect
transfers the lawmaking power to small group of members who
work out in private a decision that almost always prevails. What
is worse, these men are not chosen in a way to ensure the wisest
choice. It has become the practice to name as conferees the ranking
members of the committee, so that the accident of seniority
determines. Exceptions are made, but in general it is not a question of
who are most competent to serve. Chance governs, sometimes giving
way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference
committee is unscientific and therefore defective. Usually it forfeits
the benefit of scrutiny and judgment by all the wisdom
available. Uncontrolled, it is inferior to that process by which
every amendment is secured independent discussion and vote.
. . ." 15
It cannot be overemphasized that in a republican form of government,

laws can only be enacted by all the duly elected representatives of the
people. It cuts against conventional wisdom in democracy to lodge
this power in the hands of a few or in the claws of a committee. It is
for these reasons that the argument that we should overlook the excesses of
the Bicameral Conference Committee because its report is anyway approved
by both houses is a futile attempt to square the circle for an unconstitutional
act is void and cannot be redeemed by any subsequent ratification.
Neither can we shut our eyes to the unconstitutional acts of the
Bicameral Conference Committee by holding that the Court cannot interpose
its checking powers over mere violations of the internal rules of Congress. In
Arroyo, et al. v. de Venecia, et al. , 16 we ruled that when the violations
affect private rights or impair the Constitution, the Court has all the
power, nay, the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it
be last that arguments will be foisted for the Court to merely wink at
assaults on the Constitution on the ground of some national interest,
sometimes clear and at other times inchoate. To be sure, it cannot be
gainsaid that the country is in the vortex of a financial crisis. The
broadsheets scream the disconcerting news that our debt payments for the
year 2006 will exceed Php 1 billion daily for interest alone. Experts
underscore some factors that will further drive up the debt service expenses
such as the devaluation of the peso, credit downgrades and a spike in
interest rates. 17 But no doomsday scenario will ever justify the thrashing of
the Constitution. The Constitution is meant to be our rule both in good times
as in bad times. It is the Court's uncompromising obligation to defend the
Constitution at all times lest it be condemned as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following
points:
a) I vote to withhold judgment on the constitutionality of the
"standby authority" in Sections 4 to 6 of Republic Act No.
9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the
Bicameral Conference Committee of the pro poor "no pass
on provision" on electricity to residential consumers as it
contravened the unequivocal intent of both Houses of
Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as
unconstitutional as it contains extraneous provisions not
found in its constituent bills.
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia

Austria-Martinez declares that the enrolled bill doctrine has been historically
and uniformly upheld in our country. Cited as recent reiterations of this
doctrine are the two Tolentino v. Secretary of Finance judgments 1 and
Fariñas v. Executive Secretary. 2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine 3 is not absolute. It
may be all-encompassing in some countries like Great Britain, 4 but as
applied to our jurisdiction, it must yield to mandatory provisions of our 1987
Constitution. The Court can take judicial notice of the form of government 5
in Great Britain. 6 It is unlike that in our country and, therefore, the doctrine
from which it originated 7 could be modified accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and
processes followed by Congress in its principal duty of lawmaking. However,
when the Constitution imposes certain conditions, restrictions or limitations
on the exercise of congressional prerogatives, the judiciary has both the
power and the duty to strike down congressional actions that are done in
plain contravention of such conditions, restrictions or limitations. 8 Insofar as
the present case is concerned, the three most important restrictions or
limitations to the enrolled bill doctrine are the "origination," "no-amendment"
and "three-reading" rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are
safeguarded by the expanded 9 constitutional mandate of the judiciary "to
determine whether or not 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." 10 Even the ponente of Tolentino, 11 the
learned Mr. Justice Vicente V. Mendoza, concedes in another decision that
each house "may not by its rules ignore constitutional restraints or violate
fundamental rights, and there should be a reasonable relation between the
mode or method of proceeding established by the rule and the result which
is sought to be attained." 12
The Bicameral Conference Committee (BCC) created by Congress to
iron out differences between the Senate and the House of Representatives
versions of the E-VAT bills 13 is one such "branch or instrumentality of the
government," over which this Court may exercise certiorari review to
determine whether or not grave abuse of discretion has been committed;
and, specifically, to find out whether the constitutional conditions,
restrictions and limitations on law-making have been violated.
In general, the BCC has at least five options in performing its functions:
(1) adopt the House version in part or in toto, (2) adopt the Senate version in
part or in toto, (3) consolidate the two versions, (4) reject non-conflicting
provisions, and (5) adopt completely new provisions not found in either
version. This, therefore, is the simple question: In the performance of its
function of reconciling conflicting provisions, has the Committee blatantly
violated the Constitution? SAHIDc
My short answer is: No, except those relating to income taxes referred
to in Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let me explain.
Adopting the House
Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part
or in toto, endorsing them without changes. Since these bills had passed the
three-reading requirement 14 under the Constitution, 15 it readily becomes
apparent that no procedural impediment would arise. There would also be
no question as to their origination, 16 because the bills originated exclusively
from the House of Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any
of the House bills in part or in toto. Therefore, this option was not taken by
the BCC.
Adopting the Senate
Version in Part or in Toto
Second , the BCC may choose to adopt the Senate version either in part
o r in toto, endorsing it also without changes. In so doing, the question of
origination arises. Under the 1987 Constitution, all "revenue . . . bills . . .
shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments." 17
If the revenue bill originates exclusively from the Senate, then
obviously the origination provision 18 of the Constitution would be violated.
If, however, it originates exclusively from the House and presumably passes
the three-reading requirement there, then the question to contend with is
whether the Senate amendments complied with the "germane" principle.
While in the Senate, the House version may, perTolentino, undergo
extensive changes, such that the Senate may rewrite not only portions of it
but even all of it. 19 I believe that such rewriting is limited by the "germane"
principle: although "relevant" 20 or "related" 21 to the general subject of
taxation, the Senate version is not necessarily "germane" all the time. The
"germane" principle requires a legal — not necessarily an economic 22 or
political — interpretation. There must be an "inherent logical connection." 23
What may be germane in an economic or political sense is not necessarily
germane in the legal sense. Otherwise, any provision in the Senate version
that is entirely new and extraneous, or that is remotely or even slightly
connected, to the vast and perplexing subject of taxation, would always be
germane. Under this interpretation, the origination principle would surely be
rendered inutile.
To repeat, in Tolentino, the Court said that the Senate may even write
its own version, which in effect would be an amendment by substitution. 24
The Court went further by saying that "the Constitution does not prohibit the
filing in the Senate of a substitute bill in anticipation of its receipt of the bill
from the House, so long as action by the Senate as a body is withheld
pending receipt of the House bill." 25 After all, the initiative for filing a
revenue bill must come from the House 26 on the theory that, elected as its
members are from their respective districts, the House is more sensitive to
local needs and problems. By contrast, the Senate whose members are
elected at large approaches the matter from a national perspective, 27 with a
broader and more circumspect outlook. 28

Even if I have some reservations on the foregoing sweeping
pronouncements in Tolentino, I shall not comment any further, because the
BCC, in reconciling conflicting provisions, also did not take the second option
of ignoring the House bills completely and of adopting only the Senate
version in part or in toto. Instead, the BCC used or applied the third option as
will be discussed below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by consolidating
both the Senate and the House versions. It can adopt some parts and reject
other parts of both bills, and craft new provisions or even a substitute bill. I
believe this option is viable, provided that there is no violation of the
origination and germane principles, as well as the three-reading rule. After
all, the report generated by the BCC will not become a final valid act of the
Legislative Department until the BCC obtains the approval of both houses of
Congress. 29
Standby Authority. I believe that the BCC did not exceed its authority
when it crafted the so-called "standby authority" of the President. The
originating bills from the House imposed a 12 percent VAT rate, 30 while the
bill from the Senate retained the original 10 percent. 31 The BCC opted to
initially use the 10 percent Senate provision and to increase this rate to the
12 percent House provision, effective January 1, 2006, upon the occurrence
of a predetermined factual scenario as follows:
"(i) [VAT] collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii) National Government Deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%)." 32
In the computation of the percentage requirements in the alternative

conditions under the law, the amounts of the VAT collection, National Deficit,
33 and GDP 34 — as well as the interrelationship among them — can easily be
derived by the finance secretary from the proper government bodies

charged with their determination. The law is complete and standards have
been fixed. 35 Only the fact-finding mathematical computation for its
implementation on January 1, 2006, is necessary. ISCDEA
Once either of the factual and mathematical events provided in the law
takes place, the President has no choice but to implement the increase of the
VAT rate to 12 percent. 36 This eventuality has been predetermined by
Congress. 37
The taxing power has not been delegated by Congress to either or both
the President and the finance secretary. What was delegated was only the
power to ascertain the facts in order to bring the law into operation. In fact,
there was really no "delegation" to speak of; there was merely a declaration
of an administrative, not a legislative , function. 38
I concur with the ponencia in that there was no undue delegation of
legislative power in the increase from 10 percent to 12 percent of the VAT
rate. I respectfully disagree, however, with the statements therein that, first,
the secretary of finance is "acting as the agent of the legislative
department" or an "agent of Congress" in determining and declaring the
event upon which its expressed will is to take effect; and, second, that the
secretary's personality "is in reality but a projection of that of Congress."
The secretary of finance is not an alter ego of Congress, but of the
President. The mandate given by RA 9337 to the secretary is not equipollent
to an authority to make laws. In passing this law, Congress did not restrict or
curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be
construed to be merely asking the President, with a recommendation from
the President's alter ego in finance matters, to determine the factual bases
for making the increase in VAT rate operative. 39 Indeed, as I have
mentioned earlier, the fact-finding condition is a mere administrative, not
legislative , function.
The ponencia states that Congress merely delegates the
implementation of the law to the secretary of finance. How then can the
latter be its agent? Making a law is different from implementing it. While the
first (the making of laws) may be delegated under certain conditions and
only in specific instances provided under the Constitution, the second (the
implementation of laws) may not be done by Congress. After all, the
legislature does not have the power to implement laws. Therefore,
congressional agency arises only in the first, not in the second. The first is a
legislative function; the second, an executive one.
Petitioners' argument is that because the GDP does not account for the
economic effects of so-called underground businesses, it is an inaccurate
indicator of either economic growth or slowdown in transitional economies.
40 Clearly, this matter is within the confines of lawmaking. This Court is
neither a substitute for the wisdom, or lack of it, in Congress, 41 nor an

arbiter of flaws within the latter's internal rules. 42 Policy matters lie within
the domain of the political branches of government, 43 outside the range of
judicial cognizance. 44 "[T]he right to select the measure and objects of
taxation devolves upon the Congress, and not upon the courts, and such
selections are valid unless constitutional limitations are overstepped." 45
Moreover, each house of Congress has the power and authority to determine
the rules of its proceedings. 46 The contention that this case is not ripe for
determination because there is no violation yet of the Constitution regarding
the exercise of the President's standby authority has no basis. The question
raised is whether the BCC, in passing the law, committed grave abuse of
discretion, not whether the provision in question had been violated. Hence,
this case is not premature and is, in fact, subject to judicial determination. TIcAaH
Amendments on Income Taxes . I respectfully submit that the

amendments made by the BCC (that were culled from the Senate version)
regarding income taxes 47 are not legally germane to the subject matter of
the House bills. Revising the income tax rates on domestic, resident foreign
and nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends; and
reducing the allowable deduction for interest expense are legally unrelated
and not germane to the subject matter contained in the House bills; they
violate the origination principle. 48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed
income — gross or net — realized by a taxpayer during a given taxable year,
49 while a VAT is an indirect tax not in the context of who is directly and
legally liable for its payment, but in terms of its nature as "a tax on
consumption." 50 The former cannot be passed on to the consumer, but the
latter can. 51 It is too wide a stretch of the imagination to even relate one
concept with the other. In like manner, it is inconceivable how the provisions
that increase corporate income taxes can be considered as mitigating
measures for increasing the VAT and, as I will explain later, for effectively
imposing a maximum of 3 percent tax on gross sales or revenues because of
the 70 percent cap. Even the argument that the corporate income tax rates
will be reduced to 30 percent does not hold water. This reduction will take
effect only in 2009, not 2006 when the 12 percent VAT rate will have been
implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is
generally creditable. Under a final withholding tax system, the amount of
income tax that is withheld by a withholding agent is constituted as a full
and final payment of the income tax due from the payee on said income. 52
The liability for the tax primarily rests upon the payor as a withholding
agent. 53 Under a creditable withholding tax system, taxes withheld on
certain payments are meant to approximate the tax that is due of the payee
on said payments. 54 The liability for the tax rests upon the payee who is
mandated by law to still file a tax return, report the tax base, and pay the
difference between the tax withheld and the tax due. 55
From this observation alone, it can already be seen that not only are
dividends alien to the tax base upon which the VAT is imposed, but their
respective methods of withholding are totally different. VAT-registered
persons may not always be nonresident foreign corporations that declare
and pay dividends, while intercorporate dividends are certainly not goods or
properties for sale, barter, exchange, lease or importation. Certainly, input
VAT credits are different from tax credits on dividends received by
nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of
a tax exemption. 56 Interest — which is among such deductions — refers to
the amount paid by a debtor to a creditor for the use or forbearance of
money. 57 It is an expense item that is paid or incurred within a given
taxable year on indebtedness in connection with a taxpayer's trade, business
or exercise of profession. 58 In order to reduce revenue losses, Congress
enacted RA 8424 59 which reduces the amount of interest expense
deductible by a taxpayer from gross income, equal to the applicable
percentage of interest income subject to final tax. 60 To assert that reducing
the allowable deduction in interest expense is a matter that is legally related
to the proposed VAT amendments is too far-fetched. Interest expenses are
not allowed as credits against output VAT. Neither are VAT-registered
persons always liable for interest.
Having argued on the unconstitutionality (non-germaneness) of the
BCC insertions on income taxes, let me now proceed to the other provisions
that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did
not exceed its authority when it deleted the no pass-on provisions found in
the congressional bills. Its authority to make amendments not only implies
the power to make insertions, but also deletions, in order to resolve
conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the
petroleum products subject to excise tax (and the raw materials used in the
manufacture of such products), the sellers of petroleum products, and the
generation companies. 61 The analogous provision in Senate Bill (SB) No.
1950 dealt with electricity, businesses other than generation companies, and
services of franchise grantees of electric utilities. 62 In contrast, there was a
marked absence of the no pass-on provision in HB 3555. Faced with such
variances, the BCC had the option of retaining or modifying the no pass-on
provisions and determining their extent, or of deleting them altogether. In
opting for deletion to resolve the variances, it was merely acting within its
discretion. No grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final
Withholding VAT. Deciding on the 70 percent cap and the 5 percent final
withholding VAT in the consolidated bill is also within the power of the BCC.
While HB 3555 included limits of 5 percent and 11 percent on input tax, 63
SB 1950 proposed an even spread over 60 months. 64 The decision to put a
cap and fix its rate, so as to harmonize or to find a compromise in settling
the apparent differences in these versions, 65 was within the sound
discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of
creditable VAT at the rates of 5 percent, 8 percent, 10.5 percent, and 12
percent. 66 HB 3705 had no such equivalent amendment, and SB 1950
pegged the rates at only 5 percent and 10 percent. 67 I believe that the
decision to impose a final (not creditable) VAT and to fix the rates at 5
percent and 10 percent, so as to harmonize the apparent differences in all
three versions, was also within the sound discretion of the BCC. DEICaA
Indeed, the tax credit method under our VAT system is not only
practical, but also principally used in almost all taxing jurisdictions. This does
not mean, however, that in the eyes of Congress through the BCC, our
country can neither deviate from this method nor modify its application to
suit our fiscal requirements. The VAT is usually collected through the tax
credit method (and in the past, even through the cost deduction method or a
mixture of these two methods), 68 but there is no hard and fast rule that 100
percent of the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Lauré, a French engineer, 69 who invented the
VAT. In 1954, he had the idea of imposing an indirect tax on consumption,
called taxe sur la valeur ajoutée, 70 which was quickly adopted by the
Direction Générale des Impost, the new French tax authority of which he
became joint director. Consequently, taxpayers at all levels in the production
process, rather than retailers or tax authorities, were forced to administer
and account for the tax themselves. 71
Since the unutilized input VAT can be carried over to succeeding
quarters, there is no undue deprivation of property. Alternatively, it can be
passed on to the consumers; 72 there is no law prohibiting that. Merely
speculative and unproven, therefore, is the contention that the law is
arbitrary and oppressive. 73 Laws that impose taxes are necessarily
burdensome, compulsory, and involuntary.
The deferred input tax account — which accumulates the unutilized
input VAT — remains an asset in the accounting records of a business. It is
not at all confiscated by the government. By deleting Section 112(B) of the
Tax Code, 74 Congress no longer made available tax credit certificates for
such asset account until retirement from or cessation of business, or
changes in or cessation of VAT-registered status. 75 This is a matter of policy,
not legality. The Court cannot step beyond the confines of its constitutional
power, if there is absolutely no clear showing of grave abuse of discretion in
the enactment of the law.
That the unutilized input VAT would be rendered useless is merely
speculative. 76 Although it is recorded as a deferred asset in the books of a
company, it remains to be a mere privilege. It may be written off or
expensed outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere
statutory privilege. 77 The State may modify or withdraw such privilege,
which is merely an asset granted by operation of law. 78 Moreover, there is
no vested right in generally accepted accounting principles. 79 These refer to
accounting concepts, measurement techniques, and standards of
presentation in a company's financial statements, and are not rooted in laws
of nature, as are the laws of physical science, for these are merely
developed and continually modified by local and international regulatory
accounting bodies. 80 To state otherwise and recognize such asset account
as a vested right is to limit the taxing power of the State. Unlimited, plenary,
comprehensive and supreme, this power cannot be unduly restricted by
mere creations of the State.
That the unutilized input VAT would also have an unequal effect on
businesses — some with low, others with high, input-output ratio — is not a
legal ground for invalidating the law. Profit margins are a variable of sound
business judgment, not of legal doctrine. The law applies equally to all
businesses; it is up to each of them to determine the best formula for selling
their goods or services in the face of stiffer competition. There is, thus, no
violation of the equal protection clause. If the implementation of the 70
percent cap would cause an ad infinitum deferment of input taxes or an
unequal effect upon different types of businesses with varying profit margins
and capital requirements, then the remedy would be an amendment of the
law — not an unwarranted and outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of
output tax and remitting the amount, as computed, to the government is in
effect imposing a tax that is equivalent to a maximum of 3 percent of gross
sales or revenues. 81 This imposition is arguably another tax on gross — not
net — income and thus a deviation from the concept of VAT as a tax on
consumption; it also assumes that sales or revenues are on cash basis or, if
on credit, given credit terms shorter than a quarter of a year. However, such
additional imposition and assumption are also arguably within the power of
Congress to make. The State may in fact choose to impose an additional 3
percent tax on gross income, in lieu of the 70 percent cap, and thus subject
the income of businesses to two types of taxes — one on gross, the other on
net. These impositions may constitute double taxation, 82 which is not
constitutionally proscribed. 83
Besides, prior to the amendments introduced by the BCC, already
extant in the Tax Code was a 3 percent percentage tax on the gross
quarterly sales or receipts of persons who were not VAT-registered, and
whose sales or receipts were exempt from VAT. 84 This is another type of tax
imposed by the Tax Code, in addition to the tax on their respective incomes.
No question as to its validity was raised before; none is being brought now.
More important, there is a presumption in favor of constitutionality, 85
"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." 86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of
Article III and Section 20 of Article II of the 1987 Constitution, I respectfully
disagree.
One, petitioners have not been denied due process or, as I have
illustrated earlier, equal protection. In the exercise of its inherent power to
tax, the State validly interferes with the right to property of persons, natural
or artificial. Those similarly situated are affected in the same way and
treated alike, "both as to privileges conferred and liabilities enforced." 87
RA 9337 was enacted precisely to achieve the objective of raising
revenues to defray the necessary expenses of government. 88 The means
that this law employs are reasonably related to the accomplishment of such
objective, and not unduly oppressive. The reduction of tax credits is a
question of economic policy, not of legal perlustration. Its determination is
vested in Congress, not in this Court. Since the purpose of the law is to raise
revenues, it cannot be denied that the means employed is reasonably
related to the achievement of that purpose. Moreover, the proper
congressional procedure for its enactment was followed; 89 neither public
notice nor public hearings were denied. HIACEa
Two, private enterprises are not discouraged. Tax burdens are never
delightful, but with the imposition of the 70 percent cap, there will be an
assurance of a steady cash flow to the government, which can be translated
to the production of improved goods, rendition of better services, and
construction of better facilities for the people, including all private
enterprises. Perhaps, Congress deems it best to make our economy depend
more on businesses that are easier to monitor, so there will be a more
efficient collection of taxes. Whatever is expected of the outcome of the law,
or its wisdom, should be the sole responsibility of the representatives chosen
by the electorate.
The profit margin rates of various industries generally do not change.
However, the profit margin figures do, because these are obviously
monetary variables that affect business, along with the level of competition,
the quality of goods and services offered, and the cost of their production.
And there will inevitably be a conscious desire on the part of those who
engage in business and those who consume their output to adapt or adjust
accordingly to any congressional modification of the VAT system.
In addition, it is contended that the VAT should be proportional in

nature. I submit that this proportionality pertains to the rate imposable, not
the credit allowable. Private enterprises are subjected to a proportional VAT
rate, but VAT credits need not be. The VAT is, after all, a human concept that
is neither immutable nor invariable. In fact, it has changed after it was
adopted as a system of indirect taxation by other countries. Again unlike the
laws of physical science, the VAT system can always be modified to suit
modern fiscal demands. The State, through the Legislative Department, may
even choose to do away with it and revert to our previous system of turnover
taxes, sales taxes and compensating taxes, in which credits may be
disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment,
which is purchased or treated as capital leases by private enterprises. Aimed
at achieving the twin objectives of profitability and solvency, such purchase
or lease is a matter of prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on
competition are for businesses to determine and for Congress to regulate —
not for this Court to interfere with, absent a clear showing that constitutional
provisions have been violated. Tax collection and administrative feasibility
are for the executive branch to focus on, again not for this Court to dwell
upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly point out
in a long line of relevant questioning that, absent a violation of constitutional
provisions, the Court cannot interfere with the 70 percent cap, the 5 percent
final withholding tax, and the 60-month amortization, there being other
extra-judicial remedies available to petitioners, thus:
"Atty. Baniqued:
But if your profit margin is low as i[n] the case of the petroleum
dealers, . . . then we would have a serious problem, Your Honor.
"Justice Panganiban:
Isn't the solution to increase the price then?
"Atty. Baniqued:
If you increase the price which you can very well do, Your Honor, then
that [will] be deflationary and it [will] have a cascading effect on
all other basic commodities[, especially] because what is
involved here is petroleum, Your Honor.
That may be true[,] but it's not unconstitutional?
"Atty. Baniqued:
That may be true , Your Honor, but the very limitation of the [seventy
percent] input [VAT], when applied to the case of the petroleum
dealers[,] is oppressive[.] [I]t's unjust and it's unreasonable, Your
Honor.
But it can be passed as a part of sales, sales costs rather.
"Atty. Baniqued:
But the petroleum dealers here themselves . . . interrupted
In your [b]alance [s]heet, it could be reflected as Cost of Sales and
therefore the price will go up?
"Atty. Baniqued:
Even if it were to be reflected as part of the Cost of Sales, Your Honor,
the [input VAT] that you cannot claim, the benefit to you is only
to the extent of the corporate tax rate which is 32 now 35
[percent].
Yes.
"Atty. Baniqued:
It's not 100 [percent] credi[ta]bility[,] unlike if it were applied against
your [output VAT], you get to claim 100 [percent] of it, Your
Honor. DTAHSI
That might be true, but we are talking about whether that particular
provision would be unconstitutional. You say it's oppressive, but
you have a remedy, you just pass it on to the customer . I
am not sayin[g] it's good[.] [N]either am I saying it's wise[.] [A]ll
I'm talking about is, whether it's constitutional or not.
"Atty. Baniqued:

Yes, in fact we acknowledge , Your Honor, that that is a remedy
available to the petroleum dealers, but considering the impact
of that limitation[,] and were just talking of the 70 [percent cap]
on [input VAT] in the level of the petroleum dealers. Were not
even talking yet of the limitation on the [input VAT] available to
the manufacturers, so, what if they pass that on as well?
Yes.
"Atty. Baniqued:
Then, it would complicate . . . interrupted
What I am saying is, there is a remedy, which is business in character.
The mere fact that the government is imposing that [seventy
percent] cap does not make the law unconstitutional, isn't it?
"Atty. Baniqued:
It does, Your Honor, if it can be shown. And as we have shown, it is

oppressive and unreasonable, it is excessive, Your Honor . . .
interrupted
If you have no way of recouping it. If you have no way of recouping that
amount, then it will be oppressive, but you have a business way
of recouping it[.] I am saying that, not advising that it's good. All I
am saying is, is it constitutional or not[?] We're not here to
determine the wisdom of the law, that's up for Congress. As
pointed out earlier, if the law is not wise, the law makers will be
changed by the people[.] [T]hat is their solution t[o] the lack of
wisdom of a law. If the law is unconstitutional[,] then the
Supreme Court will declare it unconstitutional and void it, but[,]
in this case[,] there seems to be a business remedy in the same
manner that Congress may just impose that tax straight without
saying it's [VAT]. If Congress will just say all petroleum will pay 3
[percent] of their Gross Sales, but you don't bear that, you pass
that on, isn't it?
"Atty. Baniqued:
We acknowledge your concern, Your Honor, but we should not forget
that when the petroleum dealers pass these financial burden or
this tax differential to the consumers, they themselves are
consumers in their own right. As a matter of fact, they filed this
case both as petroleum dealer[s] and as taxpayers. If they pass if
on, they themselves would ultimately bear the burden[,
especially] in increase[d] cost of electricity, land transport, food,
everything, Your Honor.
Yes, but the issue here in this Court, is whether that act of Congress is
unconstitutional.
"Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
You have a right to complain that it is oppressive, it is excessive, it
burdens the people too much, but is it unconstitutional?
"Atty. Baniqued:
Besides, passing it on, Your Honor, may not be as simple as it may
seem. As a matter of fact, at the strike of midnight on June 30,
when petroleum prices were being changed upward, the
[s]ecretary of [the] Department of Energy was going around[.]
[H]e was seen on TV going around just to check that prices don't
go up. And as a matter of fact, he had pronouncements that, the
increase in petroleum price should only be limited to the effect of
10 [percent] E-VAT.
It's becaus[e] the implementing rules were not clear and were not
extensive enough to cover how much really should be the
increase for various oil products, refined oil products. It's up for
the dealers to guess, and the dealers were guessing to their
advantage by saying plus 10 [percent] anyway, right?
"Atty. Baniqued:
In fact, the petroleum dealers, Your Honors, are not only faced with
constitutional issues before this Court. They are also faced with a
possibility of the Department of Energy not allowing them to pass
it on[,] because this would be an unreasonable price increase.
And so, they are being hit from both sides . . . interrupted
That's why I say, that there is need to refine the implementing rules so
that everyone will know, the customers will know how much to
pay for gasoline, not only gasoline, gasoline, and so on, diesel
and all kinds of products, so there'll be no confusion and there'll
be no undue taking advantage. There will be a smooth
implementation[,] if the law were to be upheld by the Court. In
your case, as I said, it may be unwise to pass that on to the
customers, but definitely, the dealers will not bear that [—] to
suffer the loss that you mentioned in your consolidated balance
sheets. Certainly, the dealers will not bear that [cost], isn't it? EDSAac
"Atty. Baniqued:
It will be a very hard decision to make, Your Honor.
Why, you will not pass it on?
"Atty. Baniqued:
I cannot speak for the dealers. . . . interrupted.
As a consumer, I will thank you if you don't pass it on[;] but you or your
clients as businessm[e]n, I know, will pass it on.
"Atty. Baniqued:
As I have said, Your Honor, there are many constraints on their ability
to do that[,] and that is why the first step that we are seeking is
to seek redress from this Honorable Court[,] because we feel that
the imposition is excessive and oppressive. . . . interrupted
You can find redress here, only if you can show that the law is
unconstitutional.
"Atty. Baniqued:
We realized that, Your Honor.
Alright. Let's talk about the 5 [percent] [d]epreciation rate, but that
applies only to the capital equipment worth over a million?
"Atty. Baniqued:
Yes, Your Honor.
And that doesn't apply at all times, isn't it?
"Atty. Baniqued:
Well. . . .
That doesn't at all times?
"Atty. Baniqued:
For capital goods costing less than 1 million , Your Honor, then. . .
.
That will not apply?
"Atty. Baniqued:
That will not apply , but you will have the 70 [percent] cap on input
[VAT], Your Honor.
Yes, but we talked already about the 70 [percent].
"Atty. Baniqued:
Yes, Your Honor.
When you made your presentation on the balance sheet, it is as if
every capital expenditure you made is subject to the 5 [percent,]
rather the [five year] depreciation schedule[.] [T]hat's not so. So,
the presentation you made is a little inaccurate and misleading.
"Atty. Baniqued:
At the start of our presentation, Your Honor[,] we stated clearly that
this applies only to capital goods costing more than one [million].
Yes, but you combined it later on with the 70 [percent] cap to show
that the dealers are so disadvantaged. But you didn't tell us that
that will apply only when capital equipment or goods is one
million or more. And in your case, what kind of capital goods will
be worth one million or more in your existing gas stations?
"Atty. Baniqued:
Well, you would have petroleum dealers, Your Honor, who would
have[,] aside from sale of petroleum[,] they would have their
service centers[,] like[. . .] to service cars and they would have
those equipments, they are, Your Honor.
But that's a different profit center, that's not from the sale of. . . .
"Atty. Baniqued:
No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban:
It's a different profit center[;] it's not in the sale of petroleum products.
In fact the mode now is to put up super stores in huge gas
stations. I do not begrudge the gas station[.] [A]ll I am saying is it
should be presented to us in perspective. Neither am I siding
with the government. All I am saying is, when I saw your
complicated balance sheet and mathematics, I saw that you were
to put in all the time the depreciation that should be spread over
[five] years. But we have agreed that that applies only to capital
equipment [—]not to any kind of goods [—] but to capital
equipment costing over 1 million pesos. EcHTCD
"Atty. Baniqued:
Yes, Your Honor, we apologize if it has caused a little confusion. . . .
Again the solution could b[e] to pass that on, because that's an
added cost, isn't it?
"Atty. Baniqued:
Well, yes, you can pass it on . . . .
I am not teaching you, I am just saying that you have a remedy . . . I
am not saying either that the remedy is wise or should be done,
because[,] as a consumer[,] I wouldn't want that to be done to
me.
"Atty. Baniqued:
We realiz[e] that, Your Honor, but the fact remain[s] that whether it is
in the hands of the petroleum dealers or in the hands of the
consumers[,] if this imposition is unreasonable and oppressive, it
will remain so, even after it is passed on, Your Honor.
Alright. Let's go to the third. The 5 [percent] withholding tax, [f]inal
[w]ithholding [t]ax, but this applies to sales to government?
"Atty. Baniqued:
Yes, Your Honor.
So, you can pass on this 5 [percent] to the [g]overnment . After
all, that 5 [percent] will still go back to the government.
"Atty. Baniqued:
Then it will come back to haunt us, Your Honor. . . .
Why?
"Atty. Baniqued:
By way of, for example sales to NAPOCOR or NTC . . . interrupted
Sales of petroleum products. . . .
"Atty. Baniqued:
. . . in the case of NTC, Your Honor, it would come back to us by way of
increase[d] cost, Your Honor.
Okay, let's see. You sell, let's say[,] your petroleum products to the
Supreme Court, as a gas station that sells gasoline to us here.
Under this law, the 5 [percent] withholding tax will have to be
charged, right?
"Atty. Baniqued:
Yes, Your Honor.
You will charge that[.] [T]herefore[,] the sales to the Supreme Court by
that gas station will effectively be higher?
"Atty. Baniqued:
Yes, Your Honor.
So, the Supreme Court will pay more, you will not [be] going to
[absorb] that 5 [percent], will you?
"Atty. Baniqued:
If it is passed on, Your Honor, that's of course we agree. . . Interrupted.
Not if, you can pass it on. . . .
"Atty. Baniqued:
Yes, we can . . . . interrupted
There is no prohibition to passing it on[.] [P]robably the gas station will
simply pass it on to the Supreme Court and say[,] well[,] there is
this 5 [percent] final VAT on you so[,] therefore, for every tank
full you buy[,] we'll just have to [charge] you 5 [percent] more.
Well, the Supreme Court will probably say, well, anyway, that 5
[percent] that we will pay the gas dealer, will be paid back to the
government, isn't it[?] So, how [will] you be affected?
"Atty. Baniqued:
I hope the passing on of the burden, Your Honor, doesn't come back to
party litigants by way of increase in docket fees, Your Honor.
But that's quite another m[a]tter, though . . . (laughs) [W]hat I am
saying, Mr. [C]ounsel is, you still have to show to us that your
remedy is to declare the law unconstitutional[,] and it's not
business in character. aDICET
"Atty. Baniqued:
Yes, Your Honor, it is our submission that this limitation in the input
[VAT] credit as well as the amortization. . . .
All you talk about is equal protection clause, about due process,
depreciation of property without observance of due process[,]
could really be a remedy than a business way.
"Atty. Baniqued:
Business in the level of the petroleum dealers, Your Honor, or in the
level of Congress, Your Honor.
Yes, you can pass them on to customers[,] in other words. It's the
customers who should [complain].
"Atty. Baniqued:
Yes, Your Honor . . . interrupted
And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued:
Yes, Your Honor. . . .
For agreeing to it, because the wisdom of a law is not for the Supreme
Court to pass upon.
"Atty. Baniqued:
It just so happens, Your Honor, that what is [involved] here is a
commodity that when it goes up, it affects everybody. . . .
Yes, inflationary and inflammatory. . . .
"Atty. Baniqued:
. . . just like what Justice Puno says it shakes the entire economic
foundation, Your Honor.
Yes, it's inflationary[,] brings up the prices of everything . . .
"Atty. Baniqued:
And it is our submission that[,] if the petroleum dealers cannot absorb
it and they pass it on to the customers, a lot of consumers would
neither be in a position to absorb it too and that['s] why we
patronize, Your Honor.
There might be wisdom in what you're saying, but is that
unconstitutional?
"Atty. Baniqued:
Yes, because as I said, Your Honor, there are even constraints in the
petroleum dealers to pass it on, and we[']re not even sure
whether . . . . interrupted
Are these constraints [—] legal constraints ?
"Atty. Baniqued:
Well, it would be a different story, Your Honor[.] [T]hat's something
we probably have to take up with the Department of
Energy, lest [we may] be accused of . . . .
In other words, that's your remedy [—] to take it up with the
Department of Energy
"Atty. Baniqued:
. . . unreasonable price increases, Your Honor.
Not for us to declare those provisions unconstitutional.
"Atty. Baniqued:
We, again, wish to stress that the petroleum dealers went to this
Court[,] both as businessmen and as consumers. And as
consumers, [we're] also going to bear the burden of whatever
they themselves pass on.
You know[,] as a consumer, I wish you can really show that the laws
are unconstitutional, so I don't have to pay it. But as a magistrate
of this Court, I will have to pass upon judgment on the basis of
[—] whether the law is unconstitutional or not. And I hope you
can in your memorandum show that.
"Atty. Baniqued:
We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters .

Finally, the BCC's amendments regarding other taxes 90 are both germane in
a legal sense and reasonably necessary in an economic sense. This fact is
evident, considering that the proposed changes in the VAT law will have
inevitable implications and repercussions on such taxes, as well as on the
procedural requirements and the disposition of incremental revenues, in the
Tax Code. Either mitigating measures 91 have to be put in place or increased
rates imposed, in order to achieve the purpose of the law, cushion the
impact of increased taxation, and still maintain the equitability desired of
any other revenue law. 92 Directly related to the proposed VAT changes,
these amendments are expected also to have a salutary effect on the
national economy. HCDaAS
The no-amendment rule 93 in the Constitution was not violated by the

BCC, because no completely new provision was inserted in the approved bill.
The amendments may be unpopular or even work hardship upon everyone
(this writer included). If so, the remedy cannot be prescribed by this Court,
but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the
versions presented to it by both houses of Congress, but instead to reject
non-conflicting provisions in those versions. In other words, despite the lack
of conflict in them, such provisions are still eliminated entirely from the
consolidated bill. There may be a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item
raised by petitioners concerning deletion. 94 As I have already mentioned
earlier, these provisions were in conflict. Thus, the BCC exercised its
prerogative to remove them. In fact, congressional rules give the BCC the
power to reconcile disagreeing provisions, and in the process of
reconciliation, to delete them. No other non-conflicting provision was
deleted.
At this point, and after the extensive discussion above, it can readily be
seen no non-conflicting provisions of the E-VAT bills were rejected
indiscriminately by the BCC.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions
not found in any of the provisions of the bills of either house of Congress, or
make and endorse an entirely new bill as a substitute. Taking this option
may be a blatant violation of the Constitution, for not only will the
surreptitious insertion or unwarranted creation contravene the "origination"
principle; it may likewise desecrate the three-reading requirement and the
no-amendment rule. 95
Fortunately, however, the BCC did not approve or insert completely
new provisions. Thus, no violation of the Constitution was committed in this
regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the
provisions of a law, but also to its due enactment. It is not absolute,
however, and must yield to mandatory provisions of the 1987 Constitution.
Specifically, this Court has the duty of striking down provisions of a law that
in their enactment violate conditions, restrictions or limitations imposed by
the Constitution. 96 The Bicameral Conference Committee (BCC) is a mere
creation of Congress. Hence, the BCC may resolve differences only in
conflicting provisions of congressional bills that are referred to it; and it may
do so only on the condition that such resolution does not violate the
origination, the three-reading, and the no-amendment rules of the
Constitution. aASDTE
In crafting RA 9337, the BCC opted to reconcile the conflicting

provisions of the Senate and House bills, particularly those on the 70 percent
cap on input tax; the 5 percent final withholding tax; percentage taxes on
domestic carriers, keepers of garages and international carriers; franchise
taxes; amusement taxes; excise taxes on manufactured oils and other fuels;
registration requirements; issuance of receipts or sales or commercial
invoices; and disposition of incremental revenues. To my mind, these
changes do not violate the origination or the germaneness principles.
Neither is there undue delegation of legislative power in the standby
authority given by Congress to the President. The law is complete, and the
standards are fixed. While I concur with the ponencia's view that the
President was given merely the power to ascertain the facts to bring the law
into operation — clearly an administrative, not a legislative, function — I
stress that the finance secretary remains the Chief Executive's alter ego, not
an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions,
because these were in conflict. I believe, however, that it blatantly violated
the origination and the germaneness principles when it inserted provisions
not found in the House versions of the E-VAT Law: (1) increasing the tax
rates on domestic, resident foreign and nonresident foreign corporations; (2)
increasing the tax credit against taxes due from nonresident foreign
corporations on intercorporate dividends; and (3) reducing the allowable
deduction for interest expense. Hence, I find these insertions
unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already
suffering people. On the other hand, respondents have justified it by
comparing it to bitter medicine that patients must endure to be healed
eventually of their maladies. The advantages and disadvantages of the E-
VAT Law, as well as its long-term effects on the economy, are beyond the
reach of judicial review. The economic repercussions of the statute are policy
in nature and are beyond the power of the courts to pass upon.
I have combed through the specific points raised in the Petitions. Other
than the three items on income taxes that I respectfully submit are
unconstitutional, I cannot otherwise attribute grave abuse of discretion to
the BCC, or Congress for that matter, for passing the law.
"[T]he Court — as a rule — is deferential to the actions taken by the
other branches of government that have primary responsibility for the
economic development of our country." 97 Thus, in upholding the Philippine
ratification of the treaty establishing the World Trade Organization (WTO),
Tañada v. Angara held that "this Court never forgets that the Senate, whose
act is under review, is one of two sovereign houses of Congress and is thus
entitled to great respect in its actions. It is itself a constitutional body,
independent and coordinate, and thus its actions are presumed regular and
done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumption, this Court will resolve every doubt
in its favor." 98 As pointed our in Cawaling Jr. v. Comelec , the grounds for
nullity of the law "must be beyond reasonable doubt, for to doubt is to
sustain." 99 Indeed, "there must be clear and unequivocal showing that what
the Constitutions prohibits, the statute permits." 100
WHEREFORE, I vote to GRANT the Petitions in part and to declare
Sections 1, 2, and 3 of Republic Act No. 9337 unconstitutional, insofar as
these sections (a) amend the rates of income tax on domestic, resident
foreign, and nonresident foreign corporations; (b) amend the tax credit
against taxes due from nonresident foreign corporations on intercorporate
dividends; and (c) reduce the allowable deduction for interest expense. The
other provisions are constitutional, and as to these I vote to DISMISS the
Petitions.
The ponencia states that under the provisions of the Rules of the
House of Representatives and the Senate Rules, the Bicameral Conference
Committee is mandated to settle differences between the disagreeing
provisions in the House bill and Senate bill. However, the ponencia construed
the term "settle" as synonymous to "reconcile" and "harmonize," and as
such, the Bicameral Conference Committee may either (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would be
carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly
allows each House to determine the rules of its proceedings. However, the
rules must not contravene constitutional provisions. The rule-making power
of Congress should take its bearings from the Constitution. If in the exercise
of this rule-making power, Congress failed to set parameters in the functions
of the committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment
rule, then the same amount to grave abuse of discretion which this Court is
empowered to correct under its expanded certiorari jurisdiction.
Notwithstanding the doctrine of separation of powers, therefore, it is the
duty of the Court to declare as void a legislative enactment, either from
want of constitutional power to enact or because the constitutional
forms or conditions have not been observed. 1 When the Court declares
as unconstitutional a law or a specific provision thereof because procedural
requirements for its passage were not complied, the Court is by no means
asserting its ascendancy over the Legislature, but simply affirming the
supremacy of the Constitution as repository of the sovereign will. 2 The
judicial branch must ensure that constitutional norms for the exercise of
powers vested upon the two other branches are properly observed. This is
the very essence of judicial authority conferred upon the Court under
Section 1, Article VII of the 1987 Constitution.
The Rules of the House of Representatives and the Rules of the Senate
provide that in the event there is disagreement between the provisions of
the House and Senate bills, the differences shall be settled by a bicameral
conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting
Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of
Finance 3 that the authority of the bicameral conference committee was
limited to the reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. Thus, it could only either (a) restore, wholly
or partly, the specific provisions of the House bill amended by the
Senate bill, (b) sustain, wholly or partly, the Senate's amendments,
or (c) by way of a compromise, to agree that neither provisions in
the House bill amended by the Senate nor the latter's amendments
thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized
only to adopt either the version of the House bill or the Senate bill, or adopt
neither. It cannot, as the ponencia proposed, "try to arrive at a compromise",
such as introducing provisions not included in either the House or Senate
bill, as it would allow a mere ad hoc committee to substitute the will of the
entire Congress and without undergoing the requisite three-reading, which
are both constitutionally proscribed. To allow the committee unbridled
discretion to overturn the collective will of the whole Congress defies logic
considering that the bills are passed presumably after study, deliberation
and debate in both houses. A lesser body like the Bicameral Conference
Committee should not be allowed to substitute its judgment for that of the
entire Congress, whose will is expressed collectively through the passed
bills.
When the Bicameral Conference Committee goes beyond its limited
function by substituting its own judgment for that of either of the two
houses, it violates the internal rules of Congress and contravenes material
restrictions imposed by the Constitution, particularly on the passage of law.
While concededly, the internal rules of both Houses do not explicitly limit the
Bicameral Conference Committee to a consideration only of conflicting
provisions, it is understood that the provisions of the Constitution should be
read into these rules as imposing limits on what the committee can or
cannot do. As such, it cannot perform its delegated function in violation of
the three-reading requirement and the no-amendment rule. DaIAcC
Section 26(2) of Article VI of the 1987 Constitution provides that:

(2)No bill shall be 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 hereto shall
be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence,
the ponencia's submission that despite its limited authority, the Bicameral
Conference Committee could "compromise the disagreeing provisions" by
substituting it with its own version — clearly violate the three-reading
requirement, as the committee's version would no longer undergo the same
since it would be immediately put into vote by the respective houses. In
effect, it is not a bill that was passed by the entire Congress but by the
members of the ad hoc committee only, which of course is constitutionally
infirm.
I disagree that the no-amendment rule referred only to "the procedure
to be followed by each house of Congress with regard to bills initiated in
each of said respective houses" because it would relegate the no-
amendment rule to a mere rule of procedure. To my mind, the no-
amendment rule should be construed as prohibiting the Bicameral
Conference Committee from introducing amendments and modifications to
non-disagreeing provisions of the House and Senate bills. In sum, the
committee could only either adopt the version of the House bill or the Senate
bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting
Opinion in Tolentino v. Secretary of Finance , 4 there is absolutely no legal
warrant for the bold submission that a Bicameral Conference Committee
possesses the power to add/delete provisions in bills already approved on
third reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the amendments introduced
by the Bicameral Conference Committee which are not found either in the
House or Senate versions of the VAT reform bills, but are inserted merely by
the Bicameral Conference Committee and thereafter included in Republic
Act No. 9337, should be declared unconstitutional. The insertions and
deletions made do not merely settle conflicting provisions but materially
altered the bill, thus giving rise to the instant petitions. DcTAIH
I, therefore, join the concurring and dissenting opinion of Mr. Justice

Reynato S. Puno.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion:
Adam Smith, the great 18th — century political economist, enunciated

the dictum that "the subjects of every state ought to contribute to the
support of government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state." 1 At no other time this
dictum becomes more urgent and obligatory as in the present time, when
the Philippines is in its most precarious fiscal position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S.
Puno in his Opinion, specifically on the following points:
1. It is "high time to re-examine the test of germaneness
proffered in Tolentino;"
2. The Bicameral Conference Committee "cannot exercise its
unbridled discretion," "it cannot create a new law," and its
deletion of the "no pass on provision" common in both
Senate Bill No. 1950 and House Bill No. 3705 is
"unconstitutional."
In addition to the above points raised by Mr. Senior Justice Puno, may I
expound on the issues specified hereunder:
There is no reason to rush and stamp the imprimatur of validity to a
tax law, R.A. 9337, that contains patently unconstitutional provisions. I refer
to Sections 4 to 6 which violate the principle of non-delegation of legislative
power. These Sections authorize the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate from 10% to 12% effective
January 1, 2006, if the conditions specified therein are met, thus:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%) after any of the following
conditions has been satisfied:
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half
percent (1 1/2%).
This proviso on the authority of the President is uniformly appended

to Sections 4, 5 and 6 of R.A. No. 9337, provisions amending Sections 106,
107 and 108 of the NIRC, respectively. Section 4 imposes a 10% VAT on
sales of goods and properties, Section 5 imposes a 10% VAT on importation
of goods, and Section 6 imposes a 10% VAT on sale of services and use or
lease of properties.
Petitioners in G.R. Nos. 168056, 2 168207 3 and 168463 4 assail the
constitutionality of the above provisions on the ground that such stand-by
authority granted to the President constitutes: (1) undue delegation of
legislative power; (2) violation of due process; and (3) violation of the
principle of "exclusive origination." They cited as their basis Article VI,
Section 28 (2); Article III, Section 1; and Article VI, Section 24 of the
Constitution.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty. 5 It is a power that is
purely legislative and which the central legislative body cannot delegate
either to the executive or judicial department of government without
infringing upon the theory of separation of powers. 6 The rationale of this
doctrine may be traced from the democratic principle of "no taxation without
representation." The power of taxation being so pervasive, it is in the best
interest of the people that such power be lodged only in the Legislature.
Composed of the people's representatives, it is "closer to the pulse of the
people and . . . are therefore in a better position to determine both the
extent of the legal burden the people are capable of bearing and the benefits
they need." 7 Also, this set-up provides security against the abuse of power.
As Chief Justice Marshall said: "In imposing a tax, the legislature acts upon
its constituents. The power may be abused; but the interest, wisdom, and
justice of the representative body, and its relations with its constituents,
furnish a sufficient security."
Consequently, Section 24, Article VI of our Constitution enshrined the
principle of "no taxation without representation" by providing that "all . . .
revenue bills . . . shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments." This provision
generally confines the power of taxation to the Legislature. aHSAIT
R.A. No. 9337, in granting to the President the stand-by authority to

increase the VAT rate from 10% to 12%, the Legislature abdicated its power
by delegating it to the President. This is constitutionally impermissible. The
Legislature may not escape its duties and responsibilities by delegating its
power to any other body or authority. Any attempt to abdicate the power is
unconstitutional and void, on the principle that potestas delegata non
delegare potest. 8 As Judge Cooley enunciated:
"One of the settled maxims in constitutional law is, that the
power conferred upon the legislature to make laws cannot be
delegated by that department to any other body or authority. Where
the sovereign power of the state has located the authority,
there it must remain; and by the constitutional agency alone
the laws must be made until the Constitution itself is changed.
The power to whose judgment, wisdom, and patriotism this high
prerogative has been entrusted cannot relieve itself of the
responsibility by choosing other agencies upon which the power shall
be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people have
seen fit to confide this sovereign trust." 9
Of course, the rule which forbids the delegation of the power of

taxation is not absolute and inflexible. It admits of exceptions. Retired Justice
Jose C. Vitug enumerated such exceptions, to wit: (1) delegations to local
governments (to be exercised by the local legislative bodies thereof) or
political subdivisions; (2) delegations allowed by the Constitution; and (3)
delegations relating merely to administrative implementation that may call
for some degree of discretionary powers under a set of sufficient standards
expressed by law. 10
Patently, the act of the Legislature in delegating its power to tax does
not fall under any of the exceptions.
First, it does not involve a delegation of taxing power to the local
government. It is a delegation to the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI
of the Constitution enumerates the charges or duties, the rates of which may
be fixed by the President pursuant to a law passed by Congress, thus:
The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts
within the framework of the national development program of the
Government.
Noteworthy is the absence of tax rates or VAT rates in the

enumeration. If the intention of the Framers of the Constitution is to permit
the delegation of the power to fix tax rates or VAT rates to the President,
such could have been easily achieved by the mere inclusion of the term "tax
rates" or "VAT rates " in the enumeration. It is a dictum in statutory
construction that what is expressed puts an end to what is implied.
Expressium facit cessare tacitum. 11 This is a derivative of the more familiar
maxim express mention is implied exclusion or expressio unius est
exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks
only of "tariff rates, 12 import 13 and export quotas, 14 tonnage 15 and
wharfage dues 16 and other duties and imposts, 17 " by no stretch of
imagination can this enumeration be extended to include the VAT.
A n d third , it does not relate merely to the administrative
implementation of R.A. No. 9337.
In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of the
Legislature so that nothing was left to the judgment of any other appointee
or delegate of the legislature. 18
In the present case, the President is the delegate of the Legislature,
endowed with the power to raise the VAT rate from 10% to 12% if any of the
following conditions, to reiterate, has been satisfied: (i) value-added tax
collection as a percentage of gross domestic product (GDP) of the previous
year exceeds two and four-fifths percent (2 4/5%) or (ii) National
Government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
At first glance, the two conditions may appear to be definite standards
sufficient to guide the President. However, to my mind, they are ineffectual
and malleable as they give the President ample opportunity to exercise her
authority in arbitrary and discretionary fashion.
The two conditions set forth by law would have been sufficient had it
not been for the fact that the President, being at the helm of the entire
officialdom, has more than enough power of control to bring about the
existence of such conditions. Obviously, R.A. No. 9337 allows the President
to determine for herself whether the VAT rate shall be increased or not at all.
The fulfillment of the conditions is entirely placed in her hands. If she wishes
to increase the VAT rate, all she has to do is to strictly enforce the VAT
collection so as to exceed the 2 4/5% ceiling. The same holds true with the
national government deficit. She will just limit government expenses so as
not to exceed the 1 1/2% ceiling. On the other hand, if she does not wish to
increase the VAT rate, she may discourage the Secretary of Finance from
making the recommendation.
That the President's exercise of an authority is practically within her
control is tantamount to giving no conditions at all. I believe this amounts to
a virtual surrender of legislative power to her. It must be stressed that the
validity of a law is not tested by what has been done but by what may be
done under its provisions. 19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section
1, Article III of the Constitution which states that, "no person shall be
deprived of life, liberty or property without due process of law." 20
Substantive due process requires the intrinsic validity of the law in
interfering with the rights of the person to his property. The inquiry in this
regard is not whether or not the law is being enforced in accordance with the
prescribed manner but whether or not, to begin with, it is a proper
exercise of legislative power.
To be so, the law must have a valid governmental objective, i.e.,
the interest of the public as distinguished from those of a particular class,
requires the intervention of the State. This objective must be pursued in a
lawful manner, or in other words, the means employed must be reasonably
related to the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid
governmental objective, i.e. to raise revenues for the government. However,
with respect to the means employed to accomplish such objective, I am
convinced that R.A. No. 9337, particularly Sections 4, 5 and 6 thereof, are
arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the first condition
constitutes a reward to the President for her effective collection of VAT.
Thus, the President may increase the VAT rate from 10% to 12% if her VAT
collection during the previous year exceeds 2 4/5% of the Gross Domestic
Product. I quote the deliberation:
Senator Lacson.
Thank you, Mr. President. Now, I will go back to my original question,
my first question. Who are we threatening to punish on the
imposed condition No. 1 — the public or the President?
Senator Recto.
That is not a punishment, that is supposed to be a reward
system.
Senator Lacson.
Yes, an incentive. So we are offering an incentive to the Chief
Executive.
Senator Recto.
That is right.
Senator Lacson.
in order for her to be able to raise the VAT to 12% .
Senator Recto.
That is right. That is the intention, yes .
xxx xxx xxx
Senator Osmena.
All right. Therefore, with the lifting of exemptions it stands to
reason that Value-added tax collections as a percentage
of GDP will be much higher than . . . Now, if it is higher
than 2.5%, in other words, because they collected more,
we will allow them to even tax more. Is that the meaning
of this particular phrase?
Senator Recto.
Yes, Mr. President, that is why it is as low as 2.8%. It is like if a
person has a son and his son asks him for an allowance, I
do not think that he would immediately give his son an
increase in allowance unless he tells his son, You better
improve your grades and I will give you an allowance.
That is the analogy of this.
xxx xxx xxx
Senator Osmena.
So the gentleman is telling the President, If you collect more
than 138 billion, I will give you additional powers to tax
the people.
Senator Recto.
. . . We are saying, kung mataas and grade mo, dadagdagan ko
an allowance mo. Katulad ng sinabi natin ditto. What we
are saying here is you prove to me that you can collect it,
then we will increase your rate, you can raise your rate. It
is an incentive. 21
Why authorize the President to increase the VAT rate on the premise
alone that she deserves an "incentive" or "reward"? Indeed, why should she
be rewarded for performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles
of sound taxation is fiscal adequacy. The proceeds of tax revenue should
coincide with, and approximate the needs of, government expenditures.
Neither an excess nor a deficiency of revenue vis-Ã -vis the needs of
government would be in keeping with the principle. 22
Equating the grant of authority to the President to increase the VAT
rate with the grant of additional allowance to a studious son is highly
inappropriate. Our Senators must have forgotten that for every increase of
taxes, the burden always redounds to the people. Unlike the additional
allowance given to a studious son that comes from the pocket of the
granting parent alone, the increase in the VAT rate would be shouldered by
the masses. Indeed, mandating them to pay the increased rate as an award
to the President is arbitrary and unduly oppressive. Taxation is not a power
to be exercised at one's whim.
III
Exclusive Origination from the House of Representatives
Section 24, Article VI of the Constitution provides:
SEC. 24 .All appropriations, revenue or tariff bills, bills
private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
I n Tolentino vs. Secretary of Finance , 23 this Court expounded on the

foregoing provision by holding that:
". . . To begin with, it is not the law — but the revenue bill —
which is required by the Constitution to 'originate exclusively in the
House of Representatives. It is important to emphasize this, because a
bill originating the in the House may undergo such extensive changes
in the Senate that the result may be a rewriting of the whole . . . . At
this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute
— and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially be the
same as the House Bill would be to deny the Senate's power not only
to 'concur with amendments: but also to 'propose amendments.' It
would be to violate the co-equality of the legislative power of the two
houses of Congress and in fact, make the House superior to the
Senate."
The case at bar gives us an opportunity to take a second hard look at

the efficacy of the foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article
VI of the 1935 Constitution. The latter provision was modeled from Section 7
(1), Article I of the United States Constitution, which states:
"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."
The American people, in entrusting what James Madison termed "the

power of the purse" to their elected representatives, drew inspiration from
the British practice and experience with the House of Commons. As one
commentator puts it:
"They knew the inestimable value of the House of Commons, as a
component branch of the British parliament; and they believed that it
had at all times furnished the best security against the oppression of
the crown and the aristocracy. While the power of taxation, of
revenue, and of supplies remained in the hands of a popular
branch, it was difficult for usurpation to exist for any length of
time without check, and prerogative must yield of that
necessity which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the

power to propose revenue bills solely in the House of Representatives is
present in both the Philippines and US Constitutions, stress must be laid on
the differences between the two quoted provisions. For one, the word
"exclusively" appearing in Section 24, Article VI of our Constitution is
nowhere to be found in Section 7 (1), Article I of the US Constitution. For
another, the phrase "as on other bills," present in the same provision of
the US Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner." 24 The term
"exclusive" is defined as "excluding or having power to exclude; limiting to
or limited to; single, sole, undivided, whole." 25 In one case, this Court define
the term "exclusive" as "possessed to the exclusion of others; appertaining
to the subject alone, not including, admitting, or pertaining to another or
others." 26
As for the term "originate," its meaning are "to cause the
beginning of; to give rise to; to initiate; to start on a course or
journey; to take or have origin; to be deprived; arise; begin or
start." 27
With the foregoing definitions in mind, it can be reasonably concluded
that when Section 24, Article VI provides that revenue bills shall originate
exclusively from the House of Representatives, what the Constitution
mandates is that any revenue statute must begin or start solely and only
in the House. Not the Senate. Not both Chambers of Congress. But there is
more to it than that. It also means that "an act for taxation must pass
the House first." It is no consequence what amendments the Senate adds.
28
A perusal of the legislative history of R.A. No. 9337 shows that it did
not "exclusively originate" from the House of Representatives.
The House of Representatives approved House Bill Nos. 3555 29 and
3705 30 . These Bills intended to amend Sections 106, 107, 108, 109, 110,
111 and 114 of the NIRC. For its part, the Senate approved Senate Bill No.
1950, 31 taking into consideration House Bill Nos. 3555 and 3705. It
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114,
116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to
thresh out the disagreeing provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and
discussed in full free and conference," came up with a report and
recommended the approval of the consolidated version of the bills. The
Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the
bills was transmitted to President Arroyo, who signed it into law. Thus, the
enactment of R.A. No. 9337, entitled " An Act Amending Sections 27, 28, 34,
106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151,
236, 237 and 288 of the National Internal Revenue Code of 1997, As
Amended and For Other Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the
House of Representatives. It has a legislative identity and existence separate
and apart from House Bills No. 3555 and 3705. Instead of concurring or
proposing amendments, Senate Bill No. 1950 merely "takes into
consideration" the two House Bills. To take into consideration means "to
take into account." Consideration, in this sense, means "deliberation,
attention, observation or contemplation. 32 Simply put, the Senate in passing
Senate Bill No. 1950, a tax measure, merely took into account House Bills
No. 3555 and 3705, but did not concur with or amend either or both bills. As
a matter of fact, it did not even take these two House Bills as a frame of
reference.
I n Tolentino, the majority subscribed to the view that Senate may
amend the House revenue bill by substitution or by presenting its own
version of the bill. In either case, the result is "two bills on the same
subject." 33 This is the source of the "germaneness" rule which states that
the Senate bill must be germane to the bill originally passed by the House of
Representatives. In Tolentino, this was not really an issue as both the House
and Senate Bills in question had one subject — the VAT.
The facts obtaining here is very much different from Tolentino. It is
very apparent that House Bills No. 3555 and 3705 merely intended to
amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC of 1997,
pertaining to the VAT provisions. On the other hand, Senate Bill No. 1950
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114,
116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining
to matters outside of VAT, such as income tax, percentage tax, franchise
tax, taxes on banks and other financial intermediaries, excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating
the germaneness rule and the principle of "exclusive origination," propose
tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with
respect to the points above-mentioned.

I join the concurring and dissenting opinion of Mr. Justice Reynato S.

Puno as I concur with the majority opinion but vote to declare as
unconstitutional the deletion of the "no-pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705 (the constituent bills of
Republic Act No. 9337).
The present petitions provide an opportune
occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the
formal requirements of the Constitution, the ponencia relies mainly on the
Court's rulings in Tolentino v. Secretary of Finance . 1 To recall, Tolentino
involved Republic Act No. 7716, which similarly amended the NIRC by
widening the tax base of the VAT system. The procedural attacks against
R.A. No. 9337 are substantially the same as those leveled against R.A. No.
7716, e.g., violation of the "Origination Clause" (Article VI, Section 24) and
the "Three-Reading Rule" and the "No-Amendment Rule" (Article VI, Section
26[2]) of the Constitution. DHETIS
The present petitions provide an opportune occasion for the Court to

re-examine its rulings in Tolentino particularly with respect to the scope of
the powers of the Bicameral Conference Committee vis-Ã -vis Article VI,
Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the
Bicameral Conference Committee may validly introduce amendments that
were not contained in the respective bills of the Senate and the House of
Representatives. As a corollary, whether it may validly delete provisions
uniformly contained in the respective bills of the Senate and the House of
Representatives.
I n Tolentino, the Court declared as valid amendments introduced by
the Bicameral Conference Committee even if these were not contained in
the Senate and House bills. The majority opinion therein held:
As to the possibility of an entirely new bill emerging out of a
Conference Committee, it has been explained:
Under congressional rules of procedures, conference
committees are not expected to make any material change in the
measure at issue, either by deleting provisions to which both
houses have already agreed or by inserting new provisions. But
this is a difficult provision to enforce. Note the problem when one
house amends a proposal originating in either house by striking
out everything following the enacting clause and substituting
provisions which make it an entirely new bill. The versions are
now altogether different, permitting a conference committee to
draft essentially a new bill . . .
The result is a third version, which is considered an "amendment
in the nature of a substitute," the only requirement for which being
that the third version be germane to the subject of the House and
Senate bills.
Indeed, this Court recently held that it is within the power of a
conference committee to include in its report an entirely new provision
that is not found either in the House bill or in the Senate Bill. If the
committee can propose an amendment consisting of one or two
provisions, collectively considered as an "amendment in the nature of
a substitute," so long as such an amendment is germane to the subject
of the bills before the committee. After all, its report was not final but
needed the approval of both houses of Congress to become valid as an
act of the legislative department. The charge that in this case the
Conference Committee acted a third legislative chamber is thus
without any basis. 2
The majority opinion in Tolentino relied mainly on the practice of the

United States legislature in making the foregoing disquisition. It was held, in
effect, that following the US Congress' practice where a conference
committee is permitted to draft a bill that is entirely different from the bills of
either the House of Representatives or Senate, the Bicameral Conference
Committee is similarly empowered to make amendments not found in either
the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee
with respect to R.A. No. 9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in
Tolentino, and now by the ponencia, to the practice of the US Congress and
its conference committee system ought to be re-examined. There are
significant textual differences between the US Federal Constitution's and our
Constitution's prescribed congressional procedure for enacting laws.
Accordingly, the degree of freedom accorded by the US Federal Constitution
to the US Congress markedly differ from that accorded by our Constitution to
the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] 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.
[2] Every Bill which shall have passed the House of

Representatives and the Senate, shall, before it become a Law, be
presented to the President of the United States; If he approve he shall
it, but if not he shall return it, with his Objections to the House in which
it shall have originated, who shall enter the Objections at large on their
Journal, and proceed to reconsider it. If after such Reconsideration two
thirds of that House shall agree to pass the Bill, it shall be sent
together with the Objections, to the other House, by which it shall,
likewise, be reconsidered, and if approved by two thirds of that House,
it shall become a Law. But in all such Cases the Votes of both Houses
shall be determined by yeas and Nays, and the Names of the Persons
voting for and against the Bill shall be entered on the Journal of each
House respectively. If any Bill shall not be returned by the President
within ten Days (Sundays excepted) after it shall have been presented
to him, the Same shall be a Law, in like Manner as if he had signed it,
unless the Congress by their Adjournment prevent its return in which
Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the
Concurrence of the Senate and House of Representatives may be
necessary (except on a question of Adjournment) shall be presented to
the President of the United States; and before the Same shall take
Effect, shall be approved by him, or being disapproved by him, shall be
repassed by two thirds of the Senate and House of Representatives,
according to the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the

following procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof.
(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
Sec. 27. (1) Every bill passed by Congress shall, before it
becomes a law, be presented to the President. If he approves the same,
he shall sign it; otherwise, he shall veto it and return the same with his
objections to the House where it originated, which shall enter the
objections at large in its Journal and proceed to reconsider it. If, after
such reconsideration, two-thirds of all the Members of such House shall
agree to pass the bill, it shall be sent, together with the objections, to
the other House by which it shall likewise be reconsidered, and if
approved by two-thirds of all the Members of that House, it shall
become a law. In all such cases, the votes of each House shall be
determined by yeas and nays, and the names of the Members voting
for or against shall be entered in its Journal. The President shall
communicate his veto of any bill to the House where it originated
within thirty days after the date of receipt thereof; otherwise, it shall
become a law as if he had signed it.
(2) The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but the veto
shall not affect the item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:

1. Unlike the US Federal Constitution, our Constitution
prescribes the "three-reading" rule or that no bill shall
become a law unless it shall have been read on three
separate days in each house except when its urgency is
certified by the President; and
2. Unlike the US Federal Constitution, our Constitution
prescribes the "no-amendment" rule or that no amendments
shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain
congressional procedures have not been entrenched in the US Federal
Constitution. According to a noted constitutional law professor, the absence
of the "three-reading" requirement as well as similar legislative-procedure
rules from the US Federal Constitution is a "cause for regret." 3
In this connection, it is interesting to note that the conference
committee system in the US Congress has been described in this wise:
Conference Committees
Another main mechanism of joint House and Senate action is the
conference committee. Inherited from the English Constitution, the
conference committee system is an evolutionary product whose
principal threads were woven on the loom of congressional practice
into a unified pattern by the middle of the nineteenth century. "By
1852," writes Ada McCown, historian of the origin and development of
the conference committee, "the customs of presenting identical reports
from the committees of conference in both houses, of granting high
privilege to these conference reports, of voting upon the conference
report as a whole and permitting no amendment of it, of keeping secret
the discussions carried on in the meetings of the conference
committee, had become established in American parliamentary
practice."
Conference committees are composed of Senators and
Representatives, usually three each, appointed by the presiding
officers of both houses, for the purpose of adjusting differences
between bills they have passed. This device has been extensively used
by every Congress since 1789. Of the 1157 laws enacted by the 78th
Congress, for example, 107 went through conference and, of these, 36
were appropriation bills on which the House had disagreed to Senate
amendments. In practice, most important legislation goes through the
conference closet and is there revised, sometimes beyond recognition,
by the all-powerful conferees or managers, as they are styled. A large
body of law and practice has been built up over the years governing
conference procedure and reports.
Suffice it to say here that serious evils have marked the
development of the conference committee system. In the first place, it
is highly prodigal of members' time. McConachie calculated that the
average time consumed in conference was 33 days per bill. Bills are
sent to conference without reading the amendments of the other
chamber. Despite rules to the contrary, conferees do not confine
themselves to matters in dispute, but often initiate entirely new
legislation and even strike out identical provisions previously approved
by both houses. This happened during the 78th Congress, for instance,
when an important amendment to the surplus property bill, which had
been approved by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees
from the seniority rule. The senior members of the committees
concerned, who are customarily appointed as managers on the part of
the House and Senate, are not always the best informed on the
questions at issue, nor do they always reflect the majority sentiment of
their houses. Furthermore, conference reports must be accepted or
rejected in toto without amendment and they are often so complex and
obscure that they are voted upon without knowledge of their contents.
What happens in practice is that Congress surrenders its legislative
function to irresponsible committees of conference. The standing rules
against including new and extraneous matter in conference reports
have been gradually whittled away in recent years by the decisions of
presiding officers. Senate riders attached to appropriation bills enable
conference committees to legislate and the House usually accepts
them rather than withhold supply, thus putting it, as Senator Hoar once
declared, under a degrading duress.
It is also alleged that under this secret system lobbyist are able
to kill legislation they dislike and that "jokers" designed to defeat the
will of Congress can be inserted without detection. Senator George W.
Norris once characterized the conference committee as a third house
of Congress. "The members of this 'house,' he said, "are not elected by
the people. The people have no voice as to who these members shall
be . . . This conference committee is many times, in very important
matters of legislation, the most important branch of our legislature.
There is no record kept of the workings of the conference committee.
Its work is performed, in the main, in secret. No constituent has any
definite knowledge as to how members of this conference committee
vote, and there is no record to prove the attitude of any member of the
conference committee . . . As a practical proposition we have
legislation, then, not by the voice of the members of the Senate, not by
the members of the House of Representatives, but we have legislation
by the voice of five or six men. And for practical purposes, in most
cases, it is impossible to defeat the legislation proposed by this
conference committee. Every experienced legislator knows that it is
the hardest thing in the world to defeat a conference report."
Despite these admitted evils, impartial students of the
conference committee system defend it on net balance as an essential
part of the legislative process. Some mechanism for reconciling
differences under bicameral system is obviously indispensable. The
remedy for the defects of the device is not to abolish it, but to keep it
under congressional control. This can be done by enforcing the rules
which prohibit the inclusion in conference reports of matter not
committed to them by either house and forbid the deletion of items
approved by both bodies; by permitting conference managers to report
necessary new matter separately and the houses to consider it apart
from the conference report; by fixing a deadline toward the close of a
session after which no bills could be sent to conference, so as to
eliminate congestion at the end of the session a suggestion made by
the elder Senator La Follete in 1919; by holding conferences in
sessions open to the public, letting conference reports lie over longer;
and printing them in bill form (with conference changes in italics) so as
to allow members more time to examine them and discover "jokers." 4

The "three-reading" and "no-amendment" rules, absent in the US
Federal Constitution, but expressly mandated by Article VI, Section 26(2) of
our Constitution are mechanisms instituted to remedy the "evils" inherent in
a bicameral system of legislature, including the conference committee
system.
Sadly, the ponencia's refusal to apply Article VI, Section 26(2) of the
Constitution on the Bicameral Conference Committee and the amendments
it introduced to R.A. No. 9337 has "effectively dismantled" the "three-
reading rule" and "no-amendment rule." As posited by Fr. Joaquin Bernas, a
member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both
House of Congress. It is not unusual that the final version approved by
one House differs from what has been approved by the other. The
"conference committee," consisting of members nominated from both
Houses, is an extra-constitutional creation of Congress whose function
is to propose to Congress ways of reconciling conflicting provisions
found in the Senate version and in the House version of a bill. It
performs a necessary function in a bicameral system. However, since
conference committees have merely delegated authority from
Congress, they should not perform functions that Congress itself may
not do. Moreover, their proposals need confirmation by both Houses of
Congress.
I n Tolentino v. Secretary of Finance , the Court had the
opportunity to delve into the limits of what conference committees
may do. The petitioners contended that the consolidation of the House
and Senate bills made by the conference committee contained
provisions which neither the Senate bill nor the House bill had. In her
dissenting opinion, Justice Romero laid out in great detail the
provisions that had been inserted by the conference committee. These
provisions, according to the petitioners had been introduced
"surreptitiously" during a closed door meeting of the committee.
The Court's answer to this was that in United States practice
conference committees could be held in executive sessions and
amendments germane to the purpose of the bill could be introduced
even if these were not in either original bill. But the Court did not
bother to check whether perhaps the American practice was based on
a constitutional text different from that of the Philippine Constitution.
There are as a matter of fact significant differences in the degree
of freedom American and Philippine legislators have. The only rule that
binds the Federal Congress is that it may formulate its own rules of
procedure. For this reason, the Federal Congress is master of its own
procedures. It is different with the Philippine Congress. Our Congress
indeed is also authorized to formulate its own rules of procedure but
within limits not found in American law. For instance, there is the
"three readings on separate days" rule. Another important rule is that
no amendments may be introduced by either house during third
reading. These limitations were introduced by the 1935 and 1973
Constitutions and confirmed by the 1987 Constitution as a defense
against the inventiveness of the stealthy and surreptitious. These,
however, were disregarded by the Court in Tolentino in favor of
contrary American practice.
This is not to say that conference committees should not be
allowed. But an effort should be made to lay out the scope of what
conference committees may do according to the requirements and the
reasons of the Philippine Constitution and not according to the practice
of the American Congress. For instance, if the two Houses are not
allowed to introduce and debate amendments on third reading, can
they circumvent this rule by coursing new provisions through the
instrumentality of a conference committee created by Congress and
meeting in secret? The effect of the Court's uncritical embrace of the
practice of the American Congress and its conference committees is to
dismantle the no-amendment rule. 5
The task at hand for the Court, but which the ponencia eschews, is to
circumscribe the powers of the Bicameral Conference Committee in light of
the "three-reading" and "no-amendment" rules in Article VI, Section 26(2) of
the Constitution.
The Bicameral Conference Committee, in
deleting the "no pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI, Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now
Chief Justice) opined that the duty of the Bicameral Conference Committee
was limited to the reconciliation of disagreeing provisions or the resolution of
differences or inconsistencies. This proposition still applies as can be
gleaned from the following text of Sections 88 and 89, Rule XIV of the Rules
of the House of Representatives:
House does not agree with the Senate on the amendments to any bill
or joint resolution, the differences may be settled by the conference
in or amendments to the subject measure. DAaEIc
xxx xxx xxx

shall vote on the Conference Committee report in the same manner
and procedure as it votes on a bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:

each House panel, voting separately.
Justice Davide further explained that under its limited authority, the
Bicameral Conference Committee could only (a) restore, wholly or partly, the
specific provisions of the House Bill amended by the Senate Bill; (b) sustain,
wholly or partly, the Senate's amendments, or (c) by way of compromise, to
agree that neither provisions in the House Bill amended by the Senate nor
the latter's amendments thereto be carried into the final form of the former.
Justice Romero, who also dissented in Tolentino, added that the conference
committee is not authorized to initiate or propose completely new matters
although under certain legislative rules like the Jefferson's Manual, a
conference committee may introduce germane matters in a particular bill.
However, such matters should be circumscribed by the committee's sole
authority and function to reconcile differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee
made an "amendment by deletion" with respect to the "no pass on
provision" contained in both House Bill (HB) No. 3705 and Senate Bill (SB)
No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC by
expressly stating therein that sellers of petroleum products and power
generation companies selling electricity are prohibited from passing on the
VAT to the consumers. SB 1950 proposed to amend Section 108 by likewise
prohibiting power generation companies from passing on the VAT to the
consumers. However, these “no pass on provisions— were altogether
deleted by the Bicameral Conference Committee. At the least, since there
was no disagreement between HB 3705 and SB 1950 with respect to the "no
pass on provision" on the sale of electricity, the Bicameral Conference
Committee acted beyond the scope of its authority in deleting the pertinent
proviso.
At this point, it is well to recall the rationale for the "no-amendment
rule" and the "three-reading rule" in Article VI, Section 26(2) of the
Constitution. The proscription on amendments upon the last reading is
intended to subject all bills and their amendments to intensive deliberation
by the legislators and the ample ventilation of issues to afford the public an
opportunity to express their opinions or objections thereon. 6 Analogously, it
is said that the "three-reading rule" operates "as a self-binding mechanism
that allows the legislature to guard against the consequences of its own
future passions, myopia, or herd behavior. By requiring that bills be read and
debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies." 7 As Jeremy
Bentham, a noted political analyst, put it: "[t]he more susceptible a people
are of excitement and being led astray, so much the more ought they to
place themselves under the protection of forms which impose the necessity
of reflection, and prevent surprises." 8
Reports of the Bicameral Conference Committee, especially in cases
where substantial amendments, or in this case deletions, have been made to
the respective bills of either house of Congress, ought to undergo the "three-
reading" requirement in order to give effect to the letter and spirit of Article
VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became
R.A. No. 9337, in fact, bolsters the argument for the strict compliance by
Congress of the legislative procedure prescribed by the Constitution. As can
be gleaned from the said Report, of the 9 Senators-Conferees, 9 only 5
Senators 10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his
qualified dissent while Senators Sergio R. Osmeña III and Juan Ponce Enrile
approved it with reservations. On the other hand, of the twenty-eight (28)
Members of the House of Representatives-Conferees, 11 fourteen (14) 12
approved the same with reservations while three 13 voted no. All the
reservations expressed by the conferees relate to the deletion of the "no
pass on provision." Only eleven (11) unqualifiedly approved it. In other
words, even among themselves, the conferees were not unanimous on their
Report. Nonetheless, Congress approved it without even thoroughly
discussing the reservations or qualifications expressed by the conferees
therein. HAcaCS
This "take it or leave it" stance vis-Ã -vis conference committee reports
opens the possibility of amendments, which are substantial and not even
germane to the original bills of either house, being introduced by the
conference committees and voted upon by the legislators without knowledge
of their contents. This practice cannot be countenanced as it patently runs
afoul of the essence of Article VI, Section 26(2) of the Constitution. Worse, it
is tantamount to Congress surrendering its legislative functions to the
conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the
Bicameral Conference Committee Report which deleted the "no pass on
provision" did not cure the unconstitutional act of the said committee. As
succinctly put by Chief Justice Davide in his dissent in Tolentino, "[t]his
doctrine of ratification may apply to minor procedural flaws or tolerable
breaches of the parameters of the bicameral conference committee's limited
powers but never to violations of the Constitution. Congress is not above the
Constitution." 14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress
its refusal to pass upon the validity of the assailed acts of the Bicameral
Conference Committee. Under the "enrolled bill doctrine," the signing of a
bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both houses of Congress that it was passed
are conclusive of its due enactment. In addition to Tolentino, the ponencia
cites Fariñas v. Executive Secretary 15 where the Court declined to go behind
the enrolled bill vis-Ã -vis the allegations of the petitioners therein that
irregularities attended the passage of Republic Act No. 9006, otherwise
known as the Fair Election Act.
Reliance by the ponencia on Fariñas is quite misplaced. The Court's
adherence to the enrolled bill doctrine in the said case was justified for the
following reasons:
The Court finds no reason to deviate from the salutary in this
case where the irregularities alleged by the petitioners mostly involved
the internal rules of Congress, whether House or Senate. Parliamentary
rules are merely procedural and with their observance the courts have
no concern. Whatever doubts there may be as to the formal validity of
Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its
ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of
expression, all deny to the courts the power to inquire into the
allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a
violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun , it was held: "At any rate, courts
have declared that 'the rules adopted by deliberative bodies are
subject to revocation, modification or waiver at the pleasure of the
body adopting them.' And it has been said that 'Parliamentary rules are
merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body.'
Consequently, 'mere failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body) when the requisite
number of members have agreed to a particular measure. 16
Thus, in Fariñas, the Court's refusal to go behind the enrolled bill was
based on the fact that the alleged irregularities that attended the passage of
R.A. No. 9006 merely involved the internal rules of both houses of Congress.
The procedural irregularities allegedly committed by the conference
committee therein did not amount to a violation of a provision of the
Constitution. 17
In contrast, the act of the Bicameral Conference Committee of deleting
the "no pass on provision" of SB 1950 and HB 3705 infringe Article VI,
Section 26(2) of the Constitution. The violation of this constitutional provision
warrants the exercise by the Court of its constitutionally-ordained power to
strike down any act of a branch or instrumentality of government or any of
its officials done with grave abuse of discretion amounting to lack or excess
of jurisdiction. 18
ACCORDINGLY, I join the concurring and dissenting opinion of Mr.
Justice Reynato S. Puno and vote to dismiss the petitions with respect to
Sections 4, 5 and 6 of Republic Act No. 9337 for being premature. Further, I
vote to declare as unconstitutional Section 21 thereof and the deletion of the
"no pass on provision" contained in the constituent bills of Republic Act No.
9337.
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional

abdication of Congress of its power to tax through its delegation to the
President of the decision to increase the rate of the tax from 10% to 12%,
effective January 1, 2006, after any of two conditions has been satisfied. 1
The two conditions are:
previous year exceeds one and one-half percent (1 1/2%). 2
A scrutiny of these "conditions" shows that one of them is certain to

happen on January 1, 2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5%
of the Gross Domestic Product (GDP) of the previous year, a ratio that is
known as the tax effort.
The second condition is that the national government deficit exceeds 1
1/2% of the GDP of the previous year.
Note that the law says that the rate shall be increased ifany of the two
conditions happens, i.e., if condition (i) or condition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the
only practicable way that the present deficit of the national government can
be reduced to 1 1/2% or lower, thus preventing condition (ii) from
happening, is to increase the tax effort, which mainly has to come from the
E-VAT. But increasing the tax effort through the E-VAT, to the extent needed
to reduce the national deficit to 1 1/2% or less, will trigger the happening of
condition (i) under the law. Thus, the happening of condition (i) or condition
(ii) is in reality certain and unavoidable, as of January 1, 2006. HcTSDa
This becomes all the more clear when we consider the figures provided
during the oral arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion
pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax
effort from VAT, now at 1.5%, to at least 3%, thereby exceeding the 2 4/5
percent ceiling in condition (i), making condition (i) happen. If, on the other
hand, this is not done, then condition (ii) happens — the budget deficit
remains over 1.5%.
What is the result of this? The result is that in reality, the law does not
impose any condition, or the rate increase thereunder, from 10% to 12%,
effective January 1, 2006, is unconditional. For a condition is an event that
may or may not happen, or one whose occurrence is uncertain. 3 Now while
condition (i) is indeed uncertain and condition (ii) is likewise uncertain, the
combination of both makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix
the rate of the tax since the rate increase provided under the law, from 10%
to 12%, is definite and certain to occur, effective January 1, 2006. All that
the President will do is state which of the two conditions occurred and
thereupon implement the rate increase.
At first glance, therefore, it would appear that the decision to increase
the rate is to be made by the President, or that the increase is still uncertain,
as it is subject to the happening of any of two conditions.
Nevertheless, the contrary is true and thus it would be best in these
difficult and critical times to let our people know precisely what burdens they
are being asked to bear as the necessary means to recover from a crisis that
calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a
copy of the rules to implement the E-VAT, particularly as to the impact of the
tax on prices of affected commodities, specially oil and electricity. For the
onset of the law last July 1, 2005 was confusing, resulting in across-the-
board increases of 10% in the prices of commodities. This is not supposed to
be the effect of the law, as was made clear during the oral arguments,
because the law also contains provisions that mitigate the impact of the E-
VAT through reduction of other kinds of taxes and duties, and other similar
measures, specially as to goods that go into the supply chain of the affected
products. A proper implementation of the E-VAT, therefore, should cause
only the appropriate incremental increase in prices, reflecting the net
incremental effect of the tax, which is not necessarily 10%, but possibly less,
depending on the products involved.
The introduction of the mitigating or cushioning measures through the
Senate or through the Bicameral Conference Committee, is also being
questioned by petitioners as unconstitutional for violating the rule against
amendments after third reading and the rule that tax measures must
originate exclusively in the House of Representatives (Art. VI, Secs. 24 and
26 [2], Constitution). For my part, I would rather give the necessary leeway
to Congress, as long as the changes are germane to the bill being changed,
the bill which originated from the House of Representatives, and these are
so, since these were precisely the mitigating measures that go hand-on-
hand with the E-VAT, and are, therefore, essential — and hopefully sufficient
— means to enable our people to bear the sacrifices they are being asked to
make. Such an approach is in accordance with the Enrolled Bill Doctrine that
is the prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance ,
249 SCRA 628 [1994]). The exceptions I find are the provisions on corporate
income taxes, which are not germane to the E-VAT law, and are not found in
the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion
that the following are not germane to the E-VAT legislation:
Amended TAX
CODE ProvisionSubject Matter
Section 27Rate of income tax on domestic corporations
Section 28(A)(1)Rate of income tax on resident foreign
corporations
Section 28(B)(1)Rate of income tax on non-resident foreign
corporations
Section 28(B)(5-b)Rate of income tax on intercorporate
dividends received by non-resident foreign
corporations
Section 34(B)(1)Deduction from gross income
Similarly, I agree with Justice Artemio V. Panganiban in his separate
opinion that the following are not germane to the E-VAT law:
"Sections 1, 2, and 3 of the Republic Act No. 9337 . . . , in so far
as these sections (a) amend the rates of income tax on domestic,
resident foreign, and nonresident foreign corporations; (b) amend the
tax credit against taxes due from nonresident foreign corporations on
the intercorporate dividends; and (c) reduce the allowable deduction
from interest expense."
Respondents should, in any case, now be able to implement the E-VAT
law without confusion and thereby achieve its purpose. 4
I vote to GRANT the petitions to the extent of declaring unconstitutional
the provisions in Republic Act. No. 9337 that are not germane to the subject
matter and DENY said petitions as to the rest of the law, which are
constitutional. cDCSET
TINGA, J., dissenting and concurring opinion:
The E-VAT Law , 1 as it stands, will exterminate our country's

small to medium enterprises. This will be the net effect of affirming
Section 8 of the law, which amends Sections 110 of the National Internal
Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the
creditable input tax a VAT-registered person may apply every quarter and a
mandatory sixty (60)-month amortization period on the input tax on goods
purchased or imported in a calendar month if the acquisition cost of such
goods exceeds One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line
between damage and destruction is crossed, the courts must step
forth and cut the hangman's noose. Justice Holmes once confidently
asserted that "the power to tax is not the power to destroy while this Court
sits", and we should very well live up to this expectation not only of the
revered Holmes, but of the Filipino people who rely on this Court as the
guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest
respect for the prerogative of the legislature to impose taxes, and of the
national government to chart economic policy. Such respect impels me to
vote to deny the petitions in G.R. Nos. 168056, 168207, 168463, 2 and
168730, even as I acknowledge certain merit in the challenges against the E-
VAT law that are asserted in those petitions. In the final analysis, petitioners
therein are unable to convincingly demonstrate the constitutional infirmity of
the provisions they seek to assail. The only exception is Section 21 of the
law, which I consider unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and
would vote to grant it. Accordingly, I dissent and hold as unconstitutional
Section 8 of Republic Act No. 9337, insofar as it amends Section 110(A) and
(B) of the National Internal Revenue Code (NIRC) as well as Section 12 of the
same law, with respect to its amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos.
168056, 168207, 168463, and 168730, while the second part is devoted to
what I deem the most crucial issue before the Court, the petition in G.R. No.
168461.
I.
Undue Delegation and the Increase
Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-
VAT Law constitutes an undue delegation of legislative power. In
appreciating the aspect of undue delegation as regards taxation statutes,
the fundamental point remains that the power of taxation is inherently
legislative, 3 and may be imposed or revoked only by the legislature. 4 In
tandem with Section 1, Article VI of the Constitution which institutionalizes
the law-making power of Congress, Section 24 under the same Article
crystallizes this principle, as it provides that "[a]ll appropriation, revenue or
tariff bills . . . shall originate exclusively in the House of Representatives." 5
Consequently, neither the executive nor judicial branches of
government may originate tax measures. Even if the President desires to
levy new taxes, the imposition cannot be done by mere executive fiat. In
such an instance, the President would have to rely on Congress to enact tax
laws. aITDAE
Moreover, this plenary power of taxation cannot be delegated by

Congress to any other branch of government or private persons, unless its
delegation is authorized by the Constitution itself. 6 In this regard, the
situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR, 7 wherein I noted in my ponencia that the Tariff Commission
and the DTI Secretary may be regarded as agents of Congress for the
purpose of imposing safeguard measures. That pronouncement was made in
light of Section 28(2) Article VI, which allows Congress to delegate to the
President through law the power to impose tariffs and imposts, subject to
limitations and restrictions as may be ordained by Congress. In the case of
taxes, no such constitutional authorization exists, and the discretion to
ascertain the rates, subjects, and conditions of taxation may not be
delegated away by Congress.
However, as the majority correctly points out, the power to ascertain
the facts or conditions as the basis of the taking into effect of a law may be
delegated by Congress, 8 and that the details as to the enforcement and
administration of an exercise of taxing power may be delegated to executive
agencies, including the power to determine the existence of facts on which
its operation depends. 9
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law
warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby
SEC. 106. Value-Added Tax on Sale of Goods or
Properties. —
(A)Rate and Base of Tax. — There shall be levied, assessed
and collected on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to ten percent (10%) of
the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor; provided, that the President, upon
the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year
(ii) national government deficit as a percentage
of GDP of the previous year exceeds one and one-half
percent 1 1/2%).
Sec. 5. Section 107 of the same Code, as amended, is hereby
SEC. 107. Value-Added Tax on Importation of Goods.—
(a)In General.— There shall be levied, assessed and

collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods
from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%) after any of the
following conditions has been satisfied.
(i) national value-added tax collection as a

percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%)
or
(ii) government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1
1/2%).
SEC. 6. Section 108 of the same Code, as amended, is
hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services
and Use or Lease of Properties —
(A) Rate and Base of Tax. — There shall be
levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services; provided, that the
President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has
been satisfied.
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP
of the previous year exceed same and on-half percent (1 1/2%).
The petitioners deem as noxious the proviso common to these

provisions that "the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%)," after the satisfaction of the twin conditions that
value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%); or that the
national government deficit as a percentage of GDP of the previous year
exceed same and on-half percent (1 1/2%).
At first blush, it does seem that the assailed provisions are
constitutionally deficient. It is Congress, and not the President, which is
authorized to raise the rate of VAT from 10% to 12%, no matter the
circumstance. Yet a closer analysis of the proviso reveals that this is not
exactly the operative effect of the law. The qualifier "shall" denotes a
mandatory, rather than discretionary function on the part of the President to
raise the rate of VAT to 12% upon the existence of any of the two listed
conditions.
Since the President is not given any discretion in refusing to raise the
VAT rate to 12%, there is clearly no delegation of the legislative power to tax
by Congress to the executive branch. The use of the word "shall" obviates
any logical construction that would allow the President leeway in not raising
the tax rate. More so, it is accepted that the principle of constitutional
construction that every presumption should be indulged in favor of
constitutionality and the court in considering the validity of the 'statute in
question should give it such reasonable construction as can be reached to
bring it within the fundamental law. 10 While all reasonable doubts should be
resolved in favor, of the constitutionality of a statute, 11 it should necessarily
follow that the construction upheld should be one that is not itself noxious to
the Constitution.
Congress should be taken to task for imperfect draftsmanship at least.
Much trouble would have been avoided had the provisos instead read: "that
effective January 1, 2006, the rate of value-added tax shall be raised to
twelve percent (12%), after any of the following conditions has been
satisfied . . . ." This, after all is the operative effect of the provision as it
stands. In relation to the operation of the tax increase, the denominated role
of the President and the Secretary of Finance may be regarded as a
superfluity, as their imprimatur as a precondition to the increase of the VAT
rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the
Secretary of Finance have designated roles in the implementation of the tax
increase. Considering that it is Congress, and not these officials, which
properly have imposed the increase in the VAT rate, how should these roles
be construed?
The enactment of a law should be distinguished from its
implementation. Even if it is Congress which exercises the plenary power of
taxation, it is not the body that administers the implementation of the tax.
Under Section 2 of the National Internal Revenue Code (NIRC), the
assessment and collection of all national internal revenue taxes, and the
enforcement of all forefeitures, penalties and fines connected therewith had
been previously delegated to the Bureau of Internal Revenue, under the
supervision and control of the Department of Finance. 12
Moreover, as intimated earlier, Congress may delegate to other
components of the government the power to ascertain the facts or
conditions as the basis of the taking into effect of a law. It follows that
ascertainment of the existence of the two conditions precedent for the
increase as stated in the law could very well be delegated to the President or
the Secretary of Finance. 13
Nonetheless, the apprehensions arise that the process of
ascertainment of the listed conditions delegated to the Secretary of Finance
and the President effectively vest discretionary authority to raise the VAT
rate on the President, through the possible subterfuges that may be
employed to delay the determination, or even to manipulate the factual
premises. Assuming arguendo that these feared abuses may arise, I think it
possible to seek judicial enforcement of the increased VAT rate, even without
the participation or consent of the President or Secretary of Finance, upon
indubitable showing that any of the two listed conditions do exist. After all,
the Court is ruling that the increase in the VAT rate is mandatory and beyond
the discretion of the President to impose or delay.
The majority states that in making the recommendation to the
President on the existence of either of the two conditions, the Secretary of
Finance is acting as the agent of the legislative branch, to determine and
declare the event upon which its expressed will is to take effect. 14 This
recognition of agency must be qualified. I do not doubt the ability of
Congress to delegate to the Secretary of Finance administrative functions in
the implementation of tax laws, as it does under Section 2 of the NIRC. Yet it
would be impermissible for Congress to delegate to the Secretary of Finance
the plenary function of enacting a tax law. As stated earlier, the situation
stands different from that in Southern Cross wherein the Constitution itself
authorizes the delegation by Congress through a law to the President of the
discretion to impose tariff measures, subject to restrictions and limitations
provided in the law. 15 Herein, Congress cannot delegate to either the
President or the Secretary of Finance the discretion to raise the tax, as such
power belongs exclusively to the legislative branch of government. aAEIHC
Perhaps the term "agency" is not most suitable in describing the

delegation exercised by Congress in this case, for agency implies that the
agent takes on attributes of the principal by reason of representative
capacity. In this case, whatever "agency" that can be appreciated would be
of severely limited capacity, encompassing as it only could the
administration, not enactment, of the tax measure.
I do not doubt the impression left by the provisions that it is the
President, and not Congress, which is authorized to raise the VAT rate. On
paper at least, these imperfect provisions could be multiple sources of
mischief. On the political front, whatever blame or scorn that may be
attended with the increase of the VAT rate would fall on the President, and
not on Congress which actually increased the tax rate. On the legal front, a
President averse to increasing the VAT rate despite the existence of the two
listed conditions may take refuge in the infelicities of the provision, and
refuse to do so on the ground that the law, as written, implies some form of
discretion on the part of the President who was, after all, "authorized" to
increase the tax rate. It is critical for the Court to disabuse this notion right
now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously
divided the Court, pertains to the ability of the Bicameral Conference
Committee to introduce amendments to the final bill which were not
contained in the House bill from which the E-VAT Law originated. Most of the
points addressed by the petitioners have been settled in our ruling in
Tolentino v. Secretary of Finance , 16 yet a revisit of that precedent is urged
upon this Court. On this score, I offer my qualified concurrence with the
ponencia.
Two key provisions of the Constitution come into play: Sections 24 and
26(2), Article VI of the Constitution. They read:
Section 24:All appropriation, revenue or tariff bills, bills
private bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.
Section 26(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
Section 24 is also known as the origination clause, which derives origin

from British practice. From the assertion that the power to tax the public at
large must reside in the representatives of the people, the principle evolved
that money bills must originate in the House of Commons and may not be
amended by the House of Lords. 17 The principle was adopted across the
shores in the United States, and was famously described by James Madison
in The Federalist Papers as follows:
This power over the purse, may in fact be regarded as the most
compleat and effectual weapon with which any constitution can arm
the immediate representatives of the people, for obtaining a redress of
every grievance, and for carrying into effect every just and salutary
measure. 18
There is an eminent difference from the British system from which the
principle emerged, and from our own polity. To this day, only members of the
British House of Commons are directly elected by the people, with the
members of the House of Lords deriving their seats from hereditary peerage.
Even in the United States, members of the Senate were not directly elected
by the people, but chosen by state legislatures, until the adoption of the
Seventeenth Amendment in 1913. Hence, the rule assured the British and
American people that tax legislation arises with the consent of the sovereign
people, through their directly elected representatives. In our country though,
both members of the House and Senate are directly elected by the people,
hence the vitality of the original conception of the rule has somewhat lost
luster.
Still, the origination clause deserves obeisance in this jurisdiction,
simply because it is provided in the Constitution. At the same time, its
proper interpretation is settled precedent, as enunciated in Tolentino:
To begin with, it is not the law — but the revenue bill — which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. The possibility
of a third version by the conference committee will be discussed later.
At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute
— and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially be the
same as the House bill would be to deny the Senate's power not only
to "concur with amendments" but also to " propose amendments." It
would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
19
The vested power of the Senate to "concur with amendments"

necessarily implies the ability to implement transformations from the original
House bill into the final law. Since the House and Senate sit separately in
sessions, the only opportunity for the Senate to introduce its amendments
would be in the Bicameral Conference Committee, which emerges only after
both the House and the Senate have approved their respective bills. IDSaTE
In the present petitions, Tolentino comes under fire on two fronts. The
first controversy arises from the adoption in Tolentino of American legislative
practices relating to bicameral committees despite the difference in
constitutional frameworks, particularly the limitation under Section 26(2),
Article VI which does not exist in the American Constitution.
The majority points out that "the 'no amendment rule' refers only to
the procedure to be followed by each house of Congress with regard to bills
initiated in each of said respective houses, before said bill is transmitted to
the other house for its concurrence or amendment." I agree with this
statement. Clearly, the procedure under Section 26(2), Article VI only relates
to the passage of a bill before the House and Senate, and not the process
undertaken afterwards in the Bicameral Conference Committee.
Indeed, Sections 26 and 27 of Article VI, which detail the procedure
how a bill becomes a law, are silent as to what occurs between the passage
by both Houses of their respective bills, and the presentation to the
President of "every bill passed by the Congress". 20 Evidently, "Congress"
means both Houses, such that a bill approved by the Senate but not by the
House is not presented to the President for approval. There is obviously a
need for joint concurrence by the House and Senate of a bill before it is
transmitted to the President, but the Constitution does not provide how such
concurrence is acquired. This lacuna has to be filled, otherwise no bill may
be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally
organized body, it has existed as the necessary conclave for both chambers
of Congress to reconcile their respective versions of a prospective law. The
members of the Bicameral Conference Committee may possess in them the
capacity to represent their particular chamber, yet the collective is neither
the House nor the Senate. Hence, the procedure contained in Section 26(2),
Article VI cannot apply to the Bicameral Conference Committee.
Tellingly, the version approved by the Bicameral Conference
Committee still undergoes deliberation and approval by both Houses. Only
one vote is taken to approve the reconciled bill, just as only one vote is
taken in order to approve the original bill. Certainly, it could not be
contended that this final version surreptitiously evades approval of either the
House or Senate.
The second front concerns the scope and limitations of the Bicameral
Conference Committee to amend, delete, or otherwise modify the bills as
approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that
the version as approved by the Bicameral Conference Committee need only
be germane to the subject of the House and Senate bills in order to be valid.
21 The majority, in applying the test of germaneness, upholds the contested
provisions of the E-VAT Law. Even the members of the Court who prepared to
strike down provisions of the law applying germaneness nonetheless accept
the basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference
Committee that is not germane to the subject matter of the House or Senate
Bills is not valid. It is the only valid ground by which an amendment
introduced by the Bicameral Conference Committee may be judicially
stricken.
The germaneness standard which should guide Congress or the
Bicameral Conference Committee should be appreciated in its normal but
total sense. In that regard, my views contrast with that of Justice
Panganiban, who asserts that provisions that are not "legally germane"
should be stricken down. The legal notion of germaneness is just but
one component, along with other factors such as economics and
politics, which guides the Bicameral Conference Committee, or the
legislature for that matter, in the enactment of laws . After all, factors
such as economics or politics are expected to cast a pervasive influence on
the legislative process in the first place, and it is essential as well to allow
such "non-legal" elements to be considered in ascertaining whether
Congress has complied with the criteria of germaneness.
Congress is a political body, and its rationale for legislating
may be guided by factors other than established legal standards. I
deem it unduly restrictive on the plenary powers of Congress to
legislate, to coerce the body to adhere to judge-made standards,
such as a standard of "legal germaneness". The Constitution is the
only legal standard that Congress is required to abide by in its
enactment of laws.
Following these views, I cannot agree with the position maintained by
the Chief Justice, Justices Panganiban and Azcuna that the provisions of the
law that do not pertain to VAT should be stricken as unconstitutional. These
would include, for example, the provisions raising corporate income taxes.
The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions relating
to the VAT, but the entire revenue generating mechanism in place. If, for
example, amendments to non-VAT related provisions of the NIRC were
intended to offset the expanded coverage for the VAT, then such
amendments are germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the
House Bill is solely the VAT system, rather than the generation of revenue.
The majority sufficiently demonstrate that the legislative intent behind the
bills that led to the E-VAT Law was the generation of revenue to counter the
country's dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or
that most of its provisions pertain to the VAT, or indirect taxes, does not
mean that any and all amendments which are introduced by the Bicameral
Conference Committee must pertain to the VAT system. As the Court noted
in Tatad v. Secretary of Energy: 22
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff
differential violates the provision 17 of the Constitution requiring every
law to have only one subject which should be expressed in its title. We
do not concur with this contention. As a policy, this Court has
adopted a liberal construction of the one title — one subject
rule. We have consistently ruled that the title need not mirror,
fully index or catalogue all contents and minute details of a
law. A law having a single general subject indicated in the title
may contain any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent with or
foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and
means of carrying out the general subject. We hold that section
5(b) providing for tariff differential is germane to the subject of R.A. No.
8180 which is the deregulation of the downstream oil industry. The
section is supposed to sway prospective investors to put up refineries
in our country and make them rely less on imported petroleum. 23
I submit that if the amendments are attuned to the goal of revenue

generation, the stated purpose of the original House Bills, then the test of
germaneness is satisfied. It might seem that the goal of revenue generation,
which is stated in virtually all tax or tariff bills, is too encompassing in scope
so as to justify the inclusion by the Bicameral Conference Committee of just
about any revenue generation measure. This may be so, but it does not
mean that the test of germaneness would be rendered inutile when it comes
to revenue laws.
I do believe that the test of germaneness was violated by the E-VAT
Law in one regard. Section 21 of the law, which was not contained in either
the House or Senate Bills, imposes restrictions on the use by local
government units of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue generation, or the
purposes of restructuring the VAT system. I could not see how the provision,
which relates to budgetary allocations, is germane to the E-VAT Law. Since it
was introduced only in the Bicameral Conference Committee, the test of
germaneness is essential, and the provision does not pass muster. I join
Justice Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional. TEcADS
I also offer this brief comment regarding the deletion of the so-called
"no pass on" provisions, which several of my colleagues deem
unconstitutional. Both the House and Senate Bills contained these provisions
that would prohibit the seller/producer from passing on the cost of the VAT
payments to the consumers. However, an examination of the said bills reveal
that the "no pass on" provisions in the House Bill affects a different subject
of taxation from that of the Senate Bill. In the House Bill No. 3705, the
taxpayers who are prohibited from passing on the VAT payments are the
sellers of petroleum products and electricity/power generation companies. In
Senate Bill No. 1950, no prohibition was adopted as to sellers of petroleum
products, but enjoined therein are electricity/power generation companies
but also transmission and distribution companies.
I consider such deletions as valid, for the same reason that I deem the
amendments valid. The deletion of the two disparate "no pass on" provisions
which were approved by the House in one instance, and only by the Senate
in the other, remains in the sphere of compromise that ultimately guides the
approval of the final version. Again, I point out that even while the two
provisions may have been originally approved by the House and Senate
respectively, their subsequent deletion by the Bicameral Conference
Committee is still subject to approval by both chambers of Congress when
the final version is submitted for deliberation and voting.
Moreover, the fact that the nature of the "no pass on" provisions
adopted by the House essentially differs from that of the Senate necessarily
required the corrective relief from the Bicameral Conference Committee. The
Committee could have either insisted on the House version, the Senate
version, or both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion altogether of
the "no pass on" provisions existed as a tangible solution to the possible
impasse, and the Committee should be accorded leeway to implement such
a compromise, especially considering that the deletion would have remained
germane to the law, and would not be constitutionally prohibited since the
prohibition on amendments under Section 26(2), Article VI does not apply to
the Committee.
An outright declaration that the deletion of the two elementally
different "no-pass on" provisions is unconstitutional, is of dubious efficacy in
this case. Had such pronouncement gained endorsement of a majority of the
Court, it could not result in the ipso facto restoration of the provision, the
omission of which was ultimately approved in both the House and Senate.
Moreover, since the House version of the "no pass on" is quite different from
that of the Senate, there would be a question as to whether the House
version, the Senate version, or both versions would be reinstated. And of
course, if it were the Court which would be called upon to choose, such
would be way beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a
provision that failed to meet legislative approval would result in a blatant
violation of the principle of separation of powers, with the Court effectively
dictating to Congress the content of its legislation. The Court cannot simply
decree to Congress what laws or provisions to enact, but is limited to
reviewing those enactments which are actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted
in nothing more than constitutional interpretation. Perhaps my preceding
discussion may lead to an impression that I whole-heartedly welcome the
passage of the E-VAT Law. Yet whatever relief I may have over the
enactment of a law designed to relieve our country's financial woes are sadly
obviated with the realization that a key amendment introduced in the law is
not only unconstitutional, but of fatal consequences. The clarion call of
judicial review is most critical when it stands as the sole barrier against the
deprivation of life, liberty and property without due process of law. It
becomes even more impelling now as we are faced with provisions of the E-
VAT Law which, though in bland disguise, would operate as the most
destructive of tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due
process clause of the Bill of Rights. This task is at the heart not only of
judicial review, but of the democratic system, for the fundamental
guarantees in the Bill of Rights become merely hortatory if their judicial
enforcement is unavailing. Even if the void law in question is a tax statute, or
one that encompasses national economic policy, the courts should not shirk
from striking it down notwithstanding any notion of deference to the
executive or legislative branch on questions of policy. Neither Congress nor
the President has the right to enact or enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by
which the validity of a tax law can be measured. Nonetheless, it stands as
the most unyielding of constitutional standards, given its position of primacy
in the fundamental law way above the articles on governmental power. 24 If
the question lodged, for example, hinges on the proper exercise of
legislative powers in the enactment of the tax law, leeway can be
appreciated in favor of affirming the legislature's inherent power to levy
taxes. On the other hand, no quarter can be ceded, no concession yielded,
on the people's fundamental rights as enshrined in the Bill of Rights, even if
the sacrifice is ostensibly made "in the national interest." It is my
understanding that "the national interests," however comported, always
subsumes in the first place recognition and enforcement of the Bill of Rights,
which manifests where we stand as a democratic society.
The constitutional safeguard of due process is embodied in the fiat "No
person shall be deprived of life, liberty or property without due process of
l a w " . 25 The purpose of the guaranty is to prevent governmental
encroachment against the life, liberty and property of individuals; to secure
the individual from the arbitrary exercise of the powers of the government,
unrestrained by the established principles of private rights and distributive
justice; to protect property from confiscation by legislative enactments, from
seizure, forfeiture, and destruction without a trial and conviction by the
ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law. 26
In Magnano Co. v. Hamilton, 27 the U.S. Supreme Court recognized that
the due process clause may be utilized to strike down a taxation statute, "if
the act be so arbitrary as to compel the conclusion that it does not involve
an exertion of the taxing power, but constitutes, in substance and effect, the
direct exertion of a different and forbidden power, as, for example, the
confiscation of property." 28 Locally, Sison v. Ancheta 29 has long provided
sanctuary for persons assailing the constitutionality of taxing statutes. The
oft-quoted pronouncement of Justice Fernando follows:
2. The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of all the
powers of government." It is, of course, to be admitted that for all
its plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely
affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as
petitioner does, to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1803 dictum
of Chief Justice Marshall that "the power to tax involves the power to
destroy." In a separate opinion in Graves v. New York, Justice
Frankfurter, after referring to it as an "unfortunate remark,"
characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times [allowing] a free use of absolutes." This
is merely to emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmes's pen: 'The power to tax is
not the power to destroy while this Court sits.'" So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution
as the fundamental law overrides any legislative or executive
act that runs counter to it. In any case therefore where it can
be demonstrated that the challenged statutory provision — as
petitioner here alleges — fails to abide by its command, then
this Court must so declared and adjudge it null. The inquiry thus
is centered on the question of whether the imposition of a higher tax
rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not suffice.
There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as
void 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.
5. It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can
be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for
the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is subject
to attack on due process grounds. 30
Sison pronounces more concretely how a tax statute may contravene

the due process clause. Arbitrariness, confiscation, overstepping the state's
jurisdiction, and lack of a public purpose are all grounds for nullity
encompassed under the due process invocation.
Yet even these more particular standards as enunciated in Sison are
quite exacting, and difficult to reach. Even the constitutional challenge posed
in Sison failed to pass muster. The ponencia cites Sison in asserting that due
process and equal protection are broad standards which need proof of such
persuasive character to lead to such a conclusion. DEICTS
It is difficult though to put into quantifiable terms how onerous a

taxation statute must be before it contravenes the due process clause. 31
After all, the inherent nature of taxation is to cause pain and injury to the
taxpayer, albeit for the greater good of society. Perhaps whatever collective
notion there may be of what constitutes an arbitrary, confiscatory, and
unreasonable tax might draw more from the fairy tale/legend traditions of
absolute monarchs and the oppressed peasants they tax. Indeed, it is easier
to jump to the conclusion that a tax is oppressive and unfair if it is imposed
by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be
enacted by a democratic state such as ours? Of course it could, but these
would exist in more palatable guises. In a democratic society wherein
statutes are enacted by a representative legislature only after debate and
deliberation, tax statutes will most likely, on their face, seem fair and even-
handed. After all, if Congress passes a tax law that on facial examination is
obviously harsh and unfair, it faces the wrath of the voting public, to say
nothing of the media.
In testing the validity of a tax statute as against the due process
clause, I think that the Court should go beyond a facial examination of the
statute, and seek to understand how exactly it would operate. The express
terms of a statute, especially tax laws, are usually inadequate in spelling out
the practical effects of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax
laws has increased with the growing complexities of business, economic and
accounting practices. These are sciences which laymen are not normally
equipped by their general education to fully grasp, hence the possible
insecurity on their part when confronted with these questions on these
fields.
However, we should not cede ground to those transgressions of the
people's fundamental rights simply because the mechanism employed to
violate constitutional guarantees is steeped in disciplines not normally
associated with the legal profession. Venality cannot be allowed to triumph
simply due to its sophistication. This petition imputes in the E-VAT Law
unconstitutional oppression of the fatal variety, but in order to comprehend
exactly how and why that is so, one has to delve into the complex milieu of
the VAT system. The party alleging the law's unconstitutionality of course
has the burden to demonstrate the violations in understandable terms, but if
such proof is presented, the Court's duty is to engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact
that it has yet to be implemented, or the fear that doing so constitutes an
undue attack on the wisdom, rather than the legality of a statute. However,
my position in this petition has been challenged on those grounds, and I see
it fit to refute these preemptive allegations before delving into the operative
aspect of the E-VAT Law.
If there is cause to characterize my arguments as speculative,
it is only because the E-VAT Law has yet to be implemented . No
person as of yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet this should
not mean that the Court is impotent from declaring a provision of law as
violative of the due process clause if it is clear that its implementation will
cause the illegal deprivation of life, liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical
certainty, and the extent of the loss quantifiable through easy reference to
the most basic of business practices.
These arguments are conjectural for the same reason that the
bare statement "firing a gunshot into the head will cause a fatal
wound" would be conjectural. Some people are lucky enough to survive
gunshot wounds to the head, while many others are not. Yet just because the
fear of mortality would be merely speculative, it does not mean that there
should be less compulsion to avoid a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective
actions, even if the injury has not yet even occurred. One of the most
significant legal principles of the last century, the "clear and
present danger" doctrine in free speech cases, in fact emanates
from the prospectivity, and not the actuality of danger. The Court has
not been hesitant to nullify acts which might cause injury, owing to the
presence of a clear and present danger of a substantive evil which the State
has the right to prevent. It has even extended the "clear and present danger
rule" beyond the confines of freedom of expression to the realm of freedom
of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor. 32
Justice Teodoro Padilla goes further in his concurring opinion in Basco
v. PAGCOR , and asserts that the clear and present danger test squarely
applies to the due process clause: "The courts, as the decision states,
cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which
fall within their authority, except only when such policies pose a
clear and present danger to the life, liberty or property of the
individual."
I see no reason why the clear and present danger test cannot
apply in this case, or any case wherein a taxing statute poses a
clear and present danger to the life, liberty or property of the
individual. The application of this standard frees the Court from
inutility in the face of patently unconstitutional tax laws that have
been enacted but are yet to be fully operational.
If for example, Congress deems it wise to impose the most draconian of
tax measures — such as trebling the income taxes of all persons over 40,
raising the gross sales tax rate to 50%, or penalizing delinquent taxpayers
with 50 lashes of the whip — there certainly would be a massive public
outcry, and an expectation that the Court would immediately nullify the
offensive measures even before they are actually imposed. Applying the
clear and present danger test, the Court is empowered to strike down the
noxious measures even before they are implemented. Yet with this "bar on
speculativeness" as argued by the majority, the Court could easily refuse to
pay heed to the prayers for injunctive relief, and instead demand that the
taxing subjects must first suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom,
rather than the constitutionality of the law are misplaced. Concededly, the
assailed provisions of the E-VAT law are basically unwise. But any provision
of law that directly contradicts the Constitution, especially the Bill of Rights,
are similarly unwise, as they run inconsistent with the fundamental law of
the land, the enunciated state policies and the elemental guarantees
assured by the State to its people. Not every unwise law is
unconstitutional, but every unconstitutional law is unwise, for an
unconstitutional law contravenes a primordial principle or
guarantee on which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the
Constitution, especially the due process clause, then the Court should
accordingly act and nullify. Such is the essence of judicial review, which
stands as the sole barrier between the implementation of an
unconstitutional law.
T h e Separate Opinionof Justice Panganiban notes that "[t]he Court
cannot step beyond the confines of its constitutional power, if there is
absolutely no clear showing of grave abuse of discretion in the enactment of
the law" 33 . This, I feel, is an unduly narrow view of judicial review, implying
that such merely encompasses the procedural aspect by which a law is
enacted. If the policy of the law, and/or the means by which such policy is
implemented run counter to the Constitution, then the Court is empowered
to strike down the law, even if the legislative and executive branches act
within their discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap imposes
an unequal effect on different types of businesses with varying profit
margins and capital requirements, then the remedy would be an amendment
of the law. 34 Of course, the remedy of legislative amendment applies to
even the most unconstitutional of laws. But if our society can take cold
comfort in the ability of the legislature to amend its enactments as the
defense against unconstitutional laws, what remains then as the function of
judicial review? This legislative capacity to amend unconstitutional laws runs
concurrently with the judicial capacity to strike down unconstitutional laws.
In fact, the long-standing tradition has been reliance on the judicial branch,
and not the legislative branch, for salvation from unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban
ultimately proceeds from the premise that the assailed provisions of the E-
VAT Law may be merely unwise, but not unconstitutional. Hence, its
preference to rely on Congress to amend the offending provisions rather
than judicial nullification. But I maintain that the assailed provisions of the E-
VAT Law violate the due process clause of the Constitution and must be
stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the
due process clause, it is essential to understand the nature of the value-
added tax itself. Filipino consumers may comprehend VAT at its elemental
form, having been accustomed for several years now in paying an extra 10%
of the listed selling price for a wide class of consumer goods. From the
perspective of the end consumer, such as the patron who purchases a meal
from a fastfood restaurant, VAT is simply a tax on transactions involving the
sale of goods. The tax is shouldered by the buyer, and is based on a
percentage of the purchase price. Since an excise or percentage tax shares
the same characteristics, there could be some confusion as between such
taxes and the VAT.
However, VAT is distinguishable from the standard excise or
percentage taxes in that it is imposable not only on the final transaction
involving the end user, but on previous stages as well so long as there was a
sale involved. Thus, VAT does not simply pertain to the extra percentage
paid by the buyer of a fast-food meal, but also that paid by restaurant itself
to its suppliers of raw food products. This multi-stage system is more
acclimated to the vagaries of the modern industrial climate, which has long
surpassed the stage when there was only one level of transfer between the
farmer who harvests the crop and the person who eats the crop. Indeed,
from the extraction or production of the raw material to its final consumption
by a user, several transactions or sales materialize. The VAT system assures
that the government shall reap income for every transaction that is had, and
not just on the final sale or transfer.
The European Union, which has long required its member states to
apply the VAT system, provided the following definition of the tax which I
deem clear and comprehensive:
The principle of the common system of value added tax involves
the application to goods and services of a general tax on consumption
exactly proportional to the price of the goods and services,
whatever the number of transactions that take place in the
production and distribution process before the stage at which tax
is charged.
On each transaction, value added tax, calculated on the price of
the goods or services at the rate applicable to such goods or services,
shall be chargeable after deduction of the amount of value
added tax borne directly by the various cost components. 35
The above definition alludes to a key characteristic of the VAT system,

that the imposable tax remains proportional to the price of goods and
services no matter the number of transactions that takes place.
There is another key characteristic of the VAT — that no matter how
many the taxable transactions that precede the final purchase or sale, it is
the end-user, or the consumer, that ultimately shoulders the tax. Despite its
name, VAT is generally not intended to be a tax on value added, but rather
as a tax on consumption. Hence, there is a mechanism in the VAT system
that enables firms to offset the tax they have paid on their own purchases of
goods and services against the tax they charge on their sales of goods and
services. 36 Section 105 of the NIRC assures that "the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services." The assailed provisions of the E-VAT law strike at the
heart of this accepted principle.
And there is one final basic element of the VAT system integral to this
disquisition: the mode by which the tax is remitted to the government. In
simple theory, the VAT payable can be remitted to the government
immediately upon the occurrence of the transaction, but such a demand
proves excessively unwieldy. The number of VAT covered transactions a
modern enterprise may contract in a single day, plus the recognized
principle that it is the final end user who ultimately shoulders the tax; render
the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the
government but to the seller, who then collates the VAT received and remits
it to the government every quarter. The process may seem simple if cast in
this manner, but there is a wrinkle, due to the offsetting mechanism
designed to ultimately make the end consumer bear the cost of the VAT.
The Concepts of Input and
Output VAT
This mechanism is employed through the introduction of two concepts,
the input tax and the output tax. Section 110(A) of the National Internal
Revenue Code defines the input tax as the VAT due from or paid by a VAT-
registered person on the importation of goods or local purchase of goods
and services in the course of trade or business, from a VAT registered
person.
Let us put this in operational terms. A VAT registered person, engaged
in an enterprise, necessarily purchases goods such as raw materials and
machinery in order to produce consumer goods. The purchase of such raw
materials and machineries is subject to VAT, hence the enterprise pays an
additional 10% of the purchase price to the supplier as VAT. This extra
amount paid by the enterprise constitutes its input VAT. The enterprise
likewise pays input VAT when it purchases services covered by the tax, or
rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by
the end consumer, the VAT system allows for a mechanism by which the
business is able to recover the input VAT that it paid. This comes into play
when the business, having transformed the raw materials into consumer
goods, sells these goods to the public. As widely known, the consumer pays
to the business an additional amount of 10% of the purchase price as VAT.
As to the business, this VAT payments it collects from the consumer
represents output VAT, which is formally described under Section 110(A) of
the NIRC as "the value-added tax due on the sale or lease of taxable goods
or properties or services by" by any VAT-registered person.
The output VAT collected by the business from the consumers
accumulates, until the end of every quarter, when the enterprise is obliged
to remit the collected output VAT to the government. This is where the
crediting mechanism comes into play. Since the business is entitled to
recover the prepaid input VAT, it does so in every quarter by applying the
amount of prepaid input VAT against the collected output VAT which is to be
remitted. If the output VAT collected exceeds the prepaid input VAT, then the
amount of input VAT is deducted from the output VAT, and it is entitled to
remit only the remainder as output VAT to the government. To illustrate, if
Business X collects P1,000,000.00 as output VAT and incurs P500,000.00 as
input VAT, the P500,000.00 is deducted from the P1,000,000.00 output VAT,
and X is required to remit only P500,000.00 of the output VAT it collected
from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT
collected, then the business need not remit any amount as output VAT for
the quarter. Moreover, the difference between the input VAT and the output
VAT may be credited as input VAT by the business in the succeeding quarter.
Thus, if in the First Quarter of a year, Business X prepays P1,000,000.00 as
input VAT, and collects only P500,000.00 as output VAT, it need not remit
any amount of output VAT to the government. Moreover, in the Second
Quarter, Business X can credit the remaining P500,000.00 as part of its input
VAT for that quarter. Hence, if in the Second Quarter, X actually prepays
P400,000.00 as input VAT, and collects P500,000.00 as output VAT, it may
add the P500,000.00 input VAT from the previous quarter to the P400,000.00
prepaid in the current quarter, bringing the total input VAT it could claim to
P900,000.00. Since the input VAT of P900,000.00 now exceeds the output
VAT collected of P500,000, then X need not remit any output VAT as well to
the government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The
VAT collected and remitted is not the most relevant statistic evaluated by
the business. The figure of primary concern of the enterprise would be the
profit margin, which is simply the excess of revenue less expenditures.
Revenue is derived from the gross sales of the business. Expenditures
encompass all expenses incurred by the business including overhead
expenses, wages and purchases of capital goods. Crucially, expenditures
would include the input VAT prepaid by the business on its capital
expenditures.
Since a significant amount of the capital outlay incurred by a business
is subjected to the prepayment of input taxes, the necessity of recovering
these losses through the output VAT collected becomes more impelling.
These output taxes are obviously proportional to the volume of gross sales —
the higher the gross sales, the higher the output VAT collected. The output
taxes collected on sales answer for not only those input taxes paid
on the purchase of the raw materials, but also for the input taxes
paid on the multifarious overhead expenses covered by VAT . The
burden carried by the sales volume on the stability, if not survival of the
business thus just became more crucial. The maintenance of the proper
equilibrium is not an easy matter. Increasing the selling price of the goods
sold does not necessarily increase the gross sales, as it could have the
counter-effect of repelling the consumer and diminishing the number of
goods sold. At the same time, keeping the selling price low may increase the
volume of goods sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises,
usually small if any. It is quite common for retail and distribution enterprises
to incur profits of less than 1% of their gross revenues. Low profitability is
not an automatic badge of poor business skills, but a reality dictated by the
laws of the marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up with a
higher input tax than output tax in a given quarter. This would be especially
true for small to medium enterprises who do not reap sufficient profits from
its business in the first place, and for those firms that opt to also invest in
capital expenses in addition to the overhead. Whatever miniscule profit
margins that can be obtained usually spell the difference between life and
death of the business.
The possibility of profit is further diminished by the fact that
businesses have to shoulder the input VAT in the purchase of their capital
expenses. Yet the erstwhile VAT system was not tainted by the label
of oppressiveness and neither did it bear the confiscatory mode.
This was because of the immediate relief afforded from the input
taxes paid by the crediting system. In theory, VAT is not supposed
to affect the profit margin. If such margin is affected, it is only
because of the prepayment of the input taxes, and this should be
remedied by the immediate recovery through the crediting system
of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the
survival of small to medium enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable
input system — the 70% cap on the creditable input tax that may be carried
over into the next quarter — is provided in Section 8 of the law, which
amends Section 110(A) of the NIRC, among others. Section 110(A) as
amended would now read:
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax . — If at the end of any
taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person.
If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters.
Provided, That the input tax inclusive of input
VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT :
Provided, however, That any input tax attributable to
zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112.
(emphasis supplied)
All hope for entrepreneurial stability is dashed with the imposition of

the 70% cap. Under the E-VAT Law, the business, regardless of stability or
financial capability, is obliged to remit to the government every quarter at
least 30% of the output VAT collected from customers, or roughly 3% of the
amount of gross sales. Thus, if a quarterly gross sales of Y Business totaled
P1,000,000, and Y is prudent enough to keep its capital expenses down to
P980,000, it would then appear on paper that Y incurred a profit of P20,000.
However, with the 70% cap, Y would be obliged to remit to the government
P30,000, thus wiping out the profit margin for the quarter. Y would be
entitled to credit the excess input VAT it prepaid for the next quarter, but the
continuous operation of the 70% cap obviates whatever benefits this may
give, and cause the accumulation of the unutilized creditable input VAT
which should be returned to the business.
The difference is even more dramatic if seen how the unutilized
creditable input VAT accumulates over a one year period. To illustrate,
Business Y prepays the following amounts of input VAT over a one-year
period: P100,000.00 — First Quarter; P100,000.00 — 2nd Quarter;
P34,000.00 — 3rd Quarter; and P50,000.00 — 4th Quarter. On the other
hand, Y collects the following amounts of output VAT from consumers:
P60,000.00 — First Quarter; P60,000.00 — 2nd Quarter; P100,000.00 — 3rd
Quarter; and P50,000.00 — 4th Quarter. Applying the 70% cap, which would
limit the amount of the declarable input VAT to 70% in a quarter, the
following results obtain, as presented in tabular form:
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000

Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry Over +58,000 +116,000 +80,000
[excess [excess [excess
creditable] creditable] creditable]
100,000 158,000 150,000 130,000
Declarable (60,000x70%) (60,000x70%) (100,000x70%) (50,000x70%)
Input VAT
(70% of
output VAT) 42,000 42,000 70,000 35,000
Lower of (60,000 – (60,000 – (100,000 – (50,000 –

actual and 42,000) 42,000) 70,000) 35,000)
70% cap –
allowable
VAT Payable 18,000 18,000 30,000 15,000
Creditable (100,000 – (158,000 – (150,000 – (130,000 –

Input VAT 42,000) 42,000) 70,000) 35,000)
58,000 116,000 80,000 95,000
This stands in contrast to same business VAT accountability under the

present system, using the same variables of output VAT and input VAT. The
need to distinguish a declarable input VAT is obviated with the elimination of
the 70% cap.
Particulars 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Output VAT 60,000 60,000 100,000 50,000

Input VAT 100,000 34,000 50,000
(Actual) + [input] [input] [input]
Carry Over +40,000 +80,000 +14,000
[excess [excess [excess
creditable] creditable] creditable]
100,000 140,000 114,000 50,000
VAT Payable 0 0 0 0
Creditable
Input VAT 40,000 80,000 14,000 14,000
The difference is dramatic, as is the impact on the business's profit
margin and available cash on hand. Under normal conditions, small to
medium enterprises are already encumbered with the likelihood of obtaining
only a minimal profit margin. Without the 70% cap, those businesses would
nonetheless be able to expect an immediate return on its input taxes earlier
advanced, taxes which under the VAT system it is not supposed to shoulder
in the first place. However, with the 70% cap in place, the unutilized input
taxes would continue to accumulate, and the enterprise precluded from
immediate recovery thereof. The inability to utilize these input taxes,
which could spell the difference between profit and loss, solvency
and insolvency, will eventually impair, if not kill off the enterprise.
The majority fails to consider one of the most important concepts in
finance, time value for money. 37 Simply put, the value of one peso is worth
more today than in 2006. Money that you hold today is worth more because
you can invest it and earn interest. 38 By reason of the 70% cap, the amount
of input VAT credit that remains unutilized would continue accumulate for
months and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time
value of money. Even assuming that the business eventually recovers the
input VAT credit, the sum recovered would have decreased in practical
value.
It would be sad, but fair, if a business ceases because of its
inability to compete with other businesses. It would be utter
malevolence to condemn an enterprise to death solely through the
employment of a deceptive accounting wizardry. For the raison
d'etre of this 70% cap is to make it appear on paper that the
government is more solvent than it actually is. Conceding for the
nonce, there is a temporary advantage gained by the government by this
70% cap, as the steady remittance by businesses of the 30% output VAT
would assure a cash flow. Such collection may only momentarily resolve an
endemic problem in our local tax system, the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection,
then I submit that the means employed stand beyond reason. If sheer will
proves insufficient in assuring that the State all taxes due it, there should be
allowable discretion for the government to formulate creative means to
enhance collection. But to do so by depriving low profit enterprises of
whatever meager income earned and consequently assuring the death of
these industries goes beyond any valid state purpose.
Only stable businesses with substantial cash flows, or extraordinarily
successful enterprises will be able to remain in operation should the 70% cap
be retained. The effect of the 70% cap is to effectively impose a tax
amounting to 3% of gross revenue. The amount may seem insignificant to
those without working knowledge of the ways of business, but anybody who
is actually familiar with business would be well aware the profit margins of
the retailing and distribution sectors typically amount to less than 1% of the
gross revenues. A taxpayer has to earn a margin of at least 3% on gross
revenue in order to recoup the losses sustained due to the 70% cap. But as
stated earlier, profits are chancy, and the entrepreneur does not have full
control of the conditions that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already
is to the business establishment, even limits the options of the business to
recover the unutilized input VAT credit. During the deliberations, the
argument was raised that the problem presented by the 70% cap was a
business problem, which can only be solved by business. Yet there is only
one viable option for the enterprise to resolve the problem, and that is to
increase the selling price of goods. 39 It would be incorrect to assume that
increase the volume of the goods sold could solve the problem, since for
items with the same purchasing cost, the effect of the 70% cap remains
constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the
retailer to the end consumer. Since VAT is a transaction tax, every level of
distribution becomes subject not only to the VAT, but also to the 70% cap.
The problem increases due to a cascading effect as the number of
distribution levels increases since it will result in the collection of an
effective 3% percentage tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it
violates the due process clause, we should not focus solely on the end
consumers. Undoubtedly, consumers will face hardships due to the increased
prices, but their threshold of physical survival, as individual people, is
significantly less than that of enterprises. Somehow, I do not think the new
E-VAT would generally deprive consumers of the bare necessities such as
food, water, shelter and clothing. There may be significant deprivation of
comfort as a result, but not of life.
The same does not hold true for businesses. The standard of
"deprivation of life" of juridical persons employs different variables than that
of natural persons. What food and water may be for persons, profit is for an
enterprise — the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month
amortization period, would mean the deprivation of profit, which is the
determinative necessity for the survival of a business.
It is easy to admonish both the consumer and the enterprise to cut
back on expenditures to survive the new E-VAT Law. However, this can be
realistically expected only of the consumer. The small/medium enterprise
cannot just cut back easily on expenditures in order to survive the
implementation of the E-VAT Law. For such businesses, expenditures do not
normally contemplate unnecessary expenses such as executive perks which
can be dispensed with without injury to the enterprises. These expenditures
pertain to expenses necessary for the survival of the enterprise, such as
wages, overhead and purchase of raw materials. Those three basic items of
expenditure cannot simply be reduced, as to do so with impair the ability of
the business to operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these
impositions under the E-VAT Law, as there must also be a corresponding
increase in the amount of gross sales. To do so though, would require an
increase in the selling price, dampening consumer enthusiasm, and further
impairing the ability of the enterprise to recover from the E-VAT Law. This is
your basic Catch-22 40 situation — no matter which means the enterprise
employs to recover from the E-VAT Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in
application, fails to appreciate valid substantial distinctions between large
scale enterprises and small and medium enterprises. The latter group, owing
to the limited capability for capital investment, subsists on modest profit
margins, whereas the former expects, by reason of its substantial capital
investments, a high margin. In essentially prohibiting the recovery of
small profit margins, the E-VAT law effectively sends the message
that only high margin businesses are welcome to do business in the
Philippines. It stifles any entrepreneurial ambitions of Filipinos
unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.
Pilipinas Shell Dealers, on whom the burden to establish the violation
of due process and equal protection lies, offers the following chart of the
income statement of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT
DEALER "A"
VAT VAT
Price (without (with
70% cap) 70% cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40

Cost of Sales 31,834,717 3,183,471.70
Gross Margin 913,817
Operating
Expenses
Non-vatable
items 536,249
Vatable Items 317,584 31,758.40
Total Cost 853,833
Net Profit 59,984
Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02
Unutilized Input VAT922,832.72
* computed by multiplying output VAT by 70% [3,274,853.40 x 70% =
2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with
my own observations on the impact of the 70% cap. The dealer whose
income is illustrated above has to outlay a cash amount of P922,832.72
more than what would have been shelled out if the 70% cap were not in
place. Considering that the net profit of the dealer is only P59,984.00, the
consequences could very well be fatal, especially if these state of events
persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers' to prove their
allegations, and accordingly, these figures have been duly presented to the
Court for appreciation and evaluation. Instead, the majority has shunted
aside these presentations as being merely theoretical, despite the fact that
they present a clear and present danger to the very life of our nation's
enterprises. The majority's position would have been more credible had it
faced the issue squarely, and endeavored to demonstrate in like numerical
fashion why the 70% cap is not oppressive, confiscatory, or otherwise
violative of the due process clause.
Sadly, the majority refuses to confront the figures or engage in a
meaningful demonstration of how these assailed provisions truly operate.
Instead, it counters with platitudes and bromides that do not intellectually
satisfy. Considering that the very vitality, if not life of our domestic economy
is at stake, I think it derelict to our duty to block out these urgent concerns
presented to the Court with blind faith tinged with irrational Panglossian 41
optimism.
The obligation of the majority to refute on the merits the arguments of
the Petroleum Dealers becomes even more grave considering that the
respondents have abjectly failed in to convincingly dispute the claims.
During oral arguments, respondents attempted to counter the arguments
that the 70% cap was oppressive and confiscatory by presenting the
following illustration, which I fear is severely misleading:
Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Due BIR without

Due BIR with 70% cap
cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00
Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
Excess Input VAT 10,000.00
Carry-over to next
quarter
Slide 2
Item Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 600,000.00 60,000.00
Due BIR without Due BIR with 70% cap

cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 60,000.00 Allowable Input VAT 60,000.00
(60% of output
VAT
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Excess Input VAT 0
Carry-over to next
quarter
This presentation of the respondents is grossly deceptive, as it fails to

account for the excess creditable input VAT that remains unutilized due to the
70% cap. This excess or creditable input VAT is supposed to be carried over for
the computation of the input VAT of the next quarter. Instead, this excess or
creditable input VAT magically disappears from the table of the respondents. In
their memorandum, the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondents', but taking into account
the excess creditable input VAT and extending the situation over a one-year
period. I cite with approval the following chart 42 of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Output VAT 100,000.00
Allowable Input VAT 70,000.00
–––––––––
Net VAT Payable 30,000.00
–––––––––
Excess Input Vat
Carry-over to next quarter 10,000.00
–––––––––
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 7-% cap
Less: Input VAT
Excess Input VAT fr. 1st
10,000.00
Quarter
Input VAT-Current Qtr. 80,000.00
–––––––––
Total Available Input VAT 90,000.00
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========
–––––––––
Excess Input VAT to be carried over to
next
Quarter 20,000.00
========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
–––––––––
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========
–––––––––
30,000.00
next quarter
========
Quarter 4
Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
–––––––––
–––––––––
Allowable Input VAT
(100,000 x 70%) 70,000.00 70,000.00
––––––––– –––––––––
========
–––––––––
40,000.00
next quarter
========
The 70% cap is not merely an unwise imposition. It is a burden
designed, either through sheer heedlessness or cruel calculation, to
kill off the small and medium enterprises that are the soul, if not
the heart, of our economy. It is not merely an undue taking of
property, but constitutes an unjustified taking of life as well. HcSaTI
And what legitimate, germane purposes does this lethal 70%

cap serve? It certainly does not increase the government's revenue
since the unutilized creditable input VAT should be entered in the
government books as a debt payable as it is supposed to be
eventually repaid to the taxpayer, and so on the contrary it
increases the government's debts. I do see that the 70% cap
temporarily allows the government to brag to the world of an
increased cash flow. But this situation would be akin to the
provincial man who borrows from everybody in the barrio in order
to show off money and maintain the pretense of prosperity to
visiting city relatives. The illusion of wealth is hardly a legitimate
state purpose, especially if projected at the expense of the very
business life of the country.
The majority, in an effort to belittle these concerns, points out that that
the excess input tax remains creditable in succeeding quarters. However, as
seen in the above illustration, the actual application of the excess input tax
will always be limited by the amount of output taxes collected in a quarter,
as a result of the 70% cap. Thus, it is entirely possible that a VAT-registered
person, through the accumulation of unutilized input taxes, would have in a
quarter an express creditable input tax of P50,000,000, but would be
allowed to actually credit only P70,000 if the output tax collected for that
quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it
is supposed to be eventually shifted to the end-consumer. The 70% cap
effectively prevents this from happening, as it limits the ability of the
business to recover the prepaid input taxes. This is unconscionable, since in
the first place, these intervening players — the manufacturers, producers,
traders, retailers — are not even supposed to sustain the losses incurred by
reason of the prepayment of the input taxes. Worse, they would be obliged
every quarter to pay to the government from out of their own pockets the
equivalent of 30% of the output taxes, no matter their own particular
financial condition. Worst, this twin yoke on the taxpayer of having to sustain
a debit equivalent to 30% of output taxes, and having to await forever in
order to recover the prepaid taxes would impair the cash flow and prove
fatal for a shocking number of businesses which, as they now stand, have to
make do with a minimum profit that stands to be wiped out with the
introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax
may be the subject of a tax credit certificate, which then could be used in
payment of internal revenue taxes, or a refund to the extent that such input
taxes have not been applied against output taxes. 43 What the majority
fails to mention is that under Section 10 of the E-VAT Law, which
amends Section 112 of the NIRC, such credit or refund may not be
done while the enterprise remains operational:
SEC. 112. Refunds or Tax Credits of Input Tax. —
xxx xxx xxx
"(B) Cancellation of VAT Registration . — A person
whose registration has been cancelled due to retirement
from or cessation of business or due to changes or
cessation of status under Section 106(C) of this Code
may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his
other internal revenue taxes.
xxx xxx xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read

prior to this amendment. Under the previous rule, a VAT-registered person was
entitled to apply for the tax credit certificate or refund paid on capital goods
even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax. —

xxx xxx xxx
"(B) Capital Goods. — A VAT-registered person may apply for
the issuance of a tax credit certificate or refund of input taxes paid on
capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The
application may be made only within two (2) years after the close of
the taxable quarter when the importation or purchase was made.
This provision, which could have provided foreseeable and useful relief
to the VAT-registered person, was deleted under the new E-VAT Law. At
present, the refund or tax credit certificate may only be issued upon two
instances: on zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration due to retirement from or cessation of
business. 44 This is the cruelest cut of all. Only after the business
ceases to be may the State be compelled to repay the entire
amount of the unutilized input tax. It is like a macabre form of
sweepstakes wherein the winner is to be paid his fortune only when
he is already dead. Aanhin pa ang damo kung patay na ang kabayo .
Moreover, the inability to immediately credit or otherwise recover the
unutilized input VAT could cause such prepaid amount to actually be
recognized in the accounting books as a loss. Under international accounting
practices, the unutilized input VAT due to the 70% cap would not even be
recognized as a deferred asset. The same would not hold true if the 70% cap
were eliminated. Under the International Accounting Standards 45 , the
unutilized input VAT credit is recognized as an asset "to the extent that it is
probable that future taxable profit will be available against which the unused
tax losses and unused tax credits can be utili[z]ed" 46 Thus, if the immediate
accreditation of the input VAT credit can be obtained, as it would without the
70% cap, the asset could be recognized.
However, the same Standards hold that "[t]o the extent that it is not
probable that taxable profit will be available against which the unused tax
losses or unused tax credits can be utili[z]ed, the deferred tax asset is not
recogni[z]ed". 47 As demonstrated, the continuous operation of the 70% cap
precludes the recovery of input VAT prepaid months or years prior.
Moreover, the inability to claim a refund or tax credit certificate until after
the business has already ceased virtually renders it improbable for the input
VAT to be recovered. As such, under the International Accounting Standards,
it is with all likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss. 48 What heretofore was recognized as
an asset would now, with the imposition of the 70% cap, be now considered
as a loss, enhancing the view that the 70% cap is ultimately confiscatory in
nature.
This leads to my next point. The majority asserts that the input tax is
not a property or property right within the purview of the due process clause.
49 I respectfully but strongly disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one
of those assets, corporate attributes or property rights that, in the event of a
merger, are transferred to the surviving corporation by operation of law. 50
Assets would fall under the purview of property under the due process
clause, and if the taxing arm of the State recognizes that such property
belongs to the taxpayer and not to the State, then due respect should be
given to such expert opinion.
Even under the International Accounting Standards I adverted to
above, the unutilized input VAT credit is may be recognized as an asset "to
the extent that it is probable that future taxable profit will be available
against which the unused tax losses and unused tax credits can be
utili[z]ed" 51 If not probable, it would be recognized as a loss. 52 Since these
international standards, duly recognized by the Securities and Exchange
Commission as controlling in this jurisdiction, attribute tangible gain or loss
to the VAT credit, it necessarily follows that there is proprietary value
attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can
only be utilized if it is refunded or credited to output taxes. To assert that the
input VAT is merely a privilege is to correspondingly claim that the business
profit is similarly a mere privilege. The Constitution itself recognizes the right
to profit by private enterprises. As I stated earlier, one of the enunciated
State policies under the Constitution is the recognition of the indispensable
role of the private sector, the encouragement of private enterprise, and the
provision of incentives to needed investments. 53 M o r e o v e r , the
Constitution also requires the State to recognize the right of
enterprises to reasonable returns on investments, and to expansion
and growth. 54 This, I believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional,
essentially for the same reasons as above. The relevant portion reads:
SEC. 8 .Section 110 of the same Code, as amended, is
"SEC. 110. Tax Credits. —
(A) Creditable Input Tax. —
xxx xxx xxx
Provided, That the input tax on goods purchased or
imported in a calendar month for use in trade or business
for which deduction for depreciation is allowed under this
Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos
(P1,000,000): Provided, however, That if the estimated useful
life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, that in the case of
purchase of services, lease or use of properties, the input tax
shall be creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or fee.
Again, this provision unreasonably severely limits the ability of an

enterprise to recover its prepaid input VAT. On its face, it might appear
injurious primarily to high margin enterprises, whose purchase of capital
goods in a given quarter would routinely exceed P1,000,000.00. The
amortization over a five-year period of the input VAT on these capital goods
would definitely eat up into their profit margin. But it is still possible for such
big businesses to survive despite this new restriction, and their financial pain
alone may not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to
start-ups and other new businesses, which need to purchase capital
goods in order to start up their new businesses. It is a known fact in
the financial community that a majority of businesses start earning profit
only after the second or third year, and many enterprises do not even get to
survive that long. The first few years of a business are the most crucial to its
survival, and any financial benefits it can obtain in those years, no matter
how miniscule, may spell the difference between life and death. For such
emerging businesses, it is already difficult under the present system to
recover the prepaid input VAT from the output VAT collected from customers
because initial sales volumes are usually low. With this further limitation,
diminishing as it does any opportunity to have a sustainable cash flow, the
ability of new businesses to survive the first three years becomes even more
endangered.
Even existing small to medium enterprises are imperiled by this 60
month amortization restriction, especially considering the application of the
70% cap. The additional purchase of capital goods bears as a means of
adding value to the consumer good, as a means to justify the increased
selling price. However, the purchase of capital goods in excess of
P1,000,000.00 would impose another burden on the small to medium
enterprise by further restricting their ability to immediately recover the
entire prepaid input VAT (which would exceed at least P100,000.00), as they
would be compelled to wait for at least five years before they can do so.
Another hurdle is imposed for such small to medium enterprise to obtain the
profit margin critical to survival. For some lucky enterprises who may be
able to survive the injury brought about by the 70% cap, this 60
month amortization period might instead provide the mortal head
wound.
Moreover, the increased administrative burden on the taxpayer should
not be discounted, considering this Court's previous recognition of the aims
of the VAT system to "rationalize the system of taxes on goods and services,
[and] simplify tax administration". 55 With the amortization requirement, the
taxpayer would be forced to segregate assets into several classes and
strictly monitor the useful life of assets so that proper classification can be
made. The administrative requirements of the taxpayer in order to monitor
the input VAT from the purchase of capital assets thus has exponentially
increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which
amends Section 114(C) of the NIRC, is also unconstitutional. The provision
is supremely unwise, oppressive and confiscatory in nature, and
ruinous to private enterprise and even State development. The
provision reads:
"SEC. 114. Return and Payment of Value-Added Tax. —
xxx xxx xxx
"(C) Withholding of Value-added Tax . — The
Government or any of its political subdivisions, instrumentalities
or agencies, including government-owned or — controlled
corporations (GOCCs) shall, before making payment on account
of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be
considered as the withholding payment. . . .
The principle that the Government and its subsidiaries may deduct and
withhold a final value-added tax on its purchase of goods and services is not
new, as the NIRC had allowed such deduction and withholding at the rate of
3% of the gross payment for the purchase of goods, and 6% of the gross
receipts for services. However, the NIRC had also provided that this
tax withheld would also be creditable against the VAT liability of
the seller or contractor, a mechanism that was deleted by the E-VAT
law. The deletion of this credit apparatus effectively compels the
private enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government in excess
of 5% of the gross selling price, and at the same time unduly
burdens the private enterprise by precluding it from applying any
creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the
essence of the VAT system, which characteristically allows the crediting of
input taxes against output taxes. Without such crediting mechanism,
which allows the shifting of the VAT to only the final end user, the
tax becomes a straightforward tax on business or income. The
effect on the enterprise doing business with the government would
be that two taxes would be imposed on the income by the business
derived on such transaction: the regular personal or corporate
income tax on such income, and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the
VAT system, and that it has to power to impose new taxes on business
income, this amendment to Section 114(C) of the NIRC still remains
unconstitutional. It unfairly discriminates against entities which
contract with the government by imposing an additional tax on the
income derived from such transactions. The end result of such
discrimination is double taxation on income that is both oppressive
and confiscatory.
It is a legitimate purpose of a tax law to devise a manner by
which the government could save money on its own transactions,
but it is another matter if a private enterprise is punished for doing
business with the government. The erstwhile NIRC worked towards such
advantage, by allowing the government to reduce its cash outlay on
purchases of goods and services by withholding the payment of a
percentage thereof. While the new E-VAT law retains this benefit to the
government, at the same time it burdens the private enterprise with an
additional tax by refusing to allow the crediting of this tax withheld to the
business's input VAT.
This imposition would be grossly unfair for private entities that transact
with the government, especially on a regular basis. It might be argued that
the provision, even if concededly unwise, nonetheless fails to meet the
standard of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the government. However, it
is an acknowledged fact that the government and its subsidiaries rely on
contracts with private enterprises in order to be able to carry out
innumerable functions of the State. This provision effectively
discourages private enterprises to do business with the State, as it
would impose on the business a higher rate of tax if it were to
transact with the State, as compared to transactions with other
private entities.
Established industries with track records of quality performance could
very well be dissuaded from doing further business with government entities
as the higher tax rate would make no economic sense. Only those
enterprises which really need the money, such as those with substandard
track records that have affected their viability in the marketplace, would
bother seeking out government contracts. The corresponding sacrifice in
quality would eventually prove detrimental to the State. Our society can ill
afford shoddy infrastructures such as roads, bridges and buildings that
would unnecessarily pose danger to the public at large simply because the
government wanted to skimp on expenses.
The provision squarely contradicts Section 20, Article II of the
Constitution as it vacuously discourages private enterprise, and
provides disincentives to needed investments such as those
expected by the State from private businesses. Whatever advantages
may be gained by the temporary increase in the government coffers would
be overturned by the disadvantages of having a reduced pool of private
enterprises willing to do business with the government. Moreover, since
government contracts with private enterprises will still remain a necessary
fact of life, the amendment to Section 114(C) of the NIRC introduced by the
E-VAT Law.
Double taxation means taxing for the same tax period the same thing
or activity twice, when it should be taxed but once, for the same purpose
and with the same kind of character of tax. 56 Double taxation is not
expressly forbidden in our constitution, but the Court has recognized it as
obnoxious "where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose." 57
Certainly, both the 5% final tax withheld and the general corporate income
tax are both paid for the benefit of the national government, and for the
same incidence of taxation, the sale/lease of goods and services to the
government.
The Court, in Re: Request of Atty. Bernardo Zialcita 58 had cause to
make the following observation I submit apropos to the case at bar, on
double taxation in a case involving the attempt of the BIR to tax the
commuted accumulated leave credits of a government lawyer upon his
retirement:
Section 284 of the Revised Administrative Code grants to a
government employee 15 days vacation leave and 15 days sick leave
for every year of service. Hence, even if the government employee
absents himself and exhausts his leave credits, he is still deemed to
have worked and to have rendered services. His leave benefits are
already imputed in, and form part of, his salary which in turn is
subject to withholding tax on income. He is taxed on the
entirety of his salaries without any deductions for any leaves
not utilized. It follows then that the money values
corresponding to these leave benefits both the used and
unused have already been taxed during the year that they
were earned. To tax them again when the retiring employee
receives their money value as a form of government concern
and appreciation plainly constitutes an attempt to tax the
employee a second time. This is tantamount to double
taxation. 59
Conclusions
The VAT system, in itself, is intelligently designed, and stands as a fair
means to raise revenue. It has been adopted worldwide by countries hoping
to employ an efficient means of taxation. The concerns I have raised do not
detract from my general approval of the VAT system.
I do lament though that our government's wholehearted adoption of
the VAT system is endemic of what I deem a flaw in our national tax policy in
the last few decades. The power of taxation, inherent in the State and ever
so powerful, has been generally employed by our financial planners for a
solitary purpose: the raising of revenue. Revenue generation is a legitimate
purpose of taxation, but standing alone, it is a woefully unsophisticated
design. Intelligent tax policy should extend beyond the singular-minded goal
of raising State funds — the old-time philosophy behind the taxing schemes
of war-mongering monarchs and totalitarian states — and should sincerely
explore the concept of taxation as a means of providing genuine incentives
to private enterprise to spur economic growth; of promoting egalitarian
social justice that would allow everyone to their fair share of the nation's
wealth.
Instead, we are condemned by a national policy driven by the
monomania for State revenue. It may be beyond my oath as a Justice to
compel the government to adopt an economic policy in consonance with my
personal views, but I offer these observations since they lie at the very heart
of the noxiousness of the assailed provisions of the E-VAT law. The 70% cap,
the 60-month amortization period and the 5% withholding tax on
government transactions were selfishly designed to increase government
revenue at the expense of the survival of local industries.
I am not insensitive to the concerns raised by the respondents as to the
dire consequences to the economy should the E-VAT law be struck down. I
am aware that the granting of the petition in G.R. No. 168461 will negatively
affect the cash flow of the government. If that were the only relevant
concern at stake, I would have no problems denying the petition.
Unfortunately, under the device employed in the E-VAT law, the
price to be paid for a more sustainable liquidity of the government's
finances will be the death of local business, and correspondingly,
the demise of our society. It is a measure just as draconian as the
standard issue taxes of medieval tyrants.
I am not normally inclined towards the language of the overwrought,
yet if the sky were indeed truly falling, how else could that fact be
communicated. The E-VAT Law is of multiple fatal consequences. How are
we to survive as a nation without the bulwark of private industries? Perhaps
the larger scale, established businesses may ultimately remain standing, but
they will be unable to sustain the void left by the demise of small to medium
enterprises. Or worse, domestic industry would be left in the absolute control
of monopolies, combines or cartels, whether dominated by foreigners or
local oligarchs. The destruction of subsisting industries would be bad
enough, the destruction of opportunity and the entrepreneurial spirit would
be even more grievous and tragic, as it would mark as well the end of hope.
Taxes may be the lifeblood of the state, but never at the expense of the life
of its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730

for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and
declare Section 21 of the E-VAT Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as
unconstitutional Section 8 of Republic Act No. 9337, insofar
as it amends Section 110(A) and (B) of the National Internal
Revenue Code (NIRC) as well as Section 12 of the same law,
with respect to its amendment of Section 114(C) of the NIRC.
DHaECI
Five petitions were filed before this Court questioning the

constitutionality of Republic Act No. 9337. Rep. Act No. 9337, which
amended certain provisions of the National Internal Revenue Code of 1997, 1
by essentially increasing the tax rates and expanding the coverage of the
Value-Added Tax (VAT). Undoubtedly, during these financially difficult times,
more taxes would be additionally burdensome to the citizenry. However, like
a bitter pill, all Filipino citizens must bear the burden of these new taxes so
as to raise the much-needed revenue for the ailing Philippine economy.
Taxation is the indispensable and inevitable price for a civilized society, and
without taxes, the government would be paralyzed. 2 Without the tax
reforms introduced by Rep. Act No. 9337, the then Secretary of the
Department of Finance, Cesar V. Purisima, assessed that "all economic
scenarios point to the National Government's inability to sustain its
precarious fiscal position, resulting in severe erosion of investor confidence
and economic stagnation." 3
Finding Rep. Act No. 9337 as not unconstitutional, both in its
procedural enactment and in its substance, I hereby concur in full in the
foregoing majority opinion, penned by my esteemed colleague, Justice Ma.
Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by
Congress was riddled with irregularities and violations of the Constitution. In
particular, they alleged that: (1) The Bicameral Conference Committee
exceeded its authority to merely settle or reconcile the differences among
House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in Rep.
Act No. 9337 provisions not found in any of the said bills, or deleting from
Rep. Act No. 9337 or amending provisions therein even though they were
not in conflict with the provisions of the other bills; (2) The amendments
introduced by the Bicameral Conference Committee violated Article VI,
Section 26(2), of the Constitution which forbids the amendment of a bill after
it had passed third reading; and (3) Rep. Act No. 9337 contravened Article VI,
Section 24, of the Constitution which prescribes that revenue bills should
originate exclusively from the House of Representatives.
Invoking the expanded power of judicial review granted to it by the
Constitution of 1987, petitioners are calling upon this Court to look into the
enactment of Rep. Act No. 9337 by Congress and, consequently, to review
the applicability of the enrolled bill doctrine in this jurisdiction. Under the
said doctrine, the enrolled bill, as signed by the Speaker of the House of
Representatives and the Senate President, and certified by the Secretaries of
both Houses of Congress, shall be conclusive proof of its due enactment. 4
Petitioners' arguments failed to convince me of the wisdom of
abandoning the enrolled bill doctrine. I believe that it is more prudent for
this Court to remain conservative and to continue its adherence to the
enrolled bill doctrine, for to abandon the said doctrine would be to open a
Pandora's Box, giving rise to a situation more fraught with evil and mischief.
Statutes enacted by Congress may not attain finality or conclusiveness
unless declared so by this Court. This would undermine the authority of our
statutes because despite having been signed and certified by the designated
officers of Congress, their validity would still be in doubt and their
implementation would be greatly hampered by allegations of irregularities in
their passage by the Legislature. Such an uncertainty in the statutes would
indubitably result in confusion and disorder. In all probability, it is the
contemplation of such a scenario that led an American judge to proclaim,
thus —
. . . Better, far better, that a provision should occasionally find its
way into the statute through mistake, or even fraud, than, that every
Act, state and national, should at any and all times be liable to put in
issue and impeached by the journals, loose papers of the Legislature,
and parol evidence. Such a state of uncertainty in the statute laws of
the land would lead to mischiefs absolutely intolerable. . . . 5
Moreover, this Court must attribute good faith and accord utmost
respect to the acts of a co-equal branch of government. While it is true that
its jurisdiction has been expanded by the Constitution, the exercise thereof
should not violate the basic principle of separation of powers. The expanded
jurisdiction does not contemplate judicial supremacy over the other
branches of government. Thus, in resolving the procedural issues raised by
the petitioners, this Court should limit itself to a determination of compliance
with, or conversely, the violation of a specified procedure in the Constitution
for the passage of laws by Congress, and not of a mere internal rule of
proceedings of its Houses.
It bears emphasis that most of the irregularities in the enactment of
Rep. Act No. 9337 concern the amendments introduced by the Bicameral
Conference Committee. The Constitution is silent on such a committee, it
neither prescribes the creation thereof nor does it prohibit it. The creation of
the Bicameral Conference Committee is authorized by the Rules of both
Houses of Congress. That the Rules of both Houses of Congress provide for
the creation of a Bicameral Conference Committee is within the prerogative
of each House under the Constitution to determine its own rules of
proceedings. TADIHE
The Bicameral Conference Committee is a creation of necessity and

practicality considering that our Congress is composed of two Houses, and it
is highly improbable that their respective bills on the same subject matter
shall always be in accord and consistent with each other. Instead of all their
members, only the appointed representatives of both Houses shall meet to
reconcile or settle the differences in their bills. The resulting bill from their
meetings, embodied in the Bicameral Conference Report, shall be subject to
approval and ratification by both Houses, voting separately.
It does perplex me that members of both Houses would again ask the
Court to define and limit the powers of the Bicameral Conference Committee
when such committee is of their own creation. In a number of cases, 6 this
Court already made a determination of the extent of the powers of the
Bicameral Conference Committee after taking into account the existing
Rules of both Houses of Congress. In gist, the power of the Bicameral
Conference Committee to reconcile or settle the differences in the two
Houses' respective bills is not limited to the conflicting provisions of the bills;
but may include matters not found in the original bills but germane to the
purpose thereof. If both Houses viewed the pronouncement made by this
Court in such cases as extreme or beyond what they intended, they had the
power to amend their respective Rules to clarify or limit even further the
scope of the authority which they grant to the Bicameral Conference
Committee. Petitioners' grievance that, unfortunately, they cannot bring
about such an amendment of the Rules on the Bicameral Conference
Committee because they are members of the minority, deserves scant
consideration. That the majority of the members of both Houses refuses to
amend the Rules on the Bicameral Conference Committee is an indication
that it is still satisfied therewith. At any rate, this is how democracy works —
the will of the majority shall be controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De
Venecia, 7 which reads —
It would be unwarranted invasion of the prerogative of a coequal
department for this Court either to set aside a legislative action as void
because the Court thinks the house has disregarded its own rules of
procedure, or to allow those defeated in the political arena to seek a
rematch in the judicial forum when petitioners can find remedy in that
department. The Court has not been invested with a roving
commission to inquire into complaints, real or imagined, of legislative
skullduggery. It would be acting in excess of its power and would itself
be guilty of grave abuse of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to

amend, add, and delete provisions of the Bill under consideration, even in
the absence of conflict thereon between the Senate and House versions, but
only so far as said provisions are germane to the purpose of the Bill. 8 Now,
there is a question as to whether the Bicameral Conference Committee,
which produced Rep. Act No. 9337, exceeded its authority when it included
therein amendments of provisions of the National Internal Revenue Code of
1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the
amendments of the provisions on VAT of the National Internal Revenue Code
of 1997, Senate Bill No. 1950 had a much wider scope and included
amendments of other provisions of the said Code, such as those on income,
percentage, and excise taxes. It should be borne in mind that the very
purpose of these three Bills and, subsequently, of Rep. Act No. 9337, was to
raise additional revenues for the government to address the dire economic
situation of the country. The National Internal Revenue Code of 1997, as its
title suggests, is the single Code that governs all our national internal
revenue taxes. While it does cover different taxes, all of them are imposed
and collected by the national government to raise revenues. If we have one
Code for all our national internal revenue taxes, then there is no reason why
we cannot have a single statute amending provisions thereof even if they
involve different taxes under separate titles. I hereby submit that the
amendments introduced by the Bicameral Conference Committee to non-
VAT provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No. 3555
and 3705 and Senate Bill No. 1950, which is to raise national revenues.
Furthermore, the procedural issues raised by the petitioners were
already addressed and resolved by this Court in Tolentino v. Executive
Secretary. 9 Since petitioners failed to proffer novel factual or legal argument
in support of their positions that were not previously considered by this
Court in the same case, then I am not compelled to depart from the
conclusions made therein.
The majority opinion has already thoroughly discussed each of the
substantial issues raised by the petitioners. I would just wish to discuss
additional matters pertaining to the petition of the petroleum dealers in G.R.
No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input
VAT credit to only 70% of their output VAT deprives them of their property
without due process of law. They argue further that such 70% cap violates
the equal protection and uniformity of taxation clauses under Article III,
Section 1, and Article VI, Section 28(1), respectively, of the Constitution,
because it will unduly prejudice taxpayers who have high input VAT and who,
because of the cap, cannot fully utilize their input VAT as credit.
I cannot sustain the petroleum dealers' position for the following
reasons —
First, I adhere to the view that the input VAT is not a property to which
the taxpayer has vested rights. Input VAT consists of the VAT a VAT-
registered person had paid on his purchases or importation of goods,
properties, and services from a VAT-registered supplier; more simply, it is
VAT paid . It is not, as averred by petitioner petroleum dealers, a property
that the taxpayer acquired for valuable consideration. 10 A VAT-registered
person incurs input VAT because he complied with the National Internal
Revenue Code of 1997, which imposed the VAT and made the payment
thereof mandatory; and not because he paid for it or purchased it for a price.
DHITSc
Generally, when one pays taxes to the government, he cannot expect

any direct and concrete benefit to himself for such payment. The benefit of
payment of taxes shall redound to the society as a whole. However, by
virtue of Section 110(A) of the National Internal Revenue Code of 1997, prior
to its amendment by Rep. Act No. 9337, a VAT-registered person is allowed,
subject to certain substantiation requirements, to credit his input VAT
against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his
own sales of goods, properties, and services or the VAT he passes on to his
buyers. Hence, the VAT-registered person selling the goods, properties, and
services does not pay for the output VAT; said output VAT is paid for by his
consumers and he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory
privilege, granted by Section 110 of the National Internal Revenue Code of
1997. It gives the VAT-registered person the opportunity to recover the input
VAT he had paid, so that, in effect, the input VAT does not constitute an
additional cost for him. While it is true that input VAT credits are reported as
assets in a VAT-registered person's financial statements and books of
account, this accounting treatment is still based on the statutory provision
recognizing the input VAT as a credit. Without Section 110 of the National
Internal Revenue Code of 1997, then the accounting treatment of any input
VAT will also change and may no longer be booked outright as an asset.
Since the privilege of an input VAT credit is granted by law, then an
amendment of such law may limit the exercise of or may totally withdraw
the privilege.

The amendment of Section 110 of the National Internal Revenue Code
of 1997 by Rep. Act No. 9337, which imposed the 70% cap on input VAT
credits, is a legitimate exercise by Congress of its law-making power. To say
that Congress may not trifle with Section 110 of the National Internal
Revenue Code of 1997 would be to violate a basic precept of constitutional
law — that no law is irrepealable. 11 There can be no vested right to the
continued existence of a statute, which precludes its change or repeal. 12
It bears to emphasize that Rep. Act No. 9337 does not totally remove
the privilege of crediting the input VAT against the output VAT. It merely
limits the amount of input VAT one may credit against his output VAT per
quarter to an amount equivalent to 70% of the output VAT. What is more,
any input VAT in excess of the 70% cap may be carried-over to the next
quarter. 13 It is certainly a departure from the VAT crediting system under
Section 110 of the National Internal Revenue Code of 1997, but it is an
innovation that Congress may very well introduce, because —
VAT will continue to evolve from its pioneering original structure.
Dynamically, it will be subjected to reforms that will make it conform to
many factors, among which are: the changing requirements of
government revenue; the social, economic and political vicissitudes of
the times; and the conflicting interests in our society. In the course of
its evolution, it will be injected with some oddities and inevitably
transformed into a structure which its revisionists believe will be an
improvement overtime. 14
Second , assuming for the sake of argument, that the input VAT credit is
indeed a property, the petroleum dealers' right thereto has not vested. A
right is deemed vested and subject to constitutional protection when —
". . . [T]he right to enjoyment, present or prospective, has
become the property of some particular person or persons as a present
interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future
benefit, or a contingent interest in property founded on anticipated
continuance of existing laws, does not constitute a vested right. So,
inchoate rights which have not been acted on are not vested." (16 C. J.
S. 214-215) 15
Under the National Internal Revenue Code of 1997, before it was

amended by Rep. Act No. 9337, the sale or importation of petroleum
products were exempt from VAT, and instead, were subject to excise tax. 16
Petroleum dealers did not impose any output VAT on their sales to
consumers. Since they had no output VAT against which they could credit
their input VAT, they shouldered the costs of the input VAT that they paid on
their purchases of goods, properties, and services. Their sales not being
subject to VAT, the petroleum dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum
dealers have become subject to VAT and only in its implementation may
they use their input VAT as credit against their output VAT. While eager to
use their input VAT credit accorded to it by Rep. Act No. 9337, the petroleum
dealers reject the limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers' input VAT credits were inexistent — they were
unrecognized and disallowed by law. The petroleum dealers had no such
property called input VAT credits. It is only rational, therefore, that they
cannot acquire vested rights to the use of such input VAT credits when they
were never entitled to such credits in the first place, at least, not until Rep.
Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been
implemented, is that petroleum dealers' right to use their input VAT as credit
against their output VAT unlimitedly has not vested, being a mere
expectancy of a future benefit and being contingent on the continuance of
Section 110 of the National Internal Revenue Code of 1997, prior to its
amendment by Rep. Act No. 9337.
Third, although the petroleum dealers presented figures and
computations to support their contention that the cap shall lead to the
demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits,
allows the taxpayer to carry-over to the succeeding quarters any excess
input VAT. The petroleum dealers presented a situation wherein their input
VAT would always exceed 70% of their output VAT, and thus, their excess
input VAT will be perennially carried-over and would remain unutilized. Even
though they consistently questioned the 70% cap on their input VAT credits,
the petroleum dealers failed to establish what is the average ratio of their
input VAT vis-Ã -vis their output VAT per quarter. Without such fact, I
consider their objection to the 70% cap arbitrary because there is no basis
therefor.
On the other, I find that the 70% cap on input VAT credits was not
imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the
government can collect a minimum of 30% output VAT per taxpayer. This is
to put a VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer
under Section 109(V) of the National Internal Revenue Code, as amended by
Rep. Act No. 9337. 17 The latter taxpayer is exempt from VAT on the basis
that his sale or lease of goods or properties or services do not exceed
P1,500,000; instead, he is subject to pay a three percent (3%) tax on his
gross receipts in lieu of the VAT. 18 If a taxpayer with presumably a smaller
business is required to pay three percent (3%) gross receipts tax, a type of
tax which does not even allow for any crediting, a VAT-taxpayer with a
bigger business should be obligated, likewise, to pay a minimum of 30%
output VAT (which should be equivalent to 3% of the gross selling price per
good or property or service sold). The cap assures the government a
collection of at least 30% output VAT, contributing to an improved cash flow
for the government. cIACaT
Attention is further called to the fact that the output VAT is the VAT
imposed on the sales by a VAT-taxpayer; it is paid by the purchasers of the
goods, properties, and services, and merely collected through the VAT-
registered seller. The latter, therefore, serves as a collecting agent for the
government. The VAT-registered seller is merely being required to remit to
the government a minimum of 30% of his output VAT collection.
Fourth, I give no weight to the figures and computations presented
before this Court by the petroleum dealers, particularly the supposed
quarterly profit and loss statement of a "typical dealer." How these data
represent the financial status of a typical dealer, I would not know when
there was no effort to explain the manner by which they were surveyed,
collated, and averaged out. Without establishing their source therefor, the
figures and computations presented by the petroleum dealers are merely
self-serving and unsubstantiated, deserving scant consideration by this
Court. Even assuming that these figures truly represent the financial
standing of petroleum dealers, the introduction and application thereto of
the VAT factor, which forebode the collapse of said petroleum dealers'
businesses, would be nothing more than an anticipated damage — an injury
that may or may not happen. To resolve their petition on this basis would be
premature and contrary to the established tenet of ripeness of a cause of
action before this Court could validly exercise its power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral
arguments before this Court that they cannot pass on to the consumers the
VAT burden and increase the prices of their goods, it is worthy to quote
below this Court's ruling in Churchill v. Concepcion, 19 to wit —
It will thus be seen that the contention that the rates charged for
advertising cannot be raised is purely hypothetical, based entirely
upon the opinion of the plaintiffs, unsupported by actual test, and that
the plaintiffs themselves admit that a number of other persons have
voluntarily and without protest paid the tax herein complained of.
Under these circumstances, can it be held as a matter of fact that the
tax is confiscatory or that, as a matter of law, the tax is
unconstitutional? Is the exercise of the taxing power of the Legislature
dependent upon and restricted by the opinion of two interested
witnesses? There can be but one answer to these questions, especially
in view of the fact that others are paying the tax and presumably
making reasonable profit from their business.
As a final observation, I perceive that what truly underlies the

opposition to Rep. Act No. 9337 is not the question of its constitutionality,
but rather the wisdom of its enactment. Would it truly raise national revenue
and benefit the entire country, or would it only increase the burden of the
Filipino people? Would it contribute to a revival of our economy or only
contribute to the difficulties and eventual closure of businesses? These are
issues that we cannot resolve as the Supreme Court. As this Court explained
in Agustin v. Edu, 20 to wit —
It does appear clearly that petitioner's objection to this Letter of
Instruction is not premised on lack of power, the justification for a
finding of unconstitutionality, but on the pessimistic, not to say
negative, view he entertains as to its wisdom. That approach, it put it
at its mildest, is distinguished, if that is the appropriate word, by its
unorthodoxy. It bears repeating "that this Court, in the language of
Justice Laurel, 'does not pass upon questions of wisdom, justice or
expediency of legislation.' As expressed by Justice Tuason: 'It is not the
province of the courts to supervise legislation and keep it within the
bounds of propriety and common sense. That is primarily and
exclusively a legislative concern.' There can be no possible objection
then to the observation of Justice Montemayor: 'As long as laws do not
violate any Constitutional provision, the Courts merely interpret and
apply them regardless of whether or not they are wise or salutary.' For
they, according to Justice Labrador, 'are not supposed to override
legitimate policy and . . . never inquire into the wisdom of the law.' It is
thus settled, to paraphrase Chief Justice Concepcion in Gonzales v.
Commission on Elections, that only congressional power or
competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective
authority of each department and confined its jurisdiction to such
sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch,
the judiciary would substitute its own . . ." 21
To reiterate, we cannot substitute our discretion for Congress, and

even though there are provisions in Rep. Act No. 9337 which we may believe
as unwise or iniquitous, but not unconstitutional, we cannot strike them off
by invoking our power of judicial review. In such a situation, the recourse of
the people is not judicial, but rather political. If they severely doubt the
wisdom of the present Congress for passing a statute such as Rep. Act No.
9337, then they have the power to hold the members of said Congress
accountable by using their voting power in the next elections. ADScCE
In view of the foregoing, I vote for the denial of the present petitions
and the upholding of the constitutionality of Rep. Act No. 9337 in its entirety.
Footnotes
1.Entitled "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,
112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the
National Internal Revenue Code of 1997, As Amended and For Other
Purposes."
2.Entitled, "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code
of 1997, As Amended, and For Other Purposes."
3.Entitled, "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
National Internal Revenue Code of 1997, As Amended, and For Other
Purposes."
4.Entitled, "An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes."
5.Section 26, R.A. No. 9337.
6.TSN, July 14, 2005.
7.Section 125 of the National Internal Revenue Code, as amended, was not
amended by R.A. No. 9337, as can be gleaned from the title and body of the
law.
8.Section 105, National Internal Revenue of the Philippines, as amended.
9.Ibid.
10.Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines
(First Edition 2000).
11.Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
12.Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
13.Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
14.Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11,
2005.
15.Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R.
Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
16.Entitled, "An Act Restructuring the Value-Added Tax (VAT) System, Widening its
Tax Base and Enhancing its Administration, And for these Purposes
Amending and Repealing the Relevant Provisions of the National Internal
Revenue Code, as amended, and for other Purposes."
17.Entitled, "An Act Amending Republic Act No. 7716, otherwise known as the
Value-Added Tax Law and Other Pertinent Provisions of the National Internal
Revenue Code, as Amended."
18.Entitled, "An Act Amending the National Internal Revenue Code, as Amended,
and for other Purposes."
19.Story, Commentaries 835 (1833).
20.G.R. No. 147387, December 10, 2003, 417 SCRA 503.
21.Id., pp. 529-530.
22.Supra., Note 20.
23.G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24.Id., p. 670.
25.Wester's Third New International Dictionary, p. 1897.
26.TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate
Bill No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
27.Id., p. 3.
28.Sponsorship Speech of Representative Teves, in behalf of Representative Jesli
Lapus, TSN, January 7, 2005, pp. 34-35.
29.G.R. No. 105371, November 11, 1993, 227 SCRA 703.
30.Supra, Note 23.
31.Id., p. 668.
32.Id., p. 671.
33.Id., pp. 661-663.
34.Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
35.Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
36.Id., p. 726.
37.See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,
156.
38.Defensor-Santiago vs. Commission on Elections , G.R. No. 127325, March 19,
1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June
12, 1939, 68 Phil. 328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996).
Judge Cooley enunciates the doctrine in the following oft-quoted language:
"One of the settled maxims in constitutional law is, that the power conferred
upon the legislature to make laws cannot be delegated by that department
to any other body or authority. Where the sovereign power of the state has
located the authority, there it must remain; and by the constitutional agency
alone the laws must be made until the Constitution itself is changed. The
power to whose judgment, wisdom, and patriotism this high
prerogative has been intrusted cannot relieve itself of the
responsibility by choosing other agencies upon which the power
shall be devolved, nor can it substitute the judgment, wisdom, and
patriotism of any other body for those to which alone the people
have seen fit to confide this sovereign trust." (Cooley on Constitutional
Limitations, 8th ed., Vol. I, p. 224)
39.United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
40.16 Am Jur 2d, Constitutional Law, § 337.
41.Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974
citing Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726;
Pangasinan Transp. Co. vs. Public Service Commission, No. 47065, June 26,
1940, 70 Phil. 221; Cruz vs. Youngberg, No. 34674, October 26, 1931, 56
Phil. 234; Alegre vs. Collector of Customs, No. 30783, August 27, 1929, 53
Phil. 394 et seq.
42.Pelaez vs. Auditor General, supra, citing People vs. Lim Ho , No. L-12091-2,
January 28, 1960, 106 Phil. 887; People vs. Jolliffee , No. L-9553, May 13,
1959, 105 Phil 677; People vs. Vera, No. 45685, November 16, 1937, 65 Phil.
56; U.S. vs. Nag Tang Ho, No. L-17122, February 27, 1922, 43 Phil. 1;
Compañia General de Tabacos vs. Board of Public Utility, No. 11216, March 6,
1916, 34 Phil. 136 et seq.
43.Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
44.Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166 SCRA
533, 543-544.
45.No. 45685, November 16, 1937, 65 Phil. 56.
46.Id., pp. 115-120.
47.Supra, note 43.
48.Id., pp. 496-497.
49.16 C.J.S., Constitutional Law, § 138.

50.Ibid.
51.16 Am Jur 2d, Constitutional Law § 340.
52.Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops
220.
53.Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs.
Court of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy
vs. Calugay, G.R. No. 123486, August 12, 1999, 312 SCRA 333.
54.Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No.
142943, April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990
ed., p. 45.
55.Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.
56.Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,
citing Panama Refining Co. vs. Ryan , 293 U.S. 388, 79 L.Ed. 469 (1935).
57.Compañia General de Tabacos de Filipinas vs. The Board of Public Utility
Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674,
October 26, 1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16,
1937, 65 Phil. 56, 113; Edu vs. Ericta, No. L-32096, October 24, 1970, 35
SCRA 481; Tatad vs. Secretary of the Department of Energy, G.R. No.
124360, November 5, 1997, 281 SCRA 330; Alunan vs. Mirasol, supra.
58.Bowles vs. Willinghan, 321 US 503, 88 L Ed 892, 64 S Ct 641, 28 Ohio Ops 180.
59.United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of
Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782;
Commissioner of Internal Revenue vs. Santos, G.R. No. 119252, August 18,
1997, 277 SCRA 617, 630.
60.Commission of Internal Revenue vs. American Express International, Inc.
(Philippine Branch), G.R. No. 152609, June 29, 2005.
61.Acting Commissioner of Customs vs. MERALCO , No. L-23623, June 30, 1977, 77
SCRA 469, 473.
62.Respondents' Memorandum, pp. 168-169.
63.The Wealth of Nations, Book V, Chapter II.
64.Chavez vs. Ongpin , G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.
65.TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate
Bill No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
66.G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
67.National Housing Authority vs. Reyes , G.R. No. L-49439, June 29, 1983, 123
SCRA 245, 249.
68.Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
69.Section 8, R.A. No. 9337, amending Section 110(A)(B), NIRC.
70.Ibid.
71.Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 &
134588, July 8, 2005.
72.United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993,
221 SCRA 108, 115.
73.E.O. No. 273, Section 1.
74.Section 5.
75.Section 110(B).
76.Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77.Id., Session No. 67, March 7, 2005, p. 726.
78.Id., Session No. 71, March 15, 2005, p. 803.
79.Revenue Regulations No. 14-2005, 4.114-2(a).
80.Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18, 2005.
81.Revenue Regulations No. 14-2005, Sec. 4. 114-2.
82.Act V, Scene V.
83.Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No.
143076, June 10, 2003, 403 SCRA 558, 565.
84.Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
85.Philippine Judges Association case, supra., note 29.
86.Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,
August 29, 1996, 261 SCRA 236, 249.
87.Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.
88.Section 7, R.A. No. 9337.
89.Ibid.
90.No. L-81311, June 30, 1988, 163 SCRA 371, 383.
91.Section 17, R.A. No. 9337, amending Section 148, NIRC.
92.Section 18, amending Section 151, NIRC.
95.Sections 1 and 2, amending Sections 27 and 28, NIRC.
97.Section 1, amending Section 27(C), NIRC.
98.Reyes vs. Almanzor , G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
99.Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249
SCRA 628, 659.
100.Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
101.Ibid.
DAVIDE, JR., C.J., separate concurring and dissenting opinion:
1.Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA
630, and companion cases.
2.ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
566.
3.G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,
Legislative Law and Process: In a Nutshell 81 (1986 ed.)
4.Supra note 1.
PUNO, J., concurring and dissenting:
1.Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
2.Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86

(2004).
3.Id. at 87.
4.Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American
Constitutional Law, p. 334 (3rd ed.).
5.Texas v. United States , 523 U.S. 296 (1998); Thomas v. Union Carbide
Agricultural Products Co., 473 U.S. 568 (1985); I Tribe, American
Constitutional Law, pp. 335-336 (3rd ed.).
6.Communist Party of the United States v. Subversive Activities Control Bd., 367
U.S. 1, 71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See
also concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley
Authority, 297 U.S. 288 (1936).
7.235 SCRA 630 (1994).
8.See Opinion in 235 SCRA 630, 805-825.
9.H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the
latest intent of the House on the matter.
10.1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure
sound judgment that comes from separate deliberations and actions in the
respective bodies that check and balance each other."

11.Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall
constitute a quorum to do business, but a smaller number may adjourn from
day to day and may compel the attendance of absent Members in such
manner, and under such penalties, as such House may provide."
12.Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction § 9:6
(6th ed.): The provision helps guarantee that the exercise of the taxing
power is well studied as the lower house is "presumably more representative
in character."
13.Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional
Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In the
construction and application of this constitutional restriction the courts have
kept steadily in view the correction of the mischief against which it was
aimed. The object is to prevent the practice, which was common in all
legislative bodies where no such restrictions existed of embracing in the
same bill incongruous matters having no relation to each other or to the
subject specified in the title, by which measures were often adopted without
attracting attention. Such distinct subjects represented diverse interests, and
were combined in order to unite the members of the legislature who favor
either in support of all. These combinations were corruptive of the legislature
and dangerous to the State. Such omnibus bills sometimes included more
than a hundred sections on as many different subjects, with a title
appropriate to the first section, and for other purposes."
"The failure to indicate in the title of the bill the object intended to be
accomplished by the legislation often resulted in members voting ignorantly
for measures which they would not knowingly have approved; and not only
were legislators thus misled, but the public also; so that legislative provisions
were steadily pushed through in the closing hours of a session, which, having
no merit to commend them, would have been made odious by popular
discussion and remonstrance if their pendency had been seasonably
announced. The constitutional clause under discussion is intended to correct
these evils; to prevent such corrupting aggregations of incongruous
measures, by confining each act to one subject or object; to prevent surprise
and inadvertence by requiring that subject or object to be expressed in the
title."
14.Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction §
10:4 (6th ed.); See also IV Laurel, Journal of the (1935) Constitutional
Convention, pp. 436-437, 440-441 where the 1934 Constitutional Convention
noted the anomalous legislative practice of railroading bills on the last day of
the legislative year when members of Congress were eager to go home. By
this irregular procedure, legislators were able to successfully insert matters
into bills which would not otherwise stand scrutiny in leisurely debate; I
Cooley, A Treatise on the Constitutional Limitations, pp. 286-287 (8th ed.);
Smith v. Mitchell , 69 W. Va 481, 72 S.E. 755 (1911): "The purpose of this
provision of the Constitution is to inform legislators and people of legislation
proposed by a bill, and to prevent hasty legislation."
15.235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407
(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.):
"conference reports are returned to assembly and Senate on a take-it or
leave-it-basis, and the bodies are generally placed in the position that to
leave-it is a practical impossibility." Thus, he concludes that "conference
committee action is the most undemocratic procedure in the legislative
process."
16.268 SCRA 269, 289 (1997).

17.The Manila Standard Today, August 26, 2005, p. 1.
PANGANIBAN, J.:
1.235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The
second case is an en banc Resolution on the Motions for Reconsideration of
the first case.
2.417 SCRA 503, December 10, 2003.
3."[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as
regards the tenor of the measure passed by Congress and approved by the
President." Resins Inc. v. Auditor General, 134 Phil. 697, 700, October 29,
1968, per Fernando, J., later CJ.; (citing Casco Philippine Chemical Co., Inc. v.
Gimenez, 117 Phil. 363, 366, February 28, 1963, per Concepción, J., later
CJ.). It is a doctrine that flows as a corollary to the separation of powers, and
by which due respect is given by one branch of government to the actions of
the others. See Morales v. Subido , 136 Phil. 405, 412, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
"[T]he signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both [h]ouses of Congress that it was
passed are conclusive of its due enactment." Fariñas v. Executive Secretary,
supra, p. 529, per Callejo Sr., J.
4.Mabanag v. Lopez Vito, supra , p. 12.
5.§1 of Rule 129 of the Rules of Court.
6.The United Kingdom has an uncodified Constitution, consisting of both written
and unwritten sources, capable of evolving to be responsive to political and
social change, and found partly in conventions and customs and partly in
statute. Its Parliament has the power to change or abolish any written or
unwritten element of the Constitution. There is neither separation of powers
nor formal checks and balances. Every bill drafted has to be approved by
both the House of Commons and the House of Lords, before it receives the
Royal Assent and becomes an Act of Parliament. The House of Lords is the
second chamber that complements the work of the Commons, whose
members are elected to represent their constituents. The first is the House of
Commons that alone may start bills to raise taxes or authorize expenditures.
Each bill goes through several stages in each House. The first stage, called
the first reading, is a mere formality. The second — the second reading — is
when general principles of the bill are debated upon. At the second reading,
the House may vote to reject the bill. Once the House considers the bill, the
third reading follows. In the House of Commons, no further amendments may
be made, and the passage of the motion amounts to passage of the whole
bill. The House of Lords, however, may not amend a bill so as to insert a
provision relating to taxation.
http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited
August 4, 2005, 11:30am PST).
7.See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p.
818.
8.Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
9.Tolentino v. Secretary of Finance, supra.
10.2nd paragraph, §1 of Article VIII of the 1987 Constitution.
11.Tolentino v. Secretary of Finance, supra.
12.Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
13.These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
14.§26(2) of Article VI of the 1987 Constitution.
15."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." Tolentino v. Secretary of
Finance, supra, p. 647, October 30, 1995, per Mendoza, J.
16.§24 of Article VI of the 1987 Constitution.
The power of the Senate to propose or concur with amendments is, apparently,
without restriction. By virtue of this power, the Senate can practically rewrite
a bill that is required to come from the House and leave only a trace of the
original bill. See Flint v. Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13,
1911.
19.Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20.Garner (ed. in chief), Black's Law Dictionary (8th ed., 2004), p. 708.
21.Statsky, West's Legal Thesaurus/Dictionary (1986), p. 348.
22.To argue that the raising of revenues makes the non-VAT provisions of a VAT
bill automatically germane is to bring legal analysis within the penumbra of
economic scrutiny. The burden or impact of any tax depends on the relative
elasticities of supply and demand and is chiefly a matter of policy confined
within the august halls of Congress. See Pindyck and Rubinfeld,
Microeconomics (5th ed., 2003), pp. 314-317.
23.Exxon Mobil Corp. v. Allapattah Services, Inc ., 125 S.Ct. 2611, 2622, June 23,
2005, per Kennedy, J.
24.Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz,
Philippine Political Law (2002), p. 154.
25.Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
26.Cruz, Philippine Political Law (2002), p. 155.
27.Tolentino v. Secretary of Finance, supra, August 25, 1994.
28.Cruz, Philippine Political Law (2002), p. 111.
29.Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted
separately and majority of each house approved it.
30.On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106, 107 &
108 the Tax Code by increasing the VAT rate to 12% on every sale, barter or
exchange of goods or properties; importation of goods; and sale or exchange
of services, including the use or lease of properties.
§§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Code
by also increasing the VAT rate to 12% on every sale, barter or exchange of
goods or properties; importation of goods; and sale or exchange of services,
including the use or lease of properties, but decreasing such rate to 8% on
every importation of certain goods; 6% on the sale, barter or exchange of
certain locally manufactured goods; and 4% on the sale, barter or exchange,
as well as importation, of petroleum products subject to excise tax and raw
materials to be used in their manufacture (subject to subsequent increases of
such reduced rates), and on the gross receipts derived from services
rendered on the sale of generated power.
The Tax Code referred to in this case is RA 8424, otherwise known as the "Tax
Reform Act of 1997."
31.§§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax Code
by retaining the VAT rate of 10% on every sale, barter or exchange of goods
or properties; and on the sale or exchange of services, including the use or
lease of properties, and the sale of electricity by generation, transmission,
and distribution companies.
32.§§4-6 of the consolidated bill amending §§106-108 of the Tax Code, respectively.
Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the
consolidated bill also appears in §§4-6 of Republic Act (RA) No. 9337,
amending the same provisions of the Tax Code. Mathematically, it is
expressed as follows:
VAT Collection > 2.8%
GDP
or
National Government
> 1.5%
Deficit
GDP
33.A negative budget surplus, or an excess of expenditure over revenues, is a

budget deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed.,
2005), p. 231.
34.GDP refers to the value of all goods and services produced domestically; the
sum of gross value added of all resident institutional units engaged in
production (plus any taxes, and minus any subsidies, on products not
included in the values of their outputs). www.nscb.gov.ph/sna/default.asp
(Last visited July 14, 2005 10am PST).
35.See Pelaez v. Auditor General, 122 Phil. 965, 974, December 24, 1965.
36.The acts of retroactively implementing the 12 percent VAT rate, should the
finance secretary be able to make recommendation only weeks or months
after the end of fiscal year 2005, or reverting to 10 percent if both conditions
are not met, are best addressed to the political branches of government.
The following excerpts from the Transcript of the Oral Arguments in GR Nos.
168461, 168463, 168056, and 168207, held on July 14, 2005 at the Supreme
Court Session Hall, are instructive on the position of petitioners:
"Atty. Gorospe: [It's] supposed to be 2005, Your Honor, but apparently, it [will]
be impossible to determine GDP the first day of 2006, Your Honor." (p.
57);
xxx xxx xxx
"Justice Panganiban: Now [let's see] when it is possible then to determine this
formula. It cannot be on the first day of January 2006, because the year
[2005] ended just the midnight before, isn't it?
"Atty. Gorospe: Yes, Your Honor.
"Justice Panganiban: . . . if it's only determined on March 1[,] then how can the
law become effective January 1[.] In other words, how will the [people be]
able to pay the tax if ever that formula is exceeded . . .?" (pp. 59-60);
xxx xxx xxx
"Atty. Gana: Well, . . . it would take a grace period of 6 to 8 months[,]
because obviously, determination could not be made on January 1,
2006. Yes, they were under the impression that at the earliest it would take
30 days.
"Justice Panganiban: Historically, when [will] these figures [be] available[:] the
GDP, [VAT] collection?" (p. 192);
xxx xxx xxx

"Justice Panganiban: But certainly not on January 1. Therefore, by January 1,
people would not know whether the rate would be increased or not,
even if there is no discretion?
"Atty. Gana: That's true, Your Honor, even if there is no discretion.
"Justice Panganiban: It will take weeks, or months to be able to determine that?
"Atty. Gana: Well, they anticipated it, would take at most by March ." (p. 193);
and
xxx xxx xxx
"Justice Panganiban: March, I will ask the government later on when they argue.
"Atty. Gana: As early as January but not later than 60 to 90 days ."
(boldface supplied; p. 194).
Culled from the same record, the following excerpts show the position of public
respondents:
"Justice Panganiban: It will be based on actual figures?
"Usec. Bonoan: It will be based on actual figures.

"Justice Panganiban: That creates a problem[,] because where do you get the
actual figures[?]
"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March,
but there is no impediment to speeding up the gathering .
"Justice Panganiban: Speed it up. February 15?
"Usec. Bonoan: Even within January, Your Honor, I think this can be . . .
"Justice Panganiban: Alright at the end of January, It's just estimate to get
the figures in January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx xxx xxx
"Justice Panganiban: My only point is, I raised this earlier and I promised counsel
for the petitioner whom I was questionin[g] that I will raise it with you,
whether the date January 1, 2006 would present an impossibility of
a condition happening.
"Usec. Bonoan: It will not, Your Honor.
"Justice Panganiban: So, your position [is] it will not present an impossibility.
Elaborate on it in your memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations
are important[,] because they clarify the law and it will guide
taxpayers. So[,] by January 1[,] [taxpayers] would not be wondering. Do we
charge the end consumers 10 [percent] or 12 [percent]? The regulations
should be able to spell that out [i]n the same manner that even now the
various consumers of various products and services must be able to get from
your regulations how much they [would] be charged, how much should
gasoline stations charge in addition to their correct prices, how much carriers
should charge[,] so there [would] be no confusion .
"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).
37.Using available statistics, it is approximated that the 2 4/5 percent has been
reached. VAT collection (in million pesos) for the first quarter alone of 2004 is
83,542.83, or 83 percent of revenue collections amounting to 100,654.01.
Divided into GDP of 13,053, the quotient is already 6.4 percent.
http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003
Bureau of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph
(Last visited July 14, 2005, 10:45am PST).
38.Besides, the use of the word "shall" in §§106(A), 107(A) & 108(A) of the Tax
Code, as amended respectively by §§4, 5 & 6 of RA 9337, is mandatory,
imperative and compulsory. See Agpalo, Statutory Construction (4th ed.,
1998), p. 333.
39.See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern
Cross Cement Corp. v. Philippine Cement Manufacturers Corp., GR No.
158540, August 3, 2005, p. 31.
40.Escudero Memorandum, pp. 38-39.
GDP data are far from perfect measures of either economic output or welfare.
There are three major problems: (1) some outputs are poorly measured
because they are not traded in the market, and government services are not
directly priced by such market; (2) some activities measured as additions to
GDP in fact only represent the use of resources in order to avoid crime or
risks to national security; and (3) it is difficult to account correctly for
improvements in the quality of goods. Dornbusch, Fischer, and Startz,
Macroeconomics (9th ed., 2005), pp. 35-36.
41.Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
42."Any meaningful change in the method and procedures of Congress or its
committees must . . . be sought in that body itself." Tolentino v. Secretary of
Finance, supra , p. 650, October 30, 1995, per Mendoza, J.
43.The necessity, desirability or expediency of a law must be addressed to
Congress as the body that is responsible to the electorate, for "legislators are
the ultimate guardians of the liberties and welfare of the people in quite as
great a degree [as the] courts." Tolentino v. Secretary of Finance, supra, p.
650, October 30, 1995, per Mendoza, J.; (citing Missouri, K. & T. Ry. Co. v.
May, 194 US 267, 270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J.)
44.Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45.Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911,
per Day, J.
"Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the
legislative body." Arroyo v. De Venecia, supra, p. 61, August 14, 1997, per
Mendoza, J.; (citing Osmeña Jr. v. Pendatun, 109 Phil 863, 870-871, October
28, 1960, per Bengzon, J.).
47.HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT
provisions of the Tax Code, but SB 1950 has §§1-3 that seek to amend the
rates of income tax on domestic, resident foreign and nonresident foreign
corporations at 35% (30% in 2009), with a tax credit on intercorporate
dividends at 20% (15% in 2009); and to reduce the allowable deductions for
interest expense by 42% (33% in 2009) of the interest income subject to
final tax.
48.The amendments to income taxes also partake of the nature of taxation without
representation. As I will discuss in the succeeding paragraphs of this Opinion,
they did not emanate from the House of Representatives that, under §24 of
Article VI of the 1987 Constitution, is the only body from which revenue bills
should exclusively originate.
49.Mamalateo, Philippine Income Tax (2004), p. 1.
50.Commissioner of Internal Revenue v. American Express International, Inc.
(Philippine Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J.
See Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000),
p. 36.
51.De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
53.Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
55.De Leon, The Law on Transfer and Business Taxation with Illustrations,
Problems, and Solutions (1998), pp. 195-196 & 222-224.
57.See §78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer,
then Collector of Internal Revenue, and promulgated by Manuel Roxas, then
Secretary of Finance, later President of the Republic of the Philippines, on
February 11, 1941, XXXIX OG 18, 325.
59.RA 8424 refers to the Tax Reform Act of 1997.
60.The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of the
Tax Code, is derived by first subtracting the 20 percent tax on interest
income from the increased tax rate of 35 percent imposed on domestic,
resident foreign, and nonresident foreign corporations, and then dividing the
difference obtained by the increased rate. Hence, it is computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
61.§§1-3 of HB 3705.
62.§5 of SB 1950. There seems to be a discrepancy between the Conference
Committee Report and the various pleadings before this Court. While such
report, attaching a copy of the bill as reconciled and approved by its
conferees, as well as the report submitted by the Senate's Committee on
Ways & Means to the Senate President on March 7, 2005, show that SB 1950
does not contain a no-pass on provision, the petitioners and respondents
show that it does (Pimentel Memorandum, Annex A showing a "Matrix on the
Disagreeing Provisions of the [VAT] Bills," pp. 9-11; Escudero Memorandum,
p. 42; and Respondents' Memorandum, pp. 109-110). Notably, the qualified
dissent of Senator Joker Arroyo to the Bicameral Conference Report states
that the Senate version prohibits the power companies from passing on the
VAT that they will pay.
63.§4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and
11% of their respective total amounts the claim for input tax credit of capital
goods, through equal distribution of the amount of such claim over their
depreciable lives; and of goods and services other than capital goods, and
goods purchased by persons engaged in retail trade.
64.§7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim
for input tax credit of goods purchased or imported for use in trade or
business, through an even depreciation or amortization over the month of
acquisition and the 59 succeeding months, if the aggregate acquisition cost
of such goods exceeds P660,000.
The depreciation or amortization in the amendments is referred to as a "spread-
out" in an unnumbered Revenue Memorandum Circular dated July 12, 2005,
submitted to this Court by public respondents in their Compliance dated
August 16, 2005. Such spread-out recognizes industries where capital assets
are constructed or assembled.
65.No cap is found in HB 3705.
66.§5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VAT
be deducted and withheld by the government or by any of its political
subdivisions, instrumentalities or agencies — including government-owned-
and-controlled corporations (GOCCs) — before making any payment on
account of each purchase of goods from sellers and services rendered by
contractors. The VAT deducted and withheld shall be at the rates of 5% of the
gross payment for the purchase of goods and 8% of the gross receipts for
services rendered by contractors on every sale or installment payment. The
VAT that is deducted and withheld shall be creditable against their respective
VAT liabilities — 10.5%, in case of government public works contractors; and
12% of the payments for the lease or use of properties or property rights to
nonresident owners.
67.§11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the VAT
be deducted and withheld by the government or by any of its political
subdivisions, instrumentalities or agencies — including government-owned or
-controlled corporations (GOCCs) — before making any payment on account
of each purchase of goods from sellers and services rendered by contractors.
The VAT deducted and withheld shall be at the rates of 5% of the gross
payment for the purchase of goods and on the gross receipts for services
rendered by contractors, including public works contractors. The VAT that is
deducted and withheld shall be creditable against the VAT liability of the
seller; and 10% of the gross payment for the lease or use of properties or
property rights to nonresident owners.
68.Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-
35 & 44.
69.http://explanation-guide.info/meaning/Maurice-Laura©.html (Last visited August
23, 2005, 3:25pm PST).
70.This refers to a "tax on value added" — TVA in French and VAT in English.
71.http://en.wikipedia.org/wiki/Maurice-Laura© (Last visited August 23, 2005,
3:20pm PST).
72.The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207, held on July 14, 2005 at the Supreme Court Session Hall, show that
the act of passing on to consumers is a mere cash flow problem, as agreed to
by counsel for petitioners in GR No. 168461:
"Justice Panganiban: So, the final consumer pays the tax?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: The trade people in between the middlemen just take it as
an input and then [collect] it as output, isn't it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: It's just a cash flow problem for them, essentially?
"Atty. Baniqued: Yes . . . ." (p. 375).
73.The 5 percent final withholding tax may also be charged as part of a supplier's
Cost of Sales.
74.This refers to RA 8424, as amended.
75.In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of RA
9337, does not at all prohibit the application of unused input taxes against
other internal revenue taxes. The manner of application is determined
though by the BIR through §4.112-1(b) of Revenue Regulations No. 14-2005,
otherwise known as the "Consolidated VAT Regulations of 2005," dated June
22, 2005.
76.That the unutilized input VAT can be considered an ordinary and necessary
expense for which a corresponding deduction will be allowed against gross
income under §34(A)(1) of the Tax Code — instead of a deferred asset — is
another matter to be adjudicated upon in proper cases.
77.See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.
78.The law referred to is not only the Tax Code, but also RA 9298, otherwise known
as the "Philippine Accountancy Act of 2004."
79.These are based on pronouncements of recognized bodies involved in setting
accounting principles. Greatest weight shall be given to their
pronouncements in the order listed below:
1.Securities and Exchange Commission (SEC);
2.Accounting Standards Council;

3.Standards issued by the International Accounting Standards Board (now
Committee); and
4.Accounting principles and practices for which there has been a long history of
acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the
pronouncements of the first listed body shall be applied. SEC Securities
Regulation Code Rule 68(1)(b)(iv) as amended, cited in Appendix C of
Morales, The Philippine Securities Regulation Code (Annotated), [2005], p.
578.
Recommended by the World Bank and the Asian Development Bank, and
increasingly recognized worldwide, international accounting standards (IAS)
have been merely adopted by Philippine regulatory bodies and accredited
professional organizations. The SEC, for instance, complies with the
agreement among co-members of the International Organization of Securities
Commissions to adopt IAS in order to ensure high-quality and transparent
financial reporting, with full disclosure as a means to promote credibility and
efficiency in the capital markets. In implementing the General Agreement on
Trade in Services, the Professional Regulatory Board of Accountancy (PRBOA)
of the Professional Regulatory Commission supports the adoption of IAS. The
Philippine Institute of Certified Public Accountants, a member of the
International Accounting Standards Committee (IASC), also has the
commitment to support the work of the IASC and uses best endeavors to
foster compliance with IAS. http://www.picpa.com.ph/adb/index.htm (Last
visited August 23, 2005, 3:15pm PST).
80.Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 &
515.
Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of
accountancy in the Philippines and adopt measures — such as the
promulgation of accounting and auditing standards, rules and regulations,
and best practices — that may be deemed proper for the enhancement and
maintenance of high professional, ethical, accounting, and auditing
standards that include international accounting and auditing standards and
generally accepted best practices.
81.The VAT is collected on each sale of goods or properties or upon the actual or
constructive receipt of consideration for services, starting from the
production stage, followed by the intermediate stages in the distribution
process, and culminating with the sale to the final consumer. This is the
essence of a VAT; it is a tax on the value added, that is, on the excess of
sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added Tax in
the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that
is allowable as an input tax credit, the remaining 30 percent becomes an
outright expense that is, however, immediately payable and remitted by the
business establishment to the government. This amount can never be
recovered or passed on to the consumer, but it can be an allowable
deduction from gross income under §34(A)(1) of the Tax Code. In effect, it is
a tax computed by multiplying 30 percent to the 10 percent VAT that is
imposed on gross sales, receipts or revenues. It is not a tax on tax and,
mathematically, it is derived as follows:
30% x 10% = 3% of gross sales, receipts or revenues.
82."Double taxation means taxing the same property [or subject matter] twice
when it should be taxed only once; that is, 'taxing the same person twice by
the same jurisdiction for the same thing.'" Commissioner of Internal Revenue
v. Solidbank Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J.;
(citing Afisco Insurance Corp. v. CA, 361 Phil. 671, 687, January 25, 1999, per
Panganiban, J.). See Commissioner of Internal Revenue v. Bank of Commerce,
GR No. 149636, pp. 17-18, June 8, 2005.
83."The rule . . . is well settled that there is no constitutional prohibition against

double taxation." China Banking Corp. v. CA , 403 SCRA 634, 664, June 10,
2003, per Carpio, J. Cruz, Constitutional Law (1998), p. 89.
84.§116 of the Tax Code as amended.
85."[C]ourts accord the presumption of constitutionality to legislative enactments,
not only because the legislature is presumed to abide by the Constitution[,]
but also because the judiciary[,] in the determination of actual cases and
controversies[,] must reflect the wisdom and justice of the people as
expressed through their representatives in the executive and legislative
departments of the government." Angara v. Electoral Commission, 63 Phil.
139, 158-159, July 15, 1936, per Laurel, J.; (cited in Francisco Jr. v. House of
Representatives, supra, pp. 121-122.)
86.Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per Sandoval-
Gutierrez, J.
87.Ichong v. Hernandez , 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
88.De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
89.Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
90.§§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on
domestic carriers and keepers of garages in §117, and on international
carriers in §118; franchise taxes in §119; amusement taxes in §125; excise
taxes on manufactured oils and other fuels in §148; registration
requirements in §236; issuance of receipts or sales or commercial invoices in
§237; and disposition of incremental revenues in §288.
91."[T]he removal of the excise tax on diesel . . . and other socially sensitive
products such as kerosene and fuel oil substantially lessened the impact of
VAT. The reduction in import duty . . . also eased the impact of VAT." Manila
Bulletin, "Impact of VAT on prices of oil products should be less than 10%,
says DoE," by James A. Loyola, Business Bulletin B-3, Friday, July 1, 2005,
attached as Annex A to the Memorandum filed by the Association of Pilipinas
Shell Dealers, Inc.
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207 on July 14, 2005 also reveals the effect of mitigating measures upon
petitioners in GR No. 168461:
"Justice Panganiban: As a matter of fact[,] a part of the mitigating measures
would be the elimination of the [e]xcise [t]ax and the import duties. That is
[why] it is not correct to say that the [VAT] as to petroleum dealers increase
to 10 [percent].
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And[,] therefore, there is no justification for increasing the
retail price by 10 [percent] to cover the E-[VAT.] [I]f you consider the excise
tax and the import duties, the [n]et [t]ax would probably be in the
neighborhood of 7 [percent]? We are not going into exact figures[.] I am just
trying to deliver a point that different industries, different products, different
services are hit differently. So it's not correct to say that all prices must go
up by 10 [percent].
"Atty. Baniqued: You're right, Your Honor.
"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr.
Counsel, are at present imposed a [s]ales [t]ax of 3 [percent]. When this E-
[VAT] law took effect[,] the [s]ales [t]ax was also removed as a mitigating
measure. So, therefore, there is no justification to increase the fares by 10
[percent;] at best 7 [percent], correct?
"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).

94.These bills refer to HB 3705 and SB 1950.
95.§26(2), supra.
96."Each house may not by its rules ignore constitutional restraints or violate
fundamental rights, and there should be a reasonable relation between the
mode or method of proceeding established by the rule and the result which is
sought to be attained." US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February
29, 1892, per Brewer, J.
97.Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies,
pp. 46-47.
98.338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J.
99.420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The
Philippine Judges Association v. Prado, 227 SCRA 703, 706, November 11,
1993, per Cruz, J.).
100.Veterans Federation Party v. COMELEC , 396 Phil. 419, 452-453, October 6,
2000, per Panganiban, J.; (citing Garcia v. COMELEC , 227 SCRA 100, 107-
108, October 5, 1993).
1.Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
2.Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
3.G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873,
115931, 25 August 1994, 235 SCRA 630, 750.
4.Supra, p. 811.
SANDOVAL-GUTIERREZ, J., concurring and dissenting opinion :
1.Book V of The Wealth of Nations.

2.ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and
Ed Vincent S. Albano.

3.Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M.
Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
4.Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva,
Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin
C. Agarao, Jr., Juan Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G.
Noel, Mujiv S. Hataman, Renato B. Magtubo, Joseph A. Santiago, Teofisto DL.
Guingona III, Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casino.
5.Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163
SCRA 647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition,
at 7.
6.Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan, Leyte,
G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power
Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
7.Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A
Commentary, 1996 Edition, at 687.
8.People vs. Vera, 65 Phil. 56 (1937).
9.Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
10.Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
11.Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12.A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the
custom or duty payable on such articles. (Black's Law Dictionary [6th
Edition], 1990, at 1456).
13.An import quota is a quantitative restriction on the importation of an article into
a country, and is a remedy available to the executive department upon its
determination that an imported article threatens serious injury to a domestic
industry. (Id. at 755).
14.An export quota is an amount of specific goods which may be exported and are
set by the government for purposes of national defense, economic stability
and price support. (Id. at 579).
15.Tonnage dues are duties laid upon vessels according to their tonnage or cubical
capacity. (Id. at 1488).
16.Wharfage dues are generally understood to be the fees paid for landing goods
upon or loading them from a wharf. It is a charge for the use of the wharf and
may be treated either as rent or compensation. (Marine Lighterage Corp. vs.
Luckenbach S.S. Co., 119 Misc. 612, 248 NYS 71).
17.A duty is generally understood to be a tax on the importation or exportation of
goods, merchandise and other commodities, while imposts are duties or
impositions levied for various reasons. (Crew Levick Co. vs. Commonwealth
of Pennsylvania, 245 US 292, 62 L Ed. 295, 38 S. Ct. 126).
18.People vs. Vera, supra.

19.Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J., p.
786.
20.Cruz, Constitutional Law, 1987 Edition, at 101.
21.TSN, May 10, 2005, Annex 'E" of the Petition in G.R. No. 168056.
22.Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.
23.G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24.Merriam-Webster's Third New International Dictionary (1993 Ed.), at 793.
25.Id.
26.City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31,
1967, 21 SCRA 665, 673.
28.Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.

29.Entitled "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code
of 1997, As amended, and For Other Purposes." Approved on January 27,
2005.
30.Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
National Internal Revenue Code of 1997, As Amended, and For Other
Purposes." Approved on February 28, 2005.
31.Entitled "An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes."
Approved on April 13, 2005.
33.Supra.
1.G.R. No. 115455, 25 August 1994, 235 SCRA 630.
2.Tolentino v. Secretary of Finance, supra, at 667-668.
3.See, for example, Vermuele, A., The Constitutional Law of Congressional
Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).
4.Galloway, G., Congress at the Crossroads, pp. 98-100.
5.Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A
Commentary, pp. 702-703 (1996 Ed.).
6.Dissenting Opinion of Justice Romero in Tolentino, supra.
7.Vermuele, supra.
8.Id. citing Bentham, J., Political Tactics.
9.Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,
Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III,
Juan Ponce Enrile.
10.Senators Recto, Villar, Gordon, Biazon.
11.Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D.
Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C.
Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte
Salceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr.,
Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora,
Rolex P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S.
Cayetano, Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino
P. Roman and Imee R. Marcos.
12.Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua,
Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
13.Representatives Del Mar, Suplico and Paras.
14.Dissenting Opinion in Tolentino, supra.
15.G.R. No. 147387, 10 December 2003, 417 SCRA 503.
16.Id., pp. 529-530. (Emphases mine.)
17.By way of explanation, the constitutional issues raised in Fariñas were (1)
whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI,
Section 26(1) of the Constitution requiring that "[e]very bill passed by
Congress shall embrace only one subject which shall be expressed in the title
thereof;" and (2) whether Section 14 of R.A. No. 9006 violated the equal
protection clause of the Constitution. On both issues the Court ruled in the
negative. To reiterate, unlike in the present cases, the acts of the conference
committee with respect to R.A. No. 9006 in Fariñas allegedly violated the
internal rules of either house of Congress, but it was not alleged therein that
they amounted to a violation of any constitutional provision on legislative
procedure.
18.Article VIII, Section 1, CONSTITUTION.
1.The Constitution states that "Congress may, by law, allow the President to fix
within specified limits, and subject to such limitations and restrictions as it
may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties as imposts within the framework of the national
development program of the Government." (Art. VI, Sec. 28 [2], emphasis
supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes,
since taxes are not tariffs, import and export quotas, tonnage and wharfage
dues, or other duties or imposts.
2.Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
SEC. 4.Section 106 of the same Code, as amended, is hereby further amended
to read as follows:
"SEC. 106. Value-added Tax on Sale of Goods or Properties. —
"(A)Rate and Base of Tax. — There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
"(i)Value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%); or
"(ii)National government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 1/2%)."
3.Condition has been defined by Escriche as "every future and uncertain event
upon which an obligation or provision is made to depend." It is a future and
uncertain event upon which the acquisition or resolution of rights is made to
depend by those who execute the juridical act. Futurity and uncertainty must
concur as characteristics of the event.
xxx xxx xxx
An event which is not uncertain but must necessarily happen cannot be a
condition; the obligation will be considered as one with a term. (IV
TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF
THE PHILIPPINES, 144).
4.I voted for the issuance of the temporary restraining order to prevent the
disorderly implementation of the law that would have defeated its very
purpose and disrupted the entire VAT system, resulting in less revenues. The
rationale, therefore, of the rule against enjoining the collection of taxes, that
taxes are the lifeblood of Government, leaned in favor of the temporary
restraining order.
TINGA, J., dissenting and concurring opinion:
1.Republic Act No. 9337. Referred to intext as "E-VAT Law."
2.Except insofar as it prays that Section 21 of the E-VAT Law be declared
unconstitutional. Infra.
3.J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
4.See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June
1990, 186 SCRA 198, 203.
5.See Section 24, Article VI, Constitution.
6.The recognized exceptions, both expressly provided by the Constitution, being
the tariff clause under Section 28(2), Article VI, and the powers of taxation of
local government units under Section 5, Article X.
7.G.R. No. 158540, 8 July 2005, 434 SCRA 65.
8.See People v. Vera , 65 Phil. 56, 117 (1937).
9.Decision, infra.
10.Carpio v. Executive Secretary, GR No. 96409 February 14, 1992, 206 SCRA 290,
298; citing In re Guarina, 24 Phil. 37.
11.People v. Vera, supra note 8.
12.See Section 2, National Internal Revenue Code.
13.There are two eminent tests for valid delegation, the "completeness test" and
the "sufficient standard test". The law must be complete in its essential
terms and conditions when it leaves the legislature so that there will be
nothing left for the delegate to do when it reaches him except enforce it. U.S.
v. Ang Tang Ho, 43 Phil. 1, 6-7 (1922). On the other hand, a sufficient
standard is intended to map out the boundaries of the delegate's authority
by defining legislative policy and indicating the circumstances under which it
is to be pursued and effected; intended to prevent a total transference of
legislative power from the legislature to the delegate.
14.Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276
SCRA 501, 513-514.
15.Notwithstanding, the Court in Southern Cross did rule that Section 5 of the
Safeguard Measures Act, which required a positive final determination by the
Tariff Commission before the DTI or Agriculture Secretaries could impose
general safeguard measures, operated as a valid restriction and limitation on
the exercise by the executive branch of government of its tariff powers.
16.G.R. No. 115455, 25 August 1994, 235 SCRA 630.
17.M. Evans, 'A SOURCE OF FREQUENT AND OBSTINATE ALTERCATIONS': THE
HISTORY AND APPLICATION OF THE ORIGINATION CLAUSE.
18.The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M.
Medina, The Origination Clause in the American Constitution: A Comparative
Survey, 23 Tulsa Law Journal 2, at 165.
19.Tolentino v. Secretary of Finance, supra note 16 at 661.
20.See Section 27(1), Article VI, CONSTITUTION.

21.Tolentino v. Secretary of Finance, supra note 16 at 668.
22.G.R. No. 124360, 5 November 1997, 281 SCRA 330.
23.Id. at 349-350.
24.People v. Tudtud , G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
25.See Section 1, Article III, Constitution. Private corporations and partnerships are
persons within the scope of the guaranty insofar as their property is
concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
26.16 C.J.S., at 1150-1151.
27.292 U.S. 40 (1934).

28.Id. at 44.
29.G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
30.Id. at 660-662.
31.Justice Isagani Cruz offers the following examples of taxes that contravene the
due process clause: "A tax, for example, that would claim 80 percent of a
person's net income would clearly be oppressive and could unquestionably
struck down as a deprivation of his property without due process of law. A
property tax retroacting to as long as fifty years back would by tyrannical
and unrealistic, as the property might not yet have been then in the
possession of the taxpayer nor, presumably, would he have acquired it had
he known of the tax to be imposed on it." I. CRUZ, CONSTITUTIONAL LAW, p.
85.
32."After defining religion, the Court, citing Tanada and Fernando, made this
statement, viz:
The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
information. Any restraint of such right can only be justified like other
restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to
prevent. (Tanada and Fernando on the Constitution of the Philippines, vol. 1,
4th ed., p. 297) (emphasis supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present
danger" rule in the religious freedom area, and in Philippine jurisprudence,
for that matter." Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408
SCRA 1.
33.Separate Opinion, infra .
34.Ibid.
35.Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on
the Harmonization of Legislation of Member States Concerning Turnover
Taxes, 1971 O.J. (L 71) 1301.
36.Liam & Ebrill, THE MODERN VAT.
37."The most basic law in finance!" Understand the Time Value of Money.
http://www.free-financial-advice.net/time-value-of-money.html. Last visited,
30 August 2005.
38.Time Value of Money.
http://www.jetobjects.com/components/finance/TVM/concepts.html. Last
visited, 30 August 2005.
39.There is also the option for the business to go underground and avoid VAT
registration, and consequently avoid remitting VAT payments to the
government. It would be facetious though for a Justice of the Supreme Court
to characterize this illegal option as "viable."
40.In Joseph Heller's Catch-22, Yossarian, a World War II pilot reasoned that if he
feigned insanity, he would be necessarily exempt from assignment to
dangerous bombing runs in enemy territory. However, his superiors reasoned
that if he were truly insane, he then would be heedless enough to be sent on
those dangerous bombing runs he had sought to avoid in the first place.

41.Pangloss was a famed character ridiculed in Voltaire's Candide, renowned for
his absolute blind faith in optimism, no matter how dire the circumstances.
42.Id. at 29-30.
43.Decision, infra .
44.This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12
July 2005, submitted by respondents in its Compliance dated 16 August
2005:
"[Q]:Is there a way by which such unapplied excess input tax credits can be
claimed for refund or issuance of TCC?
[A]:The only time application for refund/issuance of TCC is allowed for
input taxes incurred on the purchase of domestic goods/services is
when the same are directly attributable to zero-rated or effectively
zero-rated sales (of goods/services). . . .
For those engaged purely in domestic transactions, the only time that
unapplied input taxes may be applied for the issuance of TCC is
when the VAT registration of the taxpayer is cancelled due to
retirement or cessation of business or change in the status of the
taxpayer as a VAT registered taxpayer. As provided for in Section
112(BO, in case of cancellation of VAT registration due to cessation of
business or change in status of taxpayer, the only recourse given to such
taxpayer is to apply for the issuance of TCC on his excess input tax credits
which may be used in payment of his other internal revenue taxes,
application for refund thereof is not an option."
See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.
45.See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS TO THE
SECURITIES AND REGULATIONS CODE.
46.Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.
47.Section 36, id .
48.In his Separate Opinion, Justice Panganiban asserts that the deferred input tax
credit is not really confiscated by the government, as it remains an asset in
the accounting records of a business. See Separate Opinion, infra . By the
same logic, a law requiring all businesses to surrender to the government
100% of its gross sales subject to reimbursement only after a five year
period, would pass muster, since the amount is "not really confiscated by the
government as it remains an asset in the accounting records of a business."
49.Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221
SCRA 108, 115, April 7, 1993) to bolster his stated position that ""[t]here is
no vested right in a deferred input tax account; it is a mere statutory
privilege". Separate Opinion, infra . United Paracale does not pertain to any
deferred input taxes, but instead to "mining claims which according to
[petitioners] is private property would constitute impairment of vested rights
since by shifting the forum of the petitioner's case from the courts to the
Bureau of Mines . . . [the] substantive rights to full protection of its property
rights shall be greatly impaired." United Paracale Mining Co. v. Hon. Dela
Rosa, G.R. Nos. 63786-87, 7 April 1993, 221 SCRA 108, 115. Clearly, United
Paracale is not even a tax case, involving as it does, questions of the
jurisdiction of the Bureau of Mines.
50.See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
51.Section 32, International Accounting Standards 12.
52.Supra note 47.

53.Supra note 9.
54.Section 3, Article XIII, CONSTITUTION.
55.Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan,
G.R. No. L-81311, 30 June 1988.
56.J. Vitug and E. Acosta, supra note 3 at 41.
57.Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R.
No. L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky,
L-18169, July 31, 1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312,
February 26, 1972, 43 SCRA 280.
58.A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
59.Id. at 856.
1.Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.
2.Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February
1988, 158 SCRA 9.
3.Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then
Secretary of the Department of Finance, Cesar V. Purisima, dated 04 July
2005, attached as Annex A of the Very Urgent Motion to Lift Temporary
Restraining Order, filed by the Office of the Solicitor General on 04 July 2005.
4.Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA
503, 529.
5.Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall Field
& Co. v. Clark , 143 U.S. 294, 304.
6.Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA
630; Philippine Judges Association v. Prado, G.R. No. 105371, 11 November
1993, 227 SCRA 703.
7.G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299.
8.Supra, note 6.
9.Supra, note 3.
10.Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction) in G.R.
No. 168461 entitled, Association of Pilipinas Shell Dealers, Inc., et al. v.
Purisima, et al., p. 17, paragraph 52.
11.Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc.,
G.R. No. L-19937, 19 February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil.
36 (1915).
12.Traux v. Corrigan , 257 U.S. 312, 66 L Ed. 254, as quoted in Asociacion de
Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
13.Section 110(B) of the National Internal Revenue Code of 1997, as amended by
Section 8 of Rep. Act No. 9337.
14.VICTORIO A. DEOFERIO, JR. AND VICTORINO C. MAMALATEO, THE VALUE ADDED
TAX IN THE PHILIPPINES 48 (2000).
15.Benguet Consolidated Mining Co. v. Pineda, 98 Phil 711, 722 (1956).

16.Section 109(e) of the National Internal Revenue Code of 1997.
17.TSN, 18 April 2005, IV-2, p. 5.
18.Section 116 of the National Internal Revenue Code, as amended by Rep. Act No.
9337.
19.34 Phil. 969, 973 (1916).

20.G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
21.Id., pp. 210-211.

Abakada Guro Party List v. Ermita

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EN BANC

[G.R. No. 168056. September 1, 2005.]

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS

[G.R. No. 168207. September 1, 2005.]

AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,

[G.R. No. 168461. September 1, 2005.]

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

[G.R. No. 168463. September 1, 2005.]

FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

[G.R. No. 168730. September 1, 2005.]

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs.

Carlos G. Banigued and Laura Victoria Yuson-Layug for petitioners in

Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.

1. TAXATION; VALUE-ADDED TAX (VAT); TAX ON SPENDING OR

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The expenses of government, having for their object the interest

Mounting budget deﬁcit, revenue generation, inadequate ﬁscal

As a matter of fact a part of the mitigating measures would be the

And therefore, there is no justification for increasing the retail price by

G.R. No. 168056

Petitioners argue that the law is unconstitutional, as it constitutes

G.R. No. 168207

G.R. No. 168461

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Petitioners contend that these provisions are unconstitutional for being

G.R. No. 168730

The Court defined the issues, as follows:

a. Article VI, Section 28(1), and

b. Article III, Section 1

RULING OF THE COURT

In contrast, a direct tax is a tax for which a taxpayer is directly liable on

A. The Bicameral Conference Committee

It should be borne in mind that the power of internal regulation and

In resolving the diﬀerences with the Senate, the House panel

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xxx xxx xxx

Rule XII, Section 35 of the Rules of the Senate states:

The creation of such conference committee was apparently in response

Striking down such argument, the Court held thus:

The foregoing declaration is exactly in point with the present cases,

No similar provision No similar provision Provided for amendments

There being diﬀerences and/or disagreements on the foregoing

4. With regard to the amendments to other provisions of the NIRC

As to the amendments to NIRC provisions on taxes other than the

Thus, all the changes or modiﬁcations made by the Bicameral

Petitioners' argument that the practice where a bicameral conference

The Court reiterates here that the "no-amendment rule" refers

The foregoing question had been squarely answered in the Tolentino

xxx xxx xxx

Indeed, what the Constitution simply means is that the initiative

Since there is no question that the revenue bill exclusively originated

What we therefore prescribe is a burden sharing between

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The responsibility will not rest solely on the weary shoulders of

The other sections amended by the Senate pertained to matters of tax

A. No Undue Delegation of Legislative Power

The assailed provisions read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. —

(i) value-added tax collection as a percentage of Gross

(A) Rate and Base of Tax. — There shall be levied,

Petitioners allege that the grant of the stand-by authority to the

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In every case of permissible delegation, there must be a showing that