14 SUPREME COURT REPORTS ANNOTATED “CLASSIC STAR GASOLINE SERVICE STATION”; MARIAN SHEILA A.

Abakada Guro Party List vs. Ermita LEE doing business under the name and style of “NTE GASOLINE &
G.R. No. 168056. September 1, 2005. * SERVICE STATION”; JULIAN CESAR P. POSADAS doing business under
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. the name and style of “STARCARGA ENTERPRISES”; ADORACION
ALCANTARA and ED VINCENT S. ALBANO, petitioners, vs. THE MAÑEBO doing business under the name and style of “CMA MOTORISTS
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; CENTER”; SUSAN M. ENTRATA doing business under the name and style of
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR “LEONA’S GASOLINE STATION and SERVICE CENTER”; CARMELITA
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL BALDONADO doing business under the name and style of “FIRST CHOICE
REVENUE GUILLERMO PARAYNO, JR., respondents. SERVICE CENTER”; MERCEDITAS A. GARCIA doing business under the
G.R. No. 168207. September 1, 2005. * name and style of “LORPED SERVICE CENTER”; RHEAMAR A. RAMOS
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY doing business under the name and style of “RJRAM PTT GAS STATION”;
E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MA. ISABEL VIOLAGO doing business under the name and style of
MADRIGAL, AND SERGIO R. OSMEÑA III, petitioners, vs. EXECUTIVE “VIOLAGO-PTT SERVICE CENTER”; MOTORISTS’ HEART
SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY CORPORATION represented by its Vice-President for Operations, JOSELITO
OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF THE F. FLORDELIZA; MOTORISTS’ HARVARD CORPORATION represented by
BUREAU OF INTERNAL REVENUE, respondents. its Vice-President for Operations, JOSELITO F. FLORDELIZA;
G.R. No. 168461. September 1, 2005. * MOTORISTS’ HERITAGE CORPORATION represented by its Vice-President
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL
President, ROSARIO ANTONIO; PETRON DEALERS’ ASSOCIATION CORPORATION represented by its Vice-President for Operations, JOSELITO
represented by its President, RUTH E. BARBIBI; ASSOCIATION OF F. FLORDELIZA; ROMEO MANUEL doing business under the name and
CALTEX DEALERS’ OF THE PHILIPPINES represented by its President, style of “ROMMAN GASOLINE STATION”; ANTHONY ALBERT CRUZ III
MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under the doing business under the name and style of “TRUE SERVICE STATION”,
name and style of “ANB NORTH SHELL SERVICE STATION”; LOURDES petitioners, vs. CESAR V. PURISIMA, in his capacity as Secretary of the
MARTINEZ doing business under the name and style of “SHELL GATE—N. Department of
DOMINGO”; BETH-ZAIDA TAN doing business under the name and style of 16
“ADVANCE SHELL STATION”; REYNALDO P. MONTOYA 16 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
_______________ Finance and GUILLERMO L. PARAYNO, JR., in his capacity as
* EN BANC. Commissioner of Internal Revenue, respondents.
15 G.R. No. 168463. September 1, 2005.*
VOL. 469, SEPTEMBER 1, 2005 15 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL
Abakada Guro Party List vs. Ermita JOEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-
doing business under the name and style of “NEW LAMUAN SHELL CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
SERVICE STATION”; EFREN SOTTO doing business under the name and EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G.
style of “RED FIELD SHELL SERVICE STATION”; DONICA NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A.
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
MARBIBI doing business under the name and style of “R&R PETRON RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO,
STATION”; PETER M. UNGSON doing business under the name and style of 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.
Taxation; Value-Added Tax (VAT); Words and Phrases; 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; 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.—As a prelude, the Court deems it
apt to restate the general principles and
17
VOL. 469, SEPTEMBER 1, 2005 1 and implement its own rules of procedure, the respective rules of each house of
7 Congress provided for the creation of a Bicameral Conference Committee.—
Abakada Guro Party List vs. Ermita
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. 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.
Same; Same; Same; 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, then 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; 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.—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. 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. It was only in 1987, when President
Corazon C. Aquino issued Ex-ecutive 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.” E.O. No. 273 was followed by R.A. No. 7716 or the Expanded
VAT Law, R.A. No. 8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform
Act of 1997, and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.
18
1 SUPREME COURT REPORTS ANNOTATED
8
Abakada Guro Party List vs. Ermita
Congress; Bicameral Conference Committee; Legislative Rules;It should be borne
in mind that the power of internal regulation and discipline are intrinsic in any
legislative body, and pursuant to this inherent constitutional power to promulgate
Petitioners now beseech the Court to define the powers of the Bi-cameral 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.”
Thus, Article VI, Section 16 (3) of the Constitution provides that “each House may
determine the rules of its proceed-ings.” 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.
Same; Same; Same; Separation of Powers; Judicial Review;Congress is the best
judge of how it should conduct its own business expeditiously and in the most orderly
manner; If 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; Even the expanded
jurisdiction of the Supreme 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.—Akin to the Fariñas case, 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
19
VOL. 469, SEPTEMBER 1, 2005 1 cases of Philippine Judges Association vs. Pradoand Tolentino vs. Secretary of
9 Finance, the Court recognized the longstanding legislative practice of giving said
Abakada Guro Party List vs. Ermita
government. Moreover, as 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.
Same; Same; Same; Words and Phrases; 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.—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.
Same; Same; Same; 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.—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
20
2 SUPREME COURT REPORTS ANNOTATED
0
Abakada Guro Party List vs. Ermita
jurisdiction committed by the Bicameral Conference Committee. In the earlier
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.
Same; Same; Same; “No Amendment” Rule; The “no-amend-ment 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—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.—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.
21
 VOL. 469, SEPTEMBER 1, 2005 2 from income taxes and value-added taxes. As these house bills were transmitted
1 to the Senate, the latter, approaching the measures from the point of national
Abakada Guro Party List vs. Ermita
Same; Origin of Bills; Revenue Bills; Since there is no question that the revenue
bill 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—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.—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? * * * 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.
Same; Same; Same; 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, and the Senate,
approaching the measures from the point of national perspective, can introduce
amendments within the purposes of those bills, like providing ways that would soften
the impact of the VAT measure on the consumer.—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
22
2 SUPREME COURT REPORTS ANNOTATED
2 Same; Same; Exception to the Non-Delegation of Legislative Powers; Words and
Abakada Guro Party List vs. Ermita
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.
Same; Same; Same; Germaneness Rule; 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, and the sections referring to other percentage
and excise taxes are germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers.—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.
Separation of Powers; Delegation of Powers; A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, a doctrine 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.—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 instrumen-
23
VOL. 469, SEPTEMBER 1, 2005 2
3
Abakada Guro Party List vs. Ermita
tality of his own judgment and not through the intervening mind of another.
Phrases; The powers which Congress is prohibited from delegating are those which
are strictly, or inherently and exclusively, legislative—appertaining exclusively to the
legislative department; Purely legislative power 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; 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.—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.
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.
Same; Same; Same; Tests of Valid Delegation; A delegation 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
per-
24
2 SUPREME COURT REPORTS ANNOTATED
4 perform. Intelligent legislation on the complicated problems of modern society is
Abakada Guro Party List vs. Ermita
formance 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.—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.
Same; Same; Taxation; 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, the rationale being 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; 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.—The legislature may delegate to execu-tive 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. 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 informa-
25
VOL. 469, SEPTEMBER 1, 2005 2
5
Abakada Guro Party List vs. Ermita
tion 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
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.
Same; Same; Same; Statutory Construction; 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; No discretion would be exercised by the President; The use of the word
“shall” connotes a mandatory order.—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. 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. 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
26
2 SUPREME COURT REPORTS ANNOTATED
6 information and has a much broader perspective to properly evaluate them. His
Abakada Guro Party List vs. Ermita
the ascertainment of certain facts or conditions by a person or body other than
the legislature itself.
Same; Same; Presidency; Control Power; Doctrine of Qualified Political
Agency; 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—as such, he 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.”— 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.”
Same; Same; Same; Same; Same; 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, and 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, becoming the means or
tool by which legislative policy is determined and implemented.—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
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VOL. 469, SEPTEMBER 1, 2005 2
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Abakada Guro Party List vs. Ermita
becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and
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.
Same; Same; 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 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.
Same; Same; Taxation; Value-Added Tax; 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.—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 im-
28
2 SUPREME COURT REPORTS ANNOTATED
8 keep out of the pockets of the people as little as possible over and above what it
Abakada Guro Party List vs. Ermita
plementation 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.
Judicial Review; 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.—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.
Same; Separation of Powers; Statutory Construction; Rewriting the law is a
forbidden ground that only Congress may tread upon.— 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.
Taxation; Value-Added Tax; Fiscal Adequacy; Words and Phrases; The principle
of fiscal adequacy as a characteristic of a sound tax system, which was originally
stated by Adam Smith in his Canons of Taxation, simply means that sources of
revenues must be adequate to meet government expenditures and their variations.—
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,
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VOL. 469, SEPTEMBER 1, 2005 2
9
Abakada Guro Party List vs. Ermita
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
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.
Same; Same; Due Process; Equal Protection; 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.—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.
Same; Same; Words and Phrases; 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.—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.
 30
3 SUPREME COURT REPORTS ANNOTATED
0 intervene.
Abakada Guro Party List vs. Ermita
Same; Same; Due Process; Vested Rights; 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 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 limit; The distinction between
statutory privileges and vested rights must be borne in mind for persons have no
vested rights in statutory privileges.—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. 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. This was adopted by the Expanded VAT Law (R.A. No. 7716),
and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege that also the
law can remove, or in this case, limit.
Same; Same; 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; For whatever is the
purpose of the 60-month amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.—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. 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. 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
31
VOL. 469, SEPTEMBER 1, 2005 3 of his failure to withhold the tax or in case of underwithholding, the deficiency tax
1 shall be collected from the payor/withholding agent. . . . (B) Creditable Withholding
Abakada Guro Party List vs. Ermita
deterred. Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court cannot
Same; Same; With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions, Section 114 (C) of the
National Internal Revenue Code 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.—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: * * * 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.
Same; Same; Words and Phrases; In tax usage, “final,” as opposed to creditable,
means full; As applied to value-added tax, taxable transactions with the government
are subject to a 5% tax rate, which constitutes as full payment of the tax payable on
the transaction.—The Court observes, however, that the law 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
32
3 SUPREME COURT REPORTS ANNOTATED
2
Abakada Guro Party List vs. Ermita
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
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.
Same; Same; It is clear that Congress intended to treat differently transactions
with the government; Since it has not been shown that the class subject to the final 5%
final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision.—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, to wit: SEC. 114. Return and Payment of Value-added Tax.—
(C) Withholding of CreditableValue-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
33
VOL. 469, SEPTEMBER 1, 2005 3 classes in the same place and in like circumstances.” The power of the State to make
3 reasonable and natural classifications for the purposes of taxation has long been
Abakada Guro Party List vs. Ermita
contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%) withholding tax at
the time of payment. For this purpose, the payor or person in control of the payment
shall be considered as the withholding agent. The valued-added tax withheld under
this Section shall be remitted within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied) As amended, the use of the
word final and the deletion of the word creditable exhibits Congress’s intention to
treat transactions with the government differently. Since it has not been shown that
the class subject to the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are
not the only ones subjected to the 5% final withholding tax. It applies to all those
who deal with the government.
Same; Same; Judicial Review; 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”; 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.—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 Shake-speare 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.
Same; Same; Equal Protection; The power of the State to make reasonable and
natural classifications 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 de-
34
3 SUPREME COURT REPORTS ANNOTATED
4
Abakada Guro Party List vs. Ermita
prived of the same protection of laws which is enjoyed by other persons or other
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.
Same; Same; Same; The equal protection clause does not require the universal
application of the laws on all persons or things without distinction; 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.—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.
Same; Same; Same; Uniformity of Taxation; 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.—Uniformity in taxation means that all
taxable articles or
35
VOL. 469, SEPTEMBER 1, 2005 3 and it states: I. The subjects of every state ought to contribute towards the support of
5 the government, as nearly as possible, in proportion to their respective abilities; that
Abakada Guro Party List vs. Ermita
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.
Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.— 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. As was stated in Kapatiran ng
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: 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.
Same; Same; Progressive Taxation; Progressive taxation is built on the principle
of the taxpayer’s ability to pay—taxation is progressive when its rate goes up
depending on the resources of the person affected.—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
36
3 SUPREME COURT REPORTS ANNOTATED
6
Abakada Guro Party List vs. Ermita
to pay. This principle was also lifted from Adam Smith’s Canons of Taxation,
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.
Same; Same; Same; 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.—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.
Same; Same; Same; The Constitution does not really prohibit the imposition of
indirect taxes, like the VAT.—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 procla-
37
VOL. 469, SEPTEMBER 1, 2005 3
7 of other tax measures, such as introducing amendments to provisions on corporate income
Abakada Guro Party List vs. Ermita
mation 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)
Same; Same; Judicial Review; The Court cannot strike down a law as
unconstitutional simply because of its yokes.—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.
DAVIDE, JR., C.J., Separate Concurring and Dissenting Opinion:
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax; 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.— 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
38
3 SUPREME COURT REPORTS ANNOTATED
8
Abakada Guro Party List vs. Ermita
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
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 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.
PUNO, J., Concurring and Dissenting Opinion:
Judicial Review; Requisites; Ripeness Doctrine; 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;” The basic rationale of the doctrine of ripeness is “to prevent the courts, through
premature adjudication, from entangling themselves in abstract disagreements.”—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
39
 VOL. 469, SEPTEMBER 1, 2005 3 differences, it has to go back to the chamber that created it “for the latter’s appropriate
9 action.” In other words, it must take the proper instructions from the chambers that created
Abakada Guro Party List vs. Ermita
are “not immediately involved are not thereby thrown open for a judicial determination
of constitutionality.”
Same; Same; Same; Taxation; 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.—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.
Congress; Bicameral Conference Committee; A Bicameral Conference Committee has
limited powers and cannot be allowed to act as if it were a “third house” of Congress.—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, 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.
Same; Same; 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.—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
40
4 SUPREME COURT REPORTS ANNOTATED
0 amendments which are entirely new and have not previously passed through the coils of
Abakada Guro Party List vs. Ermita
“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: * * * 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
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.
Same; Same; Amendments which 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 transgress the limits of the Bicameral Conference Committee’s
authority and must be struck down.—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.” Same; Same; Germaneness Rule; It is high time
to re-examine the test of germaneness proffered in Tolentino v. Secretary of Finance, 235 SCRA
630 (1994)—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
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Senate when they are not even in disagreement; 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.—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
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 structurecomposed only of two houses whose members would thoroughly
debateproposed legislations in representation of the will of their respective constituents. The
institution of this lawmaking structure is unmistakablefrom 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.
Same; Same; Republicanism; 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
42
4 SUPREME COURT REPORTS ANNOTATED
2 Same; Bicameral Conference Committee (BCC); The Bicameral Conference Committee
Abakada Guro Party List vs. Ermita
or in the claws of a committee.—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.
Same; Same; Same; 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.—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 Pph1 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.
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.
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be all-encompassing in
some countries like Great Britain, but as applied to our jurisdiction, it must yield to
mandatory provisions of our 1987 Constitution.—I believe, however, that the enrolled bill
doctrine is not absolute. It may be all-encompassing in some countries like Great Britain, 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 in Great Britain. It is unlike
that in our country and, therefore, the doctrine from which it originated could be modified
accordingly by our Constitution. In fine, the enrolled bill doctrine applies mainly to the
internal
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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-amend-ment” and “three-
reading” rules which I will discuss later.
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
govern-ment,” 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.—
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. 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?
Same; Presidency; Separation of Powers; Control Power; Doctrine of Qualified Political
Agency; I respectfully disagree with the statements 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
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4 SUPREME COURT REPORTS ANNOTATED
4
Abakada Guro Party List vs. Ermita
alter ego of Congress, but of the President.—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
Con-gress.” 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.
Same; Bicameral Conference Committee; 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.—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.
Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French engineer, who
invented the VAT.—It was Maurice Lauré, a French engineer, who invented the VAT. In
1954, he had the idea of imposing an indirect tax on consumption, called taxe sur la valeur
ajoutée, 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,
45
VOL. 469, SEPTEMBER 1, 2005 4
5 taxes and compensating taxes, in which credits may be disallowed altogether.
Abakada Guro Party List vs. Ermita
rather than retailers or tax authorities, were forced to administer and account for the
tax themselves.
Same; Same; Due Process; Vested Rights; There is no vested right in a deferred input
tax—it is a mere statutory privilege which the State may modify or withdraw, being merely an
asset granted by operation of law.—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.
Same; Same; Same; Same; In the exercise of its inherent power to tax, the State validly
interferes with the right to property of persons, natural or artificial; The reduction of tax
credits is a question of economic policy, not of legal perlustration.—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.” 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.
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6
Abakada Guro Party List vs. Ermita
Same; Same; Unlike the laws of physical science, the VAT system can always be modified
to suit modern fiscal demands.—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
YNARES-SANTIAGO, J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in the exercise of this
rule-making power, Congress failed to set parameters in the functions of the Bicameral
Conference 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.— 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 disagreeing provisions” by substituting it with its own version—clearly violate the three-
certiorari jurisdiction. Notwithstanding the doctrine of separation of powers, therefore, it is reading requirement, as the committee’s version would no longer undergo the same since it
the duty of the Court to declare as void a legislative enactment, either from want of would be immediately put into vote by the respective houses. In effect, it is not a bill that was
constitutional power to enact or because the constitutional forms or conditions have not been passed by the entire Congress but by the members of the ad hoc committee only, which of
observed. course is constitutionally infirm. I disagree that the no-amendment rule referred only to “the
47 procedure to be followed by each house of Congress with regard to bills initiated in each of
VOL. 469, SEPTEMBER 1, 2005 4 said respective houses” because it would relegate the no-amendment rule to a mere rule of
7 procedure. To my mind, the no-amendment rule should be construed as prohibiting the
Bicameral Conference Committee from introducing amendments and modifications to non-
Abakada Guro Party List vs. Ermita
disagreeing provisions of the House and Senate bills. In sum, the committee could only either
Same; Same; I fully subscribe to the theory advanced in the Dissenting Opinion of Chief
adopt the version of the House bill or the Senate bill, or adopt neither. As Justice Reynato S.
Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance that the authority of the
Puno said in his Dissenting Opinion in Tolentino v. Secretary of Finance, there is absolutely
bicameral conference committee was limited to the reconciliation of disagreeing provisions or
no legal warrant for the bold submission that a Bicameral Conference Committee possesses
the resolution of differences or inconsistencies—the Bicameral Conference Committee is
the power to add/delete provisions in bills already approved on third reading by both Houses
authorized only to adopt either the version of the House bill or the Senate bill, or adopt
or an ex post veto power.
neither.—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
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting Opinion:
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.
Congress; Taxation; Separation of Powers; Delegation of Powers; Taxation is a power
in Tolentino v. Secretary of Finance that the authority of the bicameral conference committee
that is purely legislative and which the central legislative body cannot delegate either to the
was limited to the reconciliation of disagreeing provisions or the resolution of differences or
executive or judicial department of government without infringing upon the theory of
inconsistencies. Thus, it could only either (a) restore, wholly or partly, the specific provisions
separation of powers.—Taxation is an inherent attribute of sovereignty. It is a power that is
of the House bill amended by the Senate bill, (b) sustain, wholly or partly, the Senate’s
purely legislative and which the central legislative body cannot delegate either to the
amendments, or (c) by way of a compromise, to agree that neither provisions in the House bill
executive or judicial department of government without infringing upon the theory of
amended by the Senate nor the latter’s amendments thereto be carried into the final form of the
separation of powers. The rationale of this doctrine may be traced from the democratic
former.Otherwise stated, the Bicameral Conference Committee is authorized only to adopt
principle of “no taxation without representation.” The power of taxation being so pervasive, it
either the version of the House bill or the Senate bill, or adopt neither. It cannot, as
is in the best interest of the people that such power be lodged only in the Legislature.
the ponencia proposed, “try to arrive at a compromise,” such as introducing provisions not
Composed of the people’s representatives, it is “closer to the pulse of the people and . . . are
included in either the House or Senate bill, as it would allow a mere ad hoc committee to
therefore in a better position to determine both the extent of the legal burden the people are
substitute the will of the entire Congress and without undergoing the requisite three-reading,
capable of
which are both constitutionally proscribed. To allow the committee unbridled discretion to
49
overturn the collective will of the whole Congress defies logic considering that the bills are
VOL. 469, SEPTEMBER 1, 2005 4
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 9
the entire Congress, whose will is expressed collectively through the passed bills. Abakada Guro Party List vs. Ermita
Same; Same; No-Amendment Rule; The ponencia’s submission that despite its limited bearing and the benefits they need.” Also, this set-up provides security against the
authority, the Bicameral Conference Committee could “compromise the disagreeing provisions” abuse of power. As Chief Justice Marshall said: “In imposing a tax, the legislature acts upon
by substituting it with its own version clearly violates the three-reading requirement, as the its constituents. The power may be abused; but the interest, wisdom, and justice of the
committee’s version would no longer undergo the same since it would be immediately put into representative body, and its relations with its constituents, furnish a sufficient security.”
vote by the respective houses.—Before Consequently, Section 24, Article VI of our Constitution enshrined the principle of “no
48 taxation without representation” by providing that “all . . . revenue bills . . . shall originate
4 SUPREME COURT REPORTS ANNOTATED exclusively in the House of Representatives, but the Senate may propose or concur with
8 amendments.” This provision generally confines the power of taxation to the Legislature.
Abakada Guro Party List vs. Ermita Same; Same; Same; Same; Value-Added Tax; 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
a bill becomes a law, it must pass three readings. Hence, the ponencia’ssubmission that
power by delegating it to the President.—R.A. No. 9337, in granting to the President
despite its limited authority, the Bicameral Conference Committee could “compromise the
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.”
Same; Same; Same; Same; Same; Tariff Powers; 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.—Noteworthy is the absence of tax rates or VAT rates in the
enumeration. If the intention of the Fram-
50
5 SUPREME COURT REPORTS ANNOTATED
0 revenue vis-à–-vis the needs of government would be in keeping with the principle. Equating
Abakada Guro Party List vs. Ermita
ers 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.
Same; Same; Same; Same; Same; Control Power; 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—that the President’s exercise of an authority is practically within her control
is tantamount to giving no conditions at all.—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.
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Same; Taxation; One of the principles of sound taxation is fiscal adequacy—neither an
excess nor a deficiency of revenue vis-à-vis the needs of government would be in keeping with
the principle; Our Senators must have forgotten that for every increase of taxes, the burden
always redounds to the people; Taxation is not a power to be exercised at one’s whim.—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
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.
Same; Origination Rule; Words and Phrases; 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.—The adverb “exclusively” means “in an exclusive manner.”
The term “exclusive” is defined as “excluding or having power to exclude; limiting to or
limited to; single, sole, undivided, whole.” 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.” 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.” 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
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2
 Abakada Guro Party List vs. Ermita
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. A perusal of the
legislative history of R.A. No. 9337 shows that it did not “exclusively originate” from the
House of Representatives.
Same; Same; 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.—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. In 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.” 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.
Same; Same; Germaneness Rule; The Senate could not, without violating the
germaneness rule and the principle of “exclusive origination,” propose tax matters not included
in the House Bills.—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
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VOL. 469, SEPTEMBER 1, 2005 5 legislature to guard against the consequences of its own future passions, myopia, or herd
3 behavior. By requiring that bills be read and debated on successive days, legislature may
Abakada Guro Party List vs. Ermita
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:
Congress; Bicameral Conference Committee; Foreign Jurisprudence; There are
significant textual differences between the US Federal Constitution’s and our Constitution’s
prescribed congressional procedure for enacting laws—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.—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.
Same; Three-Reading Rule; No-Amendment Rule; 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.—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.”
Same; Same; Same; 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 legisla-
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4
Abakada Guro Party List vs. Ermita
ture to guard against the consequences of its own future passions, myopia, or herd
behavior.—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
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.”
AZCUNA, J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; 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 1 January 2006.—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. 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
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5 Same; Same; Origination Rule; Article VI, Section 24 of the Constitution, also known as
Abakada Guro Party List vs. Ermita
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.
Same; Germaneness Rule; 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 E-VAT, and are, therefore, essential—and hopefully sufficient—means to
enable our people to bear the sacrifices they are being asked to make; The provisions on
corporate income taxes, which are not germane to the E-VAT law, are not found in the Senate
and House bills.—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.
TINGA, J., Dissenting and Concurring Opinion:
Taxation; Value-Added Tax; Judicial Review; Due Process; 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.—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
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6
Abakada Guro Party List vs. Ermita
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.
the origination clause, 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; 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.—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. 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 complete 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. 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,
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Abakada Guro Party List vs. Ermita
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.
Same; Same; Bicameral Conference Committee; Germaneness Rule; 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.—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. 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.
Same; Same; Same; Same; 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 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,
58
5 SUPREME COURT REPORTS ANNOTATED
8 my colleagues deem unconstitutional. Both the House and Senate Bills contained these
Abakada Guro Party List vs. Ermita
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.
Same; Same; Same; Same; 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 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.—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 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.
Same; Same; Same; Same; Municipal Corporations; Local Government Units; 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 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
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Abakada Guro Party List vs. Ermita
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 Bicam-eral 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.
Same; Same; Same; 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.—I also offer this
brief comment regarding the deletion of the so-called “no pass on” provisions, which several of
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.
Same; Same; Same; An outright declaration that the deletion of the two elementally
different “no-pass on” provisions is unconstitutional, is of dubious efficacy in this case.—An
outright declaration that the deletion of the two elementally different “no-pass on” provi-
 60 I think that the Court should go beyond a facial examination of the statute, and seek to
6 SUPREME COURT REPORTS ANNOTATED understand how exactly it would operate. The express terms of a statute, especially tax laws,
0 are usually inadequate in spelling out the practical effects of its implementation. The devil is
usually in the details.
Abakada Guro Party List vs. Ermita
Same; Same; Same; We should not cede ground to those transgressions of the people’s
sions is unconstitutional, is of dubious efficacy in this case. Had such pronouncement
fundamental rights simply because the mechanism employed to violate constitutional
gained endorsement of a majority of the Court, it could not result in the ipso facto restoration
guarantees is steeped in disciplines not normally associated with the legal profession.—The
of the provision, the omission of which was ultimately approved in both the House and
degree of difficulty involved of judicial review of tax laws has increased with the growing
Senate. Moreover, since the House version of the “no pass on” is quite different from that of
complexities of business, economic and accounting practices. These are sciences which
the Senate, there would be a question as to whether the House version, the Senate version, or
laymen are not normally equipped by their general education to fully grasp, hence the
both versions would be reinstated. And of course, if it were the Court which would be called
possible insecurity on their part when confronted with such questions on these fields.
upon to choose, such would be way beyond the bounds of judicial power. Indeed, to intimate
However, we should not cede ground to those transgressions of the people’s fundamental
that the Court may require Congress to reinstate a provision that failed to meet legislative
rights simply because the mechanism employed to violate constitutional guarantees is
approval would result in a blatant violation of the principle of separation of powers, with the
steeped in disciplines not normally associated with the legal profession. Venality cannot be
Court effectively dictating to Congress the content of its legislation. The Court cannot simply
allowed to triumph simply due to its sophistication. This petition imputes in the E-VAT Law
decree to Congress what laws or provisions to enact, but is limited to reviewing those
unconstitutional oppression of the fatal variety, but in order to comprehend exactly how and
enactments which are actually ratified by the legislature.
why that is so, one has to delve into the complex milieu of the VAT system. The party alleging
Same; Same; Due Process; It is difficult though to put into quantifiable terms how
the law’s unconstitutionality of course has the burden to demonstrate the violations in
onerous a taxation statute must be before it contravenes the due process clause.—
understandable terms, but if such proof is presented, the Court’s duty is to engage
Sison pronounces more concretely how a tax statute may contravene the due process clause.
accordingly.
Arbitrariness, confiscation, overstepping the state’s jurisdiction, and lack of a public purpose 62
are all grounds for nullity encompassed under the due process invocation. Yet even these
6 SUPREME COURT REPORTS ANNOTATED
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 majority 2
cites Sisonin asserting that due process and equal protection are broad standards which need Abakada Guro Party List vs. Ermita
proof of such persuasive character to lead to such a conclusion. It is difficult though to put Same; Same; Same; Judicial Review; I do not see as an impediment to the annulment of
into quantifiable terms how onerous a taxation statute must be before it contravenes the due a tax law the fact that it has yet to be implemented, or the fear that doing so constitutes an
process clause. After all, the inherent nature of taxation is to cause pain and injury to the undue attack on the wisdom, rather than the legality of a statute.—I do not see as an
taxpayer, albeit for the greater good of society. Perhaps whatever collective notion there may impediment to the annulment of a tax law the fact that it has yet to be implemented, or the
be of what constitutes an arbitrary, confiscatory, and unreasonable tax might draw more fear that doing so constitutes an undue attack on the wisdom, rather than the legality of a
from the fairy tale/legend traditions of absolute monarchs and the oppressed peasants they statute. However, my position in this petition has been challenged on those grounds, and I
tax. Indeed, it is easier to jump to the conclusion that a tax is oppressive and unfair if it is see it fit to refute these preemptive allegations before delving into the operative aspect of the
imposed by a tyrant or an authoritarian state. E-VAT Law. If there is cause to characterize my arguments as speculative, it is only because
61 the E-VAT Law has yet to be implemented. No person as of yet can claim to have sustained
VOL. 469, SEPTEMBER 1, 2005 6 actual injury by reason of the implementation of the assailed provisions in G.R. No. 168461.
1 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
Abakada Guro Party List vs. Ermita
deprivation of life, liberty or property without due process of law. This is especially so if, as in
Same; Same; Same; In testing the validity of a tax statute as against the due process
this case, the injury is of mathematical certainty, and the extent of the loss quantifiable
clause, the Court should go beyond a facial examination of the statute, and seek to understand
through easy reference to the most basic of business practices. These arguments are
how exactly it would operate.—Could an arbitrary, confiscatory or unreasonable tax actually
conjectural for the same reason that the bare statement “firing a gunshot into the head will
be enacted by a democratic state such as ours? Of course it could, but these would exist in
cause a fatal wound” would be conjectural. Some people are lucky enough to survive gunshot
more palatable guises. In a democratic society wherein statutes are enacted by a
wounds to the head, while many others are not. Yet just because the fear of mortality would
representative legislature only after debate and deliberation, tax statutes will most likely, on
be merely speculative, it does not mean that there should be less compulsion to avoid a
their face, seem fair and even-handed. After all, if Congress passes a tax law that on facial
situation of getting shot in the head.
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,
 Same; Same; Same; Clear and Present Danger Doctrine; 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 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
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VOL. 469, SEPTEMBER 1, 2005 6 the taxable transactions that precede the final purchase or sale, it is the end-user, or the
3 consumer, that ultimately shoulders the tax—despite its name, VAT is generally not intended
Abakada Guro Party List vs. Ermita
of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.
Same; Same; Same; Same; 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.—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.
Same; Same; Same; Same; 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? The long-standing tradition has been reliance
on the judicial branch, and not the legislative branch, for salvation from unconstitutional
laws.—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.
Same; Same; 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.—VAT is distinguishable from the standard excise
or percentage taxes in that it is imposable not only on
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6 SUPREME COURT REPORTS ANNOTATED
4 because of the immediate relief afforded from the input taxes paid by the crediting system. In
Abakada Guro Party List vs. Ermita
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.
Same; Same; There is another key characteristic of the VAT—that no matter how many
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.
Same; Same; 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.—
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
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Abakada Guro Party List vs. Ermita
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
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.
Same; Same; The majority fails to consider one of the most important concepts in finance,
time value for money—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.—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 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.
Same; Same; 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; If the 70% cap was designed in order to
enhance revenue collection, then I submit that the means employed stand beyond reason.—It
would be sad, but fair, if a business ceases because of its inability to
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6 SUPREME COURT REPORTS ANNOTATED
6 though, would require an increase in the selling price, dampening consumer enthusiasm, and
Abakada Guro Party List vs. Ermita
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.
Same; Same; 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.
Same; Same; Due Process; The standard of “deprivation of life” of juridical persons
employs different variables than that of natural persons.—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
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7
Abakada Guro Party List vs. Ermita
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.
Same; Same; Same; Catch-22; 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.—
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
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.
Same; Same; 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 Philip-pines—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.—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.
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8
Abakada Guro Party List vs. Ermita
Same; Same; 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.—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 optimism.
Same; Same; 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, and it is not merely an undue
taking of property, but constitutes an unjustified taking of life as well; 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 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. 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
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VOL. 469, SEPTEMBER 1, 2005 6
9 corporation by operation of law. Assets would fall under the purview of property under the
Abakada Guro Party List vs. Ermita
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.
Same; Same; What the majority fails to mention is that under Section 10 of the E-VAT
Law, which amends Section 112 of the NIRC, the tax credit or refund may not be done while
the enterprise remains operational.—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. 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.
Same; Same; 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; 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.—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
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Abakada Guro Party List vs. Ermita
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.
Same; Same; Due Process; 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.— 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
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.
Same; Same; Same; To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege.—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. Same; Same; The deletion of the credit apparatus—where tax withheld would also be
Moreover, the Constitution also requires the State to recognize the right of creditable against the VAT liability of the seller or contractor—effectively compels the private
71 enterprise transacting with the government to shoulder the output VAT that should have been
VOL. 469, SEPTEMBER 1, 2005 7 paid by the government in excess of 5% of the gross selling price, and at the same time unduly
1 burdens the private enterprise by precluding it from applying any creditable input VAT on the
same transaction.—The principle that the Government and its subsidiaries may deduct and
Abakada Guro Party List vs. Ermita
withhold a final value-added tax on its purchase of goods and services is not new, as the
enterprises to reasonable returns on investments, and to expansion and growth. This, I
NIRC had allowed such deduction and withholding at the rate of 3% of the gross payment for
believe, encompasses profit.
the purchase of goods, and 6% of the gross receipts for services. However, the NIRC had also
Same; Same; The amortization over a five-year period of the input VAT on these capital
provided that this tax withheld would also be creditable against the VAT liability of the seller
goods would definitely eat up into the profit margin of enterprises.—Again, this provision
or contractor, a mechanism that was deleted by the E-VAT law. The deletion of this credit
unreasonably severely limits the ability of an enterprise to recover its prepaid input VAT. On
apparatus effectively compels the private enterprise transacting with the government to
its face, it might appear injurious primarily to high margin enterprises, whose purchase of
shoulder the output VAT that should have been paid by the government in excess of 5% of the
capital goods in a given quarter would routinely exceed P1,000,000.00. The amortization over
gross selling price, and at the same time unduly burdens the private enterprise by precluding
a five-year period of the input VAT on these capital goods would definitely eat up into their
it from applying any creditable input VAT on the same transaction.Notably, the removal of
profit margin. But it is still possible for such big businesses to survive despite this new
the credit mechanism runs contrary to the essence of the VAT system, which
restriction, and their financial pain alone may not be sufficient to cause the invalidity of a
characteristically allows the crediting of input taxes against output taxes. Without such
taxing statute. However, this amortization plan will prove especially fatal to start-ups and
crediting mechanism, which allows the shifting of the VAT to only the final end user, the tax
other new businesses, which need to purchase capital goods in order to start up their new
becomes a straightforward tax on business or income. The effect on the enterprise doing
businesses. It is a known fact in the financial community that a majority of businesses start
business with the government would be that two taxes would be imposed on the income by the
earning profit only after the second or third year, and many enterprises do not even get to
business derived on such transaction: the regular personal or corporate income tax on such
survive that long. The first few years of a business are the most crucial to its survival, and
income, and this final withholding tax of 5%.
any financial benefits it can obtain in those years, no matter how miniscule, may spell the
Same; Same; It is a legitimate purpose of a tax law to devise a manner by which the
difference between life and death. For such emerging businesses, it is already difficult under
government could save money on its own transactions, but it is another matter if a private
the present system to recover the prepaid input VAT from the output VAT collected from
enterprise is punished for doing business with the government.—Granted that Congress is not
customers because initial sales volumes are usually low. With this further limitation, 73
diminishing as it does any opportunity to have a sustainable cash flow, the ability of new
VOL. 469, SEPTEMBER 1, 2005 7
businesses to survive the first three years becomes even more endangered.
Same; Same; For some lucky enterprises who may be able to survive the injury brought 3
about by the 70% cap, this 60 month amortization period might instead provide the mortal Abakada Guro Party List vs. Ermita
head wound.—Even existing small to medium enterprises are imperiled by this 60 month bound to adopt with strict conformity the VAT system, and that it has to power to
amortization restriction, especially considering the application of the 70% cap. The additional impose new taxes on business income, this amendment to Section 114(C) of the NIRC still
purchase of capital goods bears as a means of adding value to the consumer good, as a means remains unconstitutional. It unfairly discriminates against entities which contract with the
to justify the increased selling price. However, the purchase of capital goods in excess of government by imposing an additional tax on the income derived from such transactions. The
P1,000,000.00 would impose another burden on the small to medium enterprise by further end result of such discrimination is double taxation on income that is both oppressive and
restricting their ability to immediately recover the entire prepaid input VAT (which would confiscatory. It is a legitimate purpose of a tax law to devise a manner by which the
exceed at least government could save money on its own transactions, but it is another matter if a private
72 enterprise is punished for doing business with the government. The erstwhile NIRC worked
7 SUPREME COURT REPORTS ANNOTATED towards such advantage, by allowing the government to reduce its cash outlay on purchases
2 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
Abakada Guro Party List vs. Ermita
enterprise with an additional tax by refusing to allow the crediting of this tax withheld to the
P100,000.00), as they would be compelled to wait for at least five years before they can
business’s input VAT.
do so. Another hurdle is imposed for such small to medium enterprise to obtain the profit
Same; Same; Section 114(C) of the NIRC squarely contradicts Section 20, Article II of the
margin critical to survival. For some lucky enterprises who may be able to survive the injury
Constitution as it vacuously discourages private enterprise, and provides disincentives to
brought about by the 70% cap, this 60 month amortization period might instead provide the
needed investments such as those expected by the State from private businesses.—The
mortal head wound.
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.
Same; Same; Double Taxation; Words and Phrases; 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.”—Double taxation means taxing for the same tax period the
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7 SUPREME COURT REPORTS ANNOTATED
4 law, the price to be paid for a more sustainable liquidity of the government’s finances will be
Abakada Guro Party List vs. Ermita
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.
Same; Same; 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.—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 govern-
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Abakada Guro Party List vs. Ermita
ment transactions were selfishly designed to increase government revenue at the
expense of the survival of local industries.
Same; Same; 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.—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
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.
Same; Same; Taxes may be the lifeblood of the state, but never at the expense of the life of
its subjects.—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.
CHICO-NAZARIO, J., Concurring Opinion:
Congress; 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.—Petitioners’ arguments failed to
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6
Abakada Guro Party List vs. Ermita
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. . . .
Same; Bicameral Conference Committee; 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; 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.—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
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VOL. 469, SEPTEMBER 1, 2005 7
7 no law is irrepealable; There can be no vested right to the continued existence of a statute,
Abakada Guro Party List vs. Ermita
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.
Taxation; Germaneness Rule; 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.—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.
Same; Value-Added Tax; 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 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
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8
Abakada Guro Party List vs. Ermita
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.
Same; Same; 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
which precludes its change or repeal.—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.
Same; Same; 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.—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. 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
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9 petitioners in G.R. No. 168056.
Abakada Guro Party List vs. Ermita
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.
Same; Same; 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, 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.—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.
80
8 SUPREME COURT REPORTS ANNOTATED
0
Abakada Guro Party List vs. Ermita
SPECIAL CIVIL ACTION in the Supreme Court.
The facts are stated in the opinion of the Court.
Carlos G. Baniqued and Laura Victoria Yuson-Layug for petitioners in G.R.
No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie Taguian, Agustin
C. Bacungan III and Roland Allan C. Abarquezfor petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne
by everyone, and the more man enjoys the advantages of society, the more he ought to hold
himself honored in contributing to those expenses.
—Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for
education, increased emoluments for health workers, and wider coverage for full
value-added tax benefits . . . these are the reasons why Republic Act No. 9337 (R.A.
No. 9337) was enacted. Reasons, the wisdom of which, the Court even with its
1
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.
_______________
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.”
81
VOL. 469, SEPTEMBER 1, 2005 8
1
Abakada Guro Party List vs. Ermita
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 was introduced on first reading on January 7, 2005.
2
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, July 1, 2005 is the effectivity date of R.A. No. 9337. When said date came, 5

2005 for immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading.
House Bill No. 3705 on the other hand, substituted House Bill No. 3105
3 implementing the law.
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
the Court issued a temporary restraining order, effective immediately and
continuing until further orders, enjoining respondents from enforcing and
Oral arguments were held on July 14, 2005. Significantly, during the
hearing, the Court speaking through Mr. Justice
_______________
4 Entitled, “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148,

28, 2005. 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.

83
_______________
VOL. 469, SEPTEMBER 1, 2005 83
2Entitled, “An Act Restructuring the Value-Added Tax, Amending for the Purpose Sections 106, 107, 108, 110 and Abakada Guro Party List vs. Ermita
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 Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
1997, As Amended, and For Other Purposes.” restraining order on July 1, 2005, to wit:
82
J. . . . But before I go into the details of your
82 SUPREME COURT REPORTS ANNOTATED
PANGANIBAN: presentation, let me just tell you a little
Abakada Guro Party List vs. Ermita
background. You know when the law took effect
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill on July 1, 2005, the Court issued a TRO at about 5
No. 1950 on March 7, 2005, “in substitution of Senate Bill Nos. 1337, 1838
4
o’clock in the afternoon. But before that, there was
and 1873, taking into consideration House Bill Nos. 3555 and 3705.” Senator a lot of complaints aired on television and on
Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 radio. Some people in a gas station were
and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier complaining that the gas prices went up by 10%.
and Francis N. Pangilinan. The President certified the bill on March 11, 2005, Some people were complaining that their electric
and was approved by the Senate on second and third reading on April 13, bill will go up by 10%. Other times people riding
2005. in domestic air carrier were complaining that the
On the same date, April 13, 2005, the Senate agreed to the request of the prices that they’ll have to pay would have to go up
House of Representatives for a committee conference on the disagreeing by 10%. While all that was being aired, per your
provisions of the proposed bills. presentation and per our own understanding of the
Before long, the Conference Committee on the Disagreeing Provisions of law, that’s not true. It’s not true that the e-vat law
House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, “after necessarily increased prices by 10% uniformly
having met and discussed in full free and conference,” recommended the isn’t it?
approval of its report, which the Senate did on May 10, 2005, and with the ATTY. No, Your Honor.
House of Representatives agreeing thereto the next day, May 11, 2005. BANIQUED:
On May 23, 2005, the enrolled copy of the consolidated House and Senate J. PANGANIBAN: It is not?
version was transmitted to the President, who signed the same into law on ATTY. It’s not, because, Your Honor, there isan Executive
May 24, 2005. Thus, came R.A. No. 9337. BANIQUED: Order that granted the Petroleum companies some
subsidy . . .interrupted
J. PANGANIBAN: That’s correct . . . many others this Court had to issue TRO because of
ATTY. . . . and therefore that was meant to temper the the confusion in the implementation. That’s why we
BANIQUED: impact . . . interrupted added as an issue in this case, even if it’s tangentially
J. PANGANIBAN: . . . mitigating measures . . . taken up by the pleadings of the parties, the confusion
ATTY. Yes, Your Honor. in the implementation of the E-vat. Our people were
BANIQUED: subjected to the mercy of that confusion of an across
J. PANGANIBAN: As a matter of fact a part of the mitigating the board increase of 10%, which you yourself now
measures would be the eliminationof the Excise admit and I think even the Government will admit is
Tax and the import duties.That is why, it is not incorrect. In some cases, it should be
correct to say that 85
84 VOL. 469, 85
84 SUPREME COURT REPORTS ANNOTATED SEPTEMBER 1,
Abakada Guro Party List vs. Ermita 2005
the VAT as to petroleum dealers increased prices by Abakada Guro Party List vs. Ermita
10%. 3% only, in some cases it should be 6% depending
ATTY. Yes, Your Honor. on these mitigating measures and the location and
BANIQUED: situation of each product, of each service, of each
J. And therefore, there is no justification for increasing company, isn’t it?
PANGANIBAN: the retail price by 10% to cover the E-Vat tax. If you ATTY. Yes, Your Honor.
consider the excise tax and the import duties, the Net BANIQUED:
Tax would probably be in the neighborhood of 7%? J. PANGANIBAN: Alright. So that’s one reason why we had to issue a
We are not going into exact figures I am just trying to TRO pending the clarification of all these and we
deliver a point that different industries, different wish the government will take time to clarify all
products, different services are hit differently. So it’s these by means of a more detailed implementing
not correct to say that all prices must go up by 10%. rules, in case the law is upheld by this Court. . .
ATTY. You’re right, Your Honor. . The Court also directed the parties to file their
6

BANIQUED: respective Memoranda.

J. Now. For instance, Domestic Airline companies, Mr.
PANGANIBAN: 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. I guess so, Your Honor, yes.
BANIQUED:
J. There are other products that the people were
PANGANIBAN: complaining on that first day, were being increased
arbitrarily by 10%. And that’s one reason among
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 provisoauthorizing 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 “no-amendment rule” upon last reading of a bill laid down in Article VI,
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions
has been satisfied:
_______________
6 TSN, July 14, 2005.
86
86 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
1. (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
2. (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 authorityof 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
Section 26(2) of the Constitution.
87
VOL. 469, SEPTEMBER 1, 2005 87
Abakada Guro Party List vs. Ermita
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. 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. 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;
and
3. 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 confisca-tory.
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
88
88 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. 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. 2)The Bicameral Conference Committee acted without jurisdiction in
deleting the no pass onprovisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3. 3)Insertion by the Bicameral Conference Committee of Sections 27, 28,
34, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288, which were
7
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, alleg- 90
_______________
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.
89
VOL. 469, SEPTEMBER 1, 2005 89
Abakada Guro Party List vs. Ermita
ing 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
90
SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
that will tilt the balance towards a sustainable macroeconomic environment
necessary for economic growth.
ISSUES In contrast, a direct tax is a tax for which a taxpayer is directly liable on
The Court defined the issues, as follows: the transaction or business it engages in, without transferring the burden to
PROCEDURAL ISSUE someone else. Examples are individual and corporate income taxes, transfer
11

Whether R.A. No. 9337 violates the following provisions of the Constitution: taxes, and residence taxes. 12

In the Philippines, the value-added system of sales taxation has long been
1. a.Article VI, Section 24, and in existence, albeit in a different mode. Prior to 1978, the system was a single-
2. b.Article VI, Section 26(2) stage tax computed under the “cost deduction method” and was payable only
by the original sellers. The single-stage system was subsequently modified,
SUBSTANTIVE ISSUES and a mixture of the “cost deduction method” and “tax credit method” was
used to determine the value-added tax payable. Under the “tax credit 13

1. 1.Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, method,” an entity can credit against or subtract from the VAT charged on its
107 and 108 of the NIRC, violate the following provisions of the sales or outputs the VAT paid on its purchases, inputs and imports. 14

Constitution: It was only in 1987, when President Corazon C. Aquino issued Executive
Order No. 273, that the VAT system was ra-
1. a.Article VI, Section 28(1), and
_______________
2. b.Article VI, Section 28(2)
Section 105, National Internal Revenue of the Philippines, as amended.
8

1. 2.Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and Ibid.
9

10 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First Edition 2000).

110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending 11 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.

Section 114(C) of the NIRC, violate the following provisions of the 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).

Constitution: 14 Commissioner of Internal Revenue vs. Seagate Technology (Phils.), G.R. No. 153866, February 11, 2005, 451

SCRA 132.
1. a.Article VI, Section 28(1), and 92

2. b.Article III, Section 1 92 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita
RULING OF THE COURT tionalized by imposing a multi-stage tax rate of 0% or 10% on all sales using
As a prelude, the Court deems it apt to restate the general principles and the “tax credit method.” 15

concepts of value-added tax (VAT), as the confusion and inevitably, litigation, E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT
breeds from a fallacious notion of its nature. Law, R.A. No. 8241 or the Improved VAT Law, R.A. No. 8424 or the Tax
16 17

The VAT is a tax on spending or consumption. It is levied on the sale, Reform Act of 1997, and finally, the presently beleaguered R.A. No. 9337,
18

barter, exchange or lease of goods or properties also referred to by respondents as the VAT Reform Act.
91 The Court will now discuss the issues in logical sequence.
VOL. 469, SEPTEMBER 1, 2005 91 PROCEDURAL ISSUE
Abakada Guro Party List vs. Ermita
and services. Being an indirect tax on expenditure, the seller of goods or
8
I.
services may pass on the amount of tax paid to the buyer, with the seller
9

Whether R.A. No. 9337 violates the following provisions of the Constitution:
acting merely as a tax collector. The burden of VAT is intended to fall on the
10

immediate buyers and ultimately, the end-consumers.

1. a.Article VI, Section 24, and
 2. b.Article VI, Section 26(2) Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
A. The Bicameral Conference Committee 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.
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to
Conference Committee exceeded its authority by: 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.
1. 1)Inserting the stand-by authority in favor of the President in Sections _______________
4, 5, and 6 of R.A. No. 9337;
19 Story, Commentaries 835 (1833).
_______________ 94
94 SUPREME COURT REPORTS ANNOTATED
15 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipi-nas, Inc. vs. Tan, G.R. Nos. L-81311, L-81820, L-
81921, L-82152, June 30, 1988, 163 SCRA 371.
Abakada Guro Party List vs. Ermita
16 Entitled, “An Act Restructuring the Value-Added Tax (VAT) System, Widening its Tax Base and Enhancing its Sec. 89. Conference Committee Reports.—. . . Each report shall contain a detailed, sufficiently explicit
Administration, And for these Purposes Amending and Repealing the Relevant Provisions of the National Internal statement of the changes in or amendments to the subject measure.
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
The Chairman of the House panel may be interpellated on the Conference Committee Report prior
Pertinent Provisions of the National Internal Revenue Code, as Amended.” to the voting thereon. The House shall vote on the Conference Committee Report in the same manner
18 Entitled, “An Act Amending the National Internal Revenue Code, as Amended, and for other Purposes.”
and procedure as it votes on a bill on third and final reading.
93
Rule XII, Section 35 of the Rules of the Senate states:
VOL. 469, SEPTEMBER 1, 2005 93 Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision
Abakada Guro Party List vs. Ermita 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.
1. 2)Deleting entirely the no pass-on provisions found in both the House Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of
and Senate bills; the changes in, or amendments to the subject measure, and shall be signed by a majority of the
2. 3)Inserting the provision imposing a 70% limit on the amount of input members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version
tax to be credited against the output tax; and thereof with the explanatory statement of the conference committee shall be attached to the report.
3. 4)Including the amendments introduced only by Senate Bill No. 1950 ...
regarding other kinds of taxes in addition to the value-added tax. The creation of such conference committee was apparently in response to a
problem, not addressed by any constitutional provision, where the two houses
Petitioners now beseech the Court to define the powers of the Bicameral of Congress find themselves in disagreement over changes or amendments
Conference Committee. introduced by the other house in a legislative bill. Given that one of the most
It should be borne in mind that the power of internal regulation and basic powers of the legislative branch is to formulate and implement its own
discipline are intrinsic in any legislative body for, as unerringly elucidated by rules of proceedings and to discipline its members, may the Court then delve
Justice Story, “[i]f the power did not exist, it would be utterly impracticable to into the details of how Congress complies with its internal rules or how it
transact the business of the nation, either at all, or at least with decency, conducts its business of passing legislation? Note that in the present
deliberation, and order.” Thus, Article VI, Section 16 (3) of the Constitution petitions, the issue is not whether provisions of the rules of both houses
19

provides that “each House may determine the rules of its proceedings.” creating the bicameral conference committee are
Pursuant to this inherent constitutional power to promulgate and implement 95
its own rules of procedure, the respective rules of each house of Congress VOL. 469, SEPTEMBER 1, 2005 95
provided for the creation of a Bicameral Conference Committee. Abakada Guro Party List vs. Ermita
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, the Court En 20
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.
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
_______________
20
G.R. No. 147387, December 10, 2003, 417 SCRA 503.
96
96 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.” (Emphasis supplied)
21
The foregoing declaration is exactly in point with the present cases, where House Bill No. 3555 House Bill No. 3705
petitioners allege irregularities committed by the conference committee in With regard to “Stand-By Authority” in favor of President
introducing changes or deleting provisions in the House and Senate bills. Provides for 12% VAT Provides for 12% VAT Provides for a single
Akin to the Fariñas case, the present petitions also raise an issue regarding on every sale of goods in general on sales of
22
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.
_______________
21 Id., pp. 529-530.
22 Supra., Note 20.
97
VOL. 469, SEPTEMBER 1, 2005 97
Abakada Guro Party List vs. Ermita
Moreover, as far back as 1994 or more than ten years ago, in the case
of Tolentino vs. Secretary of Finance, the Court already made the
23
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
24
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:
Senate Bill No. 1950
rate of 10% VAT on
 House Bill No. 3555 House Bill No. 3705 Senate Bill No. 1950 consumers shall be absorbed by
or properties goods or properties and sale of goods or generation, transmission, and
(amending Sec. 106 of reduced rates for sale of properties (amending distribution companies.
NIRC); 12% VAT on certain locally Sec. 106 of NIRC), 99
importation of goods manufactured goods and 10% VAT on sale of VOL. 469, SEPTEMBER 1, 2005 99
(amending Sec. 107 of petroleum products and services including sale Abakada Guro Party List vs. Ermita
NIRC); and 12% VAT raw materials to be used of electricity by With regard to 70% limit on input tax credit
on sale of services and in generation companies, Provides that the input tax No similar Provides that the input tax
use trans- credit for capital goods on provision credit for capital goods on
which a VAT has been paid which a VAT has been
_______________
shall be equally distributed paid shall be equally
23 G.R. No. 115455, August 25, 1994, 235 SCRA 630. over 5 years or the depreciable distributed over 5 years or
24 Id., p. 670. life of such capital goods; the the depreciable life of
98
input tax credit for goods and such capital goods; the
98 SUPREME COURT REPORTS ANNOTATED
services other than capital input tax credit for goods
Abakada Guro Party List vs. Ermita goods shall not exceed 5% of and services other than
or lease of the manufacturethereof mission and the total amount of such goods capital goods shall not
properties(amending (amending Sec. 106 of distribution and services; and for persons exceed 90% of the output
Sec. 108 of NIRC) NIRC);12% VAT on importation companies, engaged in retail trading of VAT.
of goods and reduced rates for and use or goods, the allowable input tax
certain imported products lease of credit shall not exceed 11% of
including petroleum products properties the total amount of goods
(amending Sec. 107 of NIRC); (amending purchased.
and 12% VAT on sale of services Sec. 108 of With regard to amendments to be made to NIRC provisions regarding
and use or lease of properties and NIRC) income and excise taxes
a reduced rate for certain services No similar No similar Provided for amendments to several
including power generation provision provision NIRC provisions regarding corporate
(amending Sec. 108 of NIRC) income, percentage, franchise and
With regard to the “no pass-on” provision excise taxes
No similar Provides that the VAT Provides that the VAT imposed The disagreements between the provisions in the House bills and the Senate
provision imposed on power onsales of electricity bill were with regard to (1) what rate of VAT is to be imposed; (2) whether
generation and on the bygeneration companies and only the VAT imposed on
sale of petroleum services of transmission 100
products shall be companies and distribution 100 SUPREME COURT REPORTS ANNOTATED
absorbed by generation companies, as well as those of Abakada Guro Party List vs. Ermita
companies or sellers, franchise grantees of electric electricity generation, transmission and distribution companies should not be
respectively, and shall utilities shall not apply to passed on to consumers, as proposed in the Senate bill, or both the VAT
not be passed on to residential end-users. 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.
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. 1.With regard to the disagreement on the rate of VAT to be imposed, it PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years, as
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-addedcredited against other internal revenue taxes, . . .
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. 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 102
companies and the VAT imposed on sale of petroleum products may be
passed on to con-
101
VOL. 469, SEPTEMBER 1, 2005 101
Abakada Guro Party List vs. Ermita
1. sumers, the Bicameral Conference Committee chose to settle such either th e House bill or Senate bill, (b) decide that neither provisions in the
disagreement by altogether deleting from its Report any no pass- House bill or the provisions in the Senate bill would be carried into the final
on provision.
2. 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.—. . .
...
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):
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
1. 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.
102
SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
25
Bicameral Conference Committee may then (a) adopt the specific provisions of
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 Bicam-eral 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
_______________
Webster’s Third New International Dictionary, p. 1897.
25
103
VOL. 469, SEPTEMBER 1, 2005 103
Abakada Guro Party List vs. Ermita
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. (Emphasis
26
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 B. R.A. No. 9337 Does Not Violate Article VI,
within the intent of both houses to put a cap on input tax that may be Section 26(2) of the Constitution on the
credited against the output tax. From the inception of the subject revenue bill “No-Amendment Rule”
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 Article VI, Sec. 26 (2) of the Constitution, states:
restrictions on the claiming of input VAT tax credits . . .” and “[b]y No bill passed by either House shall become a law unless it has passed three readings on separate days,
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.
Thus, all the changes or modifications made by the Bicameral Conference
Committee were germane to subjects of the
_______________
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.
104
104 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
29
of Finance, the Court recognized the long-standing legislative practice of
30
giving said conference committee ample latitude for compromising differences
between the Senate and the House. Thus, in the Tolentinocase, 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. (Emphasis supplied)
31
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 C. R.A. No. 9337 Does Not Violate Article VI,
public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be
Section 24 of the Constitution on Exclusive
_______________ Origination of Revenue Bills
G.R. No. 105371, November 11, 1993, 227 SCRA 703.
Coming to the issue of the validity of the amendments made regarding the
29

30
Supra, Note 23.
31 Id., p. 668.
NIRC provisions on corporate income taxes and percentage, excise taxes.
105
Petitioners refer to the following provisions, to wit:
VOL. 469, SEPTEMBER 1, 2005 105
Section
Abakada Guro Party List vs. Ermita
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
27 Rates of Income Tax on Domestic Corporation
the Journal. 28(A)(1) Tax on Resident Foreign Corporation
Petitioners’ argument that the practice where a bicameral conference 28(B)(1) Inter-corporate Dividends
committee is allowed to add or delete provisions in the House bill and the 34(B)(1) Inter-corporate Dividends
Senate bill after these had passed three readings is in effect a circumvention 116 Tax on Persons Exempt from VAT
of the “no amendment rule” (Sec. 26 (2), Art. VI of the 1987 Constitution), 117 Percentage Tax on domestic carriers and keepers ofGarage
fails to convince the Court to deviate from its ruling in the Tolentino case 119 Tax on franchises
that: 121 Tax on banks and Non-Bank Financial Intermediaries
Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone 148 Excise Tax on manufactured oils and other fuels
three readings in each of the two houses. If that be the case, there would be no end to negotiation since
151 Excise Tax on mineral products
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 236 Registration requirements
first time in either house of Congress, not to the conference committee report. (Emphasis 32
237 Issuance of receipts or sales or commercial invoices
supplied)
288 Disposition of Incremental Revenue
The Court reiterates here that the “no-amendment rule” refers only to the Petitioners claim that the amendments to these provisions of the NIRC did
procedure to be followed by each house of Congress with regard to bills not at all originate from the House. They aver that House Bill No. 3555
initiated in each of said respective houses, before said bill is transmitted to the proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of
other house for its concurrence or amendment. Verily, to construe said the NIRC, while House Bill No. 3705 proposed amendments only to Sections
provision in a way as to proscribe any further changes to a bill after one house 106, 107, 108, 109, 110 and 111 of the NIRC; thus, the other sections of the
has voted on it would lead to absurdity as this would mean that the other NIRC which the Senate amended but which amendments were not found in
house of Congress would be deprived of its constitutional power to amend or the House bills are not intended to be amended by the House of
introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution Representatives. Hence, they argue that since the proposed amendments did
cannot be taken to mean that the introduction by the Bicameral Conference 107
Committee of amendments and modifications to disagreeing provisions in VOL. 469, SEPTEMBER 1, 2005 107
bills that have been acted upon by both houses of Congress is prohibited. Abakada Guro Party List vs. Ermita
_______________ not originate from the House, such amendments are a violation of Article VI,
Section 24 of the Constitution.
32 Id., p. 671. The argument does not hold water.
106
Article VI, Section 24 of the Constitution reads:
106 SUPREME COURT REPORTS ANNOTATED Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
Abakada Guro Party List vs. Ermita local application, and private bills shall originate exclusively in the House of Representatives but the
Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos.
3555 and 3705 that initiated the move for amending provisions of the NIRC
dealing mainly with the value-added tax. Upon transmittal of said House bills
to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the introduction
by the Senate of provisions not dealing directly with the value- added tax,
which is the only kind of tax being amended in the House bills, still within
the purview of the constitutional provision authorizing the Senate to propose
or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case,
wherein the Court held, thus:
. . . To begin with, it is not the law—but the revenue bill—which is required by the Constitution to
“originate exclusively” in the House of Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a revenue statute—and not only the bill
which initiated the legislative process culminating in the enactment of the law—must
substantially be the same as the House bill would be to deny the Senate’s power not only to
“concur with amendments” but also to “propose amendments.” It would be to violate
108
108 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
the coequality of legislative power of the two houses of Congress and in fact make the House superior to
the Senate.
...
. . . 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.
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:
_______________
33 Id., pp. 661-663.
109
VOL. 469, SEPTEMBER 1, 2005 109
Abakada Guro Party List vs. Ermita
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. (Emphasis supplied)
34

... Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government to
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
supplement our country’s serious financial problems, and improve tax
come from the House of Representatives on the theory that, elected as they are from the districts, the
administration and control of the leakages in revenues from income taxes and
members of the House can be expected to be more sensitive to the local needs and problems.
value-added taxes. As these house bills were transmitted to the Senate, the
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. (Emphasis supplied)
33
latter, approaching the measures from the point of national perspective, can
Since there is no question that the revenue bill exclusively originated in the introduce amendments within the purposes of those bills. It can provide for
House of Representatives, the Senate was acting within its constitutional ways that
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 Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
34

110
contain any prohibition or limitation on the extent of the amendments that
110 SUPREME COURT REPORTS ANNOTATED
may be introduced by the Senate to the House revenue bill.
 Abakada Guro Party List vs. Ermita
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
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel,
to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the
VAT chain, we will however bring down the excise tax on socially sensitive products such as diesel,
bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was
taken from the right. Rather, these sprang from our concern of softening the impact of VAT, so that the
people can cushion the blow of higher prices they will have to pay as a result of VAT.
36

products. The other sections amended by the Senate pertained to matters of tax
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
administration which are necessary for the implementation of the changes in
therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the VAT system.
the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer? To reiterate, the sections introduced by the Senate are germane to the
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
subject matter and purposes of the house bills, which is to supplement our
to its old rate of 32 percent, but two notches lower, to 30 percent. country’s fiscal deficit, among
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 36 Id., p. 726.
sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel, 112
this government will keep on making the tunnel long. 112 SUPREME COURT REPORTS ANNOTATED
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be
there to share the burden. 35
Abakada Guro Party List vs. Ermita
As the Court has said, the Senate can propose amendments and in fact, the others. Thus, the Senate acted within its power to propose those
amendments made on provisions in the tax on amendments.
SUBSTANTIVE ISSUES
_______________

35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
I.
111
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate
VOL. 469, SEPTEMBER 1, 2005 111 the following provisions of the Constitution:
Abakada Guro Party List vs. Ermita
income of corporations are germane to the purpose of the house bills which is 1. a.Article VI, Section 28(1), and
2. b.Article VI, Section 28(2)
to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and
A. No Undue Delegation of Legislative
excise taxes germane to the reforms to the VAT system, as these sections
Power
would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
no longer be VAT-exempt, the consumer would be burdened more as they Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
would be paying the VAT in addition to these taxes. Thus, there is a need to amending Sections 106, 107 and 108, respectively, of the NIRC giving the
amend these sections to soften the impact of VAT. Again, in his sponsorship President the stand-by authority to raise the VAT rate from 10% to 12% when
speech, Sen. Recto said:
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 power to tax because such delegation is not within the purview of Section 28
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 (2), Article VI of the Constitution, which provides:
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.
113
VOL. 469, SEPTEMBER 1, 2005 113
Abakada Guro Party List vs. Ermita
1. (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
2. (ii)national government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.—
(A) In General.—There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior
to the release of such goods from customs custody: Provided, That where the customs duties are determined on the
basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the
following conditions has been satisfied.
1. (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
2. (ii)national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange
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114 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
1. (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
2. (ii)national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).(Emphasis supplied)
Petitioners allege that the grant of the stand-by authorityto the President to
increase the VAT rate is a virtual abdication by Congress of its exclusive
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
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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. A logical 37
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
_______________
37 See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139, 156.
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116 SUPREME COURT REPORTS ANNOTATED
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delegated, cannot be delegated.” This doctrine is based on the ethical
38
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. Thus, the rule is that in order that a court may be justified in
40
holding a statute unconstitutional as a delegation
_______________
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
40
United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
16 Am Jur 2d, Constitutional Law, § 337.
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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. (1)Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution;
2. (2)Delegation of emergency powers to the President under Section 23
(2) of Article VI of the Constitution;
3. (3)Delegation to the people at large;
4. (4)Delegation to local governments; and
5. (5)Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the
delegation itself is valid. It is valid only if the law (a) is complete in itself,
setting forth therein the policy to be executed, carried out, or implemented by
the delegate; and (b) fixes a standard—the limits of which are sufficiently
41
determinate and determinable—to which the delegate must conform in the
performance of his functions. A suffi- 42
_______________
41 Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974; 15 SCRA 569, 577,
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.
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118 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
cient 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 43
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, the Court, through eminent Justice Jose P. Laurel,
45
expounded on the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
inquire whether the statute was complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature.
...
‘The true distinction,’ says Judge Ranney, ‘is between the delegation of power to make
the law, which necessarily involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.’
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In Wayman vs.
Southard, the Supreme Court
_______________
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. Philippine Overseas Employment Administration, No. L-76633, October 18, 1988, 166 SCRA
533, 543-544.
45 No. 45685, November 16, 1937, 65 Phil. 56.
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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
_______________
46 Id., pp. 115-120.
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120 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
In Edu vs. Ericta, the Court reiterated:
47
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. While the power to tax cannot be delegated to executive agencies,
49
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 legisla-
_______________
47 Supra, note 43.
48 Id., pp. 496-497.
49 16 C.J.S., Constitutional Law, § 138.
50 Ibid.
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tion. 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 51
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:
1. (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
2. (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
_______________
16 Am. Jur. 2d, Constitutional Law § 340.
51
52 Yajus vs. United States, 321 US 414, 88 L.Ed. 834, 64 S Ct. 660, 28 Ohio Ops 220.
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122 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. Where the law is clear and unambiguous, it must be taken
53
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
_______________
53 Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004, 429 SCRA 736; 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.
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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 secre-taries 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 President effective January 1, 2006. There is no undue delegation of
Chief Executive, presumptively the acts of the Chief Executive. The Secretary legislative power but only of the discretion as to the execution of a
of Finance, as such, occupies a political position and holds office in an law. This is constitutionally permissible. Congress does not abdicate its
57

advisory capacity, and, in the language of Thomas Jefferson, “should be of the functions or unduly delegate power when it describes what job must be done,
President’s bosom confidence” and, in the language of Attorney-General who must do it, and what is the scope of his authority;
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 57 Compañia General de Tabacos de Filipinas vs. The Board of Public Utility Commissioners, No. 11216, 34 Phil.

as the alter ego of the President or even her subordinate. In such instance, he 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
is not subject to the power of control and direction of the President. He is Department of Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330; Alunan vs. Mirasol, supra.
acting as the agent of the legislative department, to determine and declare 125
the event upon which its expressed will is to take effect. The Secretary of 56 VOL. 469, SEPTEMBER 1, 2005 125
Finance becomes the means or tool by which legislative policy is determined Abakada Guro Party List vs. Ermita
and 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 GUROParty List, et al. that
55Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464. delegating to the President the legislative power to tax is contrary to the
56Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514, citing Panama Refining Co. vs. principle of republicanism, the same deserves scant consideration. Congress
Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
124 did not delegate the power to tax but the mere implementation of the law.
124 SUPREME COURT REPORTS ANNOTATED The intent and will to increase the VAT rate to 12% came from Congress and
Abakada Guro Party List vs. Ermita the task of the President is to simply execute the legislative policy. That
implemented, considering that he possesses all the facilities to gather data Congress chose to do so in such a manner is not within the province of the
and information and has a much broader perspective to properly evaluate Court to inquire into, its task being to interpret the law. 59

them. His function is to gather and collate statistical data and other pertinent The insinuation by petitioners Pimentel, et al. that the President has
information and verify if any of the two conditions laid out by Congress is ample powers to cause, influence or create the conditions to bring about either
present. His personality in such instance is in reality but a projection of that or both the conditions precedent does not deserve any merit as this argument
of Congress. Thus, being the agent of Congress and not of the President, the is highly speculative. The Court does not rule on allegations which are
President cannot alter or modify or nullify, or set aside the findings of the manifestly conjectural, as these may not exist at all. The Court deals with
Secretary of Finance and to substitute the judgment of the former for that of facts, not fancies; on realities, not appearances. When the Court acts on
the latter. appearances instead of realities, justice and law will be short-lived.
Congress simply granted the Secretary of Finance the authority to
B. The 12% Increase VAT Rate Does Not
ascertain the existence of a fact, namely, whether by December 31, 2005, the
Impose an Unfair and Unnecessary
value-added tax collection as a percentage of Gross Domestic Product (GDP)
Additional Tax Burden
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 Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate
exceeds one and one-half percent (1 1/2%). If either of these two instances has imposes an unfair and additional tax burden on the people. Petitioners also
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
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
_______________
Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180.
58
United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land Problems, G.R. No. 135945,
59
March 7, 2001, 353 SCRA 782; Commissioner of Internal Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277
SCRA 617, 630.
126
126 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
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.
Petitioners also contend that the increase in the VAT rate, which was
allegedly an incentive to the President to raise the
_______________
60 Commissioner of Internal Revenue vs. American Express International, Inc. (Philippine Branch), G.R. No.
152609, June 29, 2005, 462 SCRA 197.
61 Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977, 77 SCRA 469, 473.
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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
60 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:
_______________
62 Respondents’ Memorandum, pp. 168-169.
128
61
128 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 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,
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 65
TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill Nos. 3705 and
sustainable situation. That’s the first fact. 3555, April 25, 2005, pp. 5-6.
The second fact is that our debt to GDP level is way out of line compared to other peer countries 130
that borrow money from that international financial markets. Our debt to GDP is approximately equal 130 SUPREME COURT REPORTS ANNOTATED
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 Abakada Guro Party List vs. Ermita
as benign as what it used to be the past five years. whether, in short, the legislative discretion within its prescribed limits should be exercised in a
What do I mean by that? particular manner are matters for the judgment of the legislature, and the serious conflict of opinions
In the past five years, we’ve been lucky because we were operating in a period of basically global does not suffice to bring them within the range of judicial cognizance. 66

growth and low interest rates. The past few months, we have seen an inching up, in fact, a rapid In the same vein, the Court in this case will not dawdle on the purpose of
increase in the interest rates in the leading economies of the world. And, therefore, our ability to borrow Congress or the executive policy, given that it is not for the judiciary to “pass
at reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to access
the financial markets. upon questions of wisdom, justice or expediency of legislation.” 67

_______________ II.

63 The Wealth of Nations, Book V, Chapter II. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section
64 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338. 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the
129 Constitution:
VOL. 469, SEPTEMBER 1, 2005 129
Abakada Guro Party List vs. Ermita 1. a.Article VI, Section 28(1), and
2. b.Article III, Section 1
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 A. Due Process and Equal Protection Clauses
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
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that
will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not
12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary,
as favorable and up to now we have not accessed and we might pull back because the conditions are not
very good.
oppressive, excessive and confiscatory. Their argument is premised on the
So given this situation, we at the Department of Finance believe that we really need to front-end our
constitutional right against deprivation of life, liberty of property without due
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we call
process of law, as embodied in Article III, Section 1 of the Constitution.
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
Petitioners also contend that these provisions violate the constitutional
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 guarantee of equal protection of the law.
from an inevitable catastrophe. Whether the law is indeed sufficient to The doctrine is that where the due process and equal protection clauses are
answer the state’s economic dilemma is not for the Court to judge. In invoked, considering that they are not
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: G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
66

National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 SCRA 245, 249.
67

. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion
131
of the political branches of the government. It is not for this Court to look into the wisdom or propriety
 VOL. 469, SEPTEMBER 1, 2005 131
Abakada Guro Party List vs. Ermita
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 credited in the subsequent periods as allowed by the carry-over provision of
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 the operation of the 70% limitation on the input tax. According to petitioner,
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 principle that tax collection and revenue should be for public purposes and
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
_______________
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
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 limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the
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;
133
VOL. 469, SEPTEMBER 1, 2005 133
Abakada Guro Party List vs. Ermita
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
69

68 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661. Third, if the input taxes exceed the output taxes, the excess shall be
132 carried over to the succeeding quarter or quarters. Should the input taxes
132 SUPREME COURT REPORTS ANNOTATED result from zero-rated or effectively zero-rated transactions, any excess over
Abakada Guro Party List vs. Ermita the output taxes shall instead be refunded to the taxpayer or credited against
quarter or quarters.” In addition, Section 112(B) allows a VAT-registered other internal revenue taxes, at the taxpayer’s option. 70

person to apply for the issuance of a tax credit certificate or refund for any Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input
unused input taxes, to the extent that such input taxes have not been applied 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 Petitioners also contest as arbitrary, oppressive, excessive and
value-added taxes that is due to him on a taxable transaction. There is no confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the
retention of any tax collection because the person/taxpayer has already NIRC, which provides:
previously paid the input tax to a seller, and the seller will subsequently SEC. 110. Tax Credits.—
(A) Creditable Input Tax.—. . .
remit such input tax to the BIR. The party directly liable for the payment of Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
the tax is the seller. What only needs to be done is for the person/taxpayer to business for which deduction for depreciation is allowed under this Code, shall be spread evenly over
71

apply or credit these input taxes, as evidenced by receipts, against his output 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):
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 United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221 SCRA 108, 115.
72

confiscated, appropriated, or limited without due process of law. E.O. No. 273, Section 1. 73

Section 5.
The input tax is not a property or a property right within the constitutional
74

Section 110(B). 75

purview of the due process clause. A VAT-registered person’s entitlement to 135

the creditable input tax is a mere statutory privilege. VOL. 469, SEPTEMBER 1, 2005 135
Abakada Guro Party List vs. Ermita
_______________ 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
69 Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC. period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input
70 Ibid.
71 Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & 134588, July 8, 2005, 463 SCRA 28.
tax shall be creditable to the purchaser, lessee or license upon payment of the compensation, rental,
royalty or fee.
134
134 SUPREME COURT REPORTS ANNOTATED
The foregoing section imposes a 60-month period within which to amortize
the creditable input tax on purchase or importation of capital goods with
Abakada Guro Party List vs. Ermita
acquisition cost of P1 Million pesos, exclusive of the VAT component. Such
The distinction between statutory privileges and vested rights must be borne
spread out only poses a delay in the crediting of the input tax. Petitioners’
in mind for persons have no vested rights in statutory privileges. The state
argument is without basis because the taxpayer is not permanently deprived
may change or take away rights, which were created by the law of the state,
of his privilege to credit the input tax.
although it may not take away property, which was vested by virtue of such
It is worth mentioning that Congress admitted that the spread-out of the
rights. 72

creditable input tax in this case amounts to a 4-year interest-free loan to the
Under the previous system of single-stage taxation, taxes paid at every
government. In the same breath, Congress also justified its move by saying
76

level of distribution are not recoverable from the taxes payable, although it
that the provision was designed to raise an annual revenue of 22.6
becomes part of the cost, which is deductible from the gross revenue. When
billion. The legislature also dispelled the fear that the provision will fend off
77

Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales,
foreign investments, saying that foreign investors have other tax incentives
it was then that the crediting of the input tax paid on purchase or importation
provided by law, and citing the case of China, where despite a 17.5% non-
of goods and services by VAT-registered persons against the output tax was
creditable VAT, foreign investments were not deterred. Again, for whatever is
78

introduced. This was adopted by the Expanded VAT Law (R.A. No.
73

the purpose of the 60-month amortization, this involves executive economic

7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit
74 75

policy and legislative wisdom in which the Court cannot intervene.

input tax as against the output tax is clearly a privilege created by law, a
With regard to the 5% creditable withholding tax imposed on payments
privilege that also the law can remove, or in this case, limit.
made by the government for taxable transactions, Section 12 of R.A. No. 9337,
which amended Section 114 of the NIRC, reads:
_______________ 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
76 Journal of the Senate, Session No. 71, March 15, 2005, p. 803. deficiency tax shall be collected from the payor/withholding agent. . . .
77 Id., Session No. 67, March 7, 2005, p. 726. (B) Creditable Withholding Tax.—Under the creditable withholding tax system, taxes withheld on
78 Id., Session No. 71, March 15, 2005, p. 803.
certain income payments are intended to equal or at least approximate the tax due of the payee on said
136 income. . . . Taxes withheld on income payments covered by the expanded withholding tax (referred to
136 SUPREME COURT REPORTS ANNOTATED in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these
Abakada Guro Party List vs. Ermita regulations) are creditable in nature.
SEC. 114. Return and Payment of Value-added Tax.— 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
(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,
tax payable on the transaction. This represents the net VAT payable of the
before making payment on account of each purchase of goods and services which are subject to the
seller. The other 5% effectively accounts for the standard input VAT (deemed
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added
input VAT), in lieu of the actual input VAT directly or attributable to the
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%)
taxable transaction. 79

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 Court need not explore the rationale behind the provision. It is clear
that Congress intended to treat differently taxable transactions with the
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. government. This is supported by the fact that under the old provision, the
80

Section 114(C) merely provides a method of collection, or as stated by 5% tax withheld

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. Revenue Regulations No. 14-2005, 4.114-2(a).
79

Prior to its amendment, Section 114(C) provided for different rates of Commissioner of Internal Revenue vs. Philipine American Accident Insurance Company, Inc., G.R. No. 141658,
80

value-added taxes to be withheld—3% on gross payments for purchases of March 18, 2005, 453 SCRA 668.
138
goods; 6% on gross payments for services supplied by contractors other than
138 SUPREME COURT REPORTS ANNOTATED
by public works contractors; 8.5% on gross payments for services supplied by
Abakada Guro Party List vs. Ermita
public work contractors; or 10% on payment for the lease or use of properties
by the government remains creditable against the tax liability of the seller or
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 contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.—
to non-residents, were deleted, and a uniform rate of 5% is applied. (C) Withholding of Creditable Value-added Tax.—The Government or any of its political
The Court observes, however, that the law the used the word final. In tax subdivisions, instrumentalities or agencies, including government-owned or controlled corporations
usage, final, as opposed to creditable, means full. Thus, it is provided in (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
Section 114(C): “final value-added tax at the rate of five percent (5%).” this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross
137 payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by
VOL. 469, SEPTEMBER 1, 2005 137 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
Abakada Guro Party List vs. Ermita works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further,
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax That the payment for lease or use of properties or property rights to nonresident owners shall be subject
Reform Act of 1997), the concept of final withholding tax on income was 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.
explained, to wit: The valued-added tax withheld under this Section shall be remitted within ten (10) days following
SECTION 2.57. Withholding of Tax at Source the end of the month the withholding was made. (Emphasis supplied)
(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
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 Revenue Regulations No. 14-2005, Sec. 4. 114-2.
Act V, Scene V.
81

82

the 5% final withholding tax has been unreasonably narrowed, there is no Philippine Rural Electric Cooperatives Association, Inc. vs. Department of Interior and Local Government, G.R.
83

reason to invalidate the provision. Petitioners, as petroleum dealers, are not No. 143076, June 10, 2003, 403 SCRA 558, 565.
140
the only ones subjected to the 5% final withholding tax. It applies to all those
140 SUPREME COURT REPORTS ANNOTATED
who deal with the government.
Abakada Guro Party List vs. Ermita
Moreover, the actual input tax is not totally lost or uncreditable, as
clear showing of unreasonableness, discrimination, or arbitrariness.
petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated
84

Petitioners point out that the limitation on the creditable input tax if the
Value-Added Tax Regulations 2005 issued by the BIR, provides that should
entity has a high ratio of input tax, or invests in capital equipment, or has
the actual input tax exceed 5% of gross payments, the excess may form part of
139 several transactions with the government, is not based on real and
VOL. 469, SEPTEMBER 1, 2005 139 substantial differences to meet a valid classification.
Abakada Guro Party List vs. Ermita The argument is pedantic, if not outright baseless. The law does not make
the cost. Equally, should the actual input tax be less than 5%, the difference any classification in the subject of taxation, the kind of property, the rates to
is treated as income. 81
be levied or the amounts to be raised, the methods of assessment, valuation
Petitioners also argue that by imposing a limitation on the creditable input and collection. Petitioners’ alleged distinctions are based on variables that
tax, the government gets to tax a profit or value-added even if there is no bear different consequences. While the implementation of the law may yield
profit or value-added. varying end results depending on one’s profit margin and value-added, the
Petitioners’ stance is purely hypothetical, argumentative, and again, one- Court cannot go beyond what the legislature has laid down and interfere with
sided. The Court will not engage in a legal joust where premises are what ifs, the affairs of business.
arguments, theoretical and facts, uncertain. Any disquisition by the Court on The equal protection clause does not require the universal application of
this point will only be, as Shakespeare describes life in Macbeth, “full of the laws on all persons or things without distinction. This might in fact
82

sound and fury, signifying nothing.” sometimes result in unequal protection. What the clause requires is equality
What’s more, petitioners’ contention assumes the proposition that there is among equals as determined according to a valid classification. By
no profit or value-added. It need not take an astute businessman to know that classification is meant the grouping of persons or things similar to each other
it is a matter of exception that a business will sell goods or services without in certain particulars and different from all others in these same particulars.
85

profit or value-added. It cannot be overstressed that a business is created Petitioners brought to the Court’s attention the introduction of Senate Bill
precisely for profit. No. 2038 by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. Madrigal on
The equal protection clause under the Constitution means that “no person June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed
or class of persons shall be deprived of the same protection of laws which is legislation seeks to amend the 70% limitation by increasing the same to 90%.
enjoyed by other persons or other classes in the same place and in like This, according to petitioners, supports their stance that the 70% limitation is
circumstances.” 83
arbitrary and confiscatory. On this
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 84

85
Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
Philippine Judges Association case, supra., note 29.
to be raised, the methods of assessment, valuation and collection, the State’s 141
power is entitled to presumption of validity. As a rule, the judiciary will not VOL. 469, SEPTEMBER 1, 2005 141
interfere with such power absent a Abakada Guro Party List vs. Ermita
_______________
score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
taxation.
Uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. Different articles may be taxed
at different amounts provided that the rate is uniform on the same class
everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or
10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a
“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 and natural
91

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
Section 7, R.A. No. 9337.
provide for a 0% rate on certain sales and transaction.
88

89 Ibid.
Neither does the law make any distinction as to the type of industry or 90 No. L-81311, June 30, 1988, 163 SCRA 371, 383.
Section 17, R.A. No. 9337, amending Section 148, NIRC.
trade that will bear the 70% limitation on the creditable input tax, 5-year
91

143
amortization of input tax paid on purchase of capital goods or the 5% final VOL. 469, SEPTEMBER 1, 2005 143
withholding tax by the government. It must be stressed that the rule of
Abakada Guro Party List vs. Ermita
uniform taxation does not deprive Congress of the power to classify subjects of 92 gas were reduced. Percentage tax on domestic carriers was removed. Power 93

taxation, and only demands uniformity within the particular class. 87

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,
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29, 1996, 261 SCRA 236, 249.
and non-resident corporations are now subject to a 35% income tax rate, from
86

87Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil. 682, 688; 7 SCRA 670, 676.
142 a previous 32%. Intercorporate dividends of non-resident foreign
95

142 SUPREME COURT REPORTS ANNOTATED corporations are still subject to 15% final withholding tax but the tax credit
Abakada Guro Party List vs. Ermita allowed on the corporation’s domicile was increased to 20%. The Philippine96

R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. Amusement and Gaming Corporation (PAGCOR) is not exempt from income
The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or taxes anymore. Even the sale by an artist of his works or services performed
97

services with gross annual sales or receipts not exceeding for the production of such works was not spared.
P1,500,000.00. Also, basic marine and agricultural food products in their
88 All these were designed to ease, as well as spread out, the burden of
original state are still not subject to the tax, thus ensuring that prices at the taxation, which would otherwise rest largely on the consumers. It cannot
89

grassroots level will remain accessible. As was stated in Kapatiran ng mga therefore be gainsaid that R.A. No. 9337 is equitable.
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: 90

C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is CONSTITUTION OF THE PHILIPPINES221 [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
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 tax-payer’s ability to 98

Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
pay. This principle was also lifted from Adam Smith’s Canons of Taxation, 145
and it states: VOL. 469, SEPTEMBER 1, 2005 145
Abakada Guro Party List vs. Ermita
_______________
the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1)
92 Section 18, amending Section 151, NIRC.
of the 1973 Constitution from which the present Art. VI, §28 (1) was taken. Sales taxes are also
93 Section 14, amending Section 117, NIRC. regressive.
94 Section 15, amending Section 119, NIRC. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
95 Sections 1 and 2, amending Sections 27 and 28, NIRC. impossible, to avoid them by imposing such taxes according to the taxpayers’ ability to pay. In the case
96 Section 2, amending Section 28, NIRC.
of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of
97 Section 1, amending Section 27(C), NIRC.
certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to
144 other transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)” 99

144 SUPREME COURT REPORTS ANNOTATED CONCLUSION

Abakada Guro Party List vs. Ermita It has been said that taxes are the lifeblood of the government. In this case, it
I. The subjects of every state ought to contribute towards the support of the government, as nearly as is just an enema, a first-aid measure to resuscitate an economy in distress.
possible, in proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state. The Court is neither blind nor is it turning a deaf ear on the plight of the
Taxation is progressive when its rate goes up depending on the resources of masses. But it does not have the panacea for the malady that the law seeks to
the person affected. 98
remedy. As in other cases, the Court cannot strike down a law as
The VAT is an antithesis of progressive taxation. By its very nature, it is 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
regressive. The principle of progressive taxation has no relation with the VAT judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature may
system inasmuch as the VAT paid by the consumer or business for every not correct, for instance, those involving political questions. . . .
goods bought or services enjoyed is the same regardless of income. In other 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
words, the VAT paid eats the same portion of an income, whether big or powers of government to three distinct and separate compartments; and that judicial interpretation has
small. The disparity lies in the income earned by a person or profit margin tended to the preservation of the independence of the three, and a zealous regard of the prerogatives of
marked by a business, such that the higher the income or profit margin, the each, knowing full well that one is not the guardian
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 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA 628, 659.
99

146
with low-profit margins that is always hardest hit. 146 SUPREME COURT REPORTS ANNOTATED
Nevertheless, the Constitution does not really prohibit the imposition of
Abakada Guro Party List vs. Ermita
indirect taxes, like the VAT. What it simply provides is that Congress shall of the others and that, for official wrong-doing, each may be brought to account, either by impeachment,
“evolve a progressive system of taxation.” The Court stated in the Tolentino trial or by the ballot box. 100

case, thus: The words of the Court in Vera vs. Avelino holds true then, as it still holds
101

“The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are true now. All things considered, there is no raison d'être for the
regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxa-tion.’ The
constitutional provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred
unconstitutionality of R.A. No. 9337.
[and] as much as possible, indirect taxes should be minimized.’ (E. FERNANDO, THE 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 While I still hold on to my position expressed in my dissenting opinion in the
enforcement and implementation of R.A. No. 9337, the temporary restraining first VAT cases, I partly yield to the application to the cases at bar of the rule
1

order issued by the Court on July 1, 2005 is LIFTED upon finality of herein on “germaneness” therein enunciated. Thus, I concur with the ponencia of my
decision. highly-esteemed colleague Mme. Justice Ma. Alicia Austria-Martinez except
SO ORDERED. as regards its ruling on the issue of whether Republic Act No. 9337 violates
Carpio, J., concur. Section 24, Article VI of the Constitution.
Davide, Jr. (C.J.), Please see Separate Concurring and Dissenting R.A. No. 9337 primarily aims to restructure the value-added tax (VAT)
Opinion. system by broadening its base and raising the rate so as to generate more
Puno, J., Please see Concurring and Dissenting Opinion. revenues for the government that can assuage the economic predicament that
Panganiban, J., Please see Separate Opinion. our country is now facing. This recently enacted law stemmed from three
Quisumbing, J., In the result. legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB)
Ynares-Santiago, J., I certify that she participated in the oral 1950. The first (HB No. 3555) called for the
arguments and initial deliberations and allows to vote and submit for
_______________
separate opinion. Davide, Jr. (C.J.)
Sandoval-Gutierrez, J., Please see my Concurring and Dissenting 1 Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630, and companion cases.
Opinion. 148
Corona, J., I join Mme. Justice Sandoval-Gutierrez in her concurring 148 SUPREME COURT REPORTS ANNOTATED
and dissenting opinion. Abakada Guro Party List vs. Ermita
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)
Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
100
proposed amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as
Ibid.
101 amended. It is significant to note that all these Sections specifically deal with
147 VAT. And indubitably, these bills are revenue bills in that they are intended
VOL. 469, SEPTEMBER 1, 2005 14 to levy taxes and raise funds for the government. 2

7 On the other hand, SB No. 1950 introduced amendments to “Sections 27,

Abakada Guro Party List vs. Ermita 28, 34, 106, 108, 109, 110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148,
Carpio-Morales, J., I concur. I also concur with the dissent of J. Tinga 236, 237, and 288” of the NIRC, as amended. Among the provisions sought to
on Section 8 of the law. be amended, only Sections 106, 108, 109, 110, 111, 112, 113, 114, and 116
Callejo, Sr., J., Please See My Concurring and Dissenting Opinion. pertain to VAT. And while Sections 236, 237, and 288 are administrative
Azcuna, J., Please see Separate Concurring and Dissenting opinion. provisions pertaining to registration requirements and issuance of receipts
Tinga, J., See Dissenting and Concurring Opinion. commercial invoices, the proposed amendments thereto are related to VAT.
Chico-Nazario, J., Please see Separate Concurring Opinion. Hence, the proposed amendments to these Sections were validly taken
Garcia, J., I also concur with J. Puno insofar as the deletion of no pass cognizance of and properly considered by the Bicameral Conference
on provision is concerned, including Sec. 21. Committee (BCC).
SEPARATE CONCURRING However, I am of the opinion that the inclusion into the law of the
AND DISSENTING OPINION amendments proposed in SB No. 1950 to the following provisions (with
modifications on the rates of taxes) is invalid.
DAVIDE, JR., C.J.: Provision Subject matter
Provision Subject matter 150
Section 27 Rate of income tax on domestic corporations 150 SUPREME COURT REPORTS ANNOTATED
Section 28(A)(1) Rate of income tax on resident foreign corporation Abakada Guro Party List vs. Ermita
Section 28(B)(1) Rate of income tax on non-resident foreign corporation In Philippine Judges Association v. Prado, the Court described the function of
3

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
2 ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S. 566. differences between the two houses. Even where the conference committee is
149 not by rule limited in its jurisdiction, legislative custom severely limits the
VOL. 469, 149 freedom with which new subject matter can be inserted into the conference
SEPTEMBER 1, 2005 bill.”
Abakada Guro Party List vs. Ermita The limitation on the power of a conference committee to insert new
Section 28(B)(5-b) Rate of income tax on intracorporate dividends provisions was laid down in Tolentino v. Secretary of Finance. There, the 4

received by non-resident foreign corporation
Section 34(B)(1) Deductions from gross income
Section 117 Percentage tax on domestic carriers and keepers
of garages
Section 119 Tax on franchises
Section 148 Excise tax on manufactured oils and other 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 authorizing increase of the public debt, bills of
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
_______________
3 G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative Law and Process: In a

local application, and private bills shall originate exclusively in the House of Representatives but the Nutshell 81 (1986 ed.)
Senate may propose or concur with amendments. 4 Supra note 1.

Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial 151
Intermediaries) and 151 (Excise Tax on Mineral Products) of the NIRC, as VOL. 469, SEPTEMBER 1, 2005 151
amended, have been included by the BCC in R.A. No. 9337 even though they Abakada Guro Party List vs. Ermita
were not found in the Senate and House Bills.
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.
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
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.:
1. (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
2. (ii)National government deficit as a percentage of GDP of the 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.” As 1

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
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
2

realized by means of another bill that may later be initiated by the House of areas
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 1 Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American Constitutional Law, pp. 311-314

(3rd ed.).
as unconstitutionalSections 1, 2, 3, 14, 15, 16, 17, and 18 thereof which, 2 Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86 (2004).

respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of the 153
NIRC, as amended because these amendments deal with subject matters VOL. 469, SEPTEMBER 1, 2005 153
which were not touched or covered by the bills emanating from the Abakada Guro Party List vs. Ermita
152
committed to the other branches of government and is confined to its role as
152 SUPREME COURT REPORTS ANNOTATED
defined by the Constitution. Apposite thereto is the doctrine of ripeness whose
3

Abakada Guro Party List vs. Ermita basic rationale is “to prevent the courts, through premature adjudication,
House of Representatives, thereby violating Section 24 of Article VI of the from entangling themselves in abstract disagreements.” Central to the 4

Constitution. doctrine is the determination of “whether the case involves uncertain or

CONCURRING AND DISSENTING OPINION 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
5

PUNO, J.:
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
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.
_______________

and may or may not be exercised. The Court is therefore beseeched to render 7 235 SCRA 630 (1994).
a conjectural judgment based on hypothetical facts. Such a supplication has to 8 See Opinion in 235 SCRA 630, 805-825.
be rejected. 155

Second. With due respect, I submit that the most important constitutional VOL. 469, SEPTEMBER 1, 2005 155
issue posed by the petitions at bar relates to the parameters of power of a Abakada Guro Party List vs. Ermita
x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to the
Bicameral Conference Com- 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 …a and may not include
3 Id., at p. 87. subjects not within the disagreements, even though germane to a question in issue.
4 Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American Constitutional Law, p. 334 (3rd ed.). This rule of antiquity has been honed and honored in practice by the Congress of the United States.
5 Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural Products Co., 473 U.S.
Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States Senate, viz.:
568 (1985); I Tribe, American Constitutional Law, pp. 335-336 (3rd ed.). Committees of conference are appointed for the sole purpose of compromising and adjusting the differing and
6 Communist Party of the United States v. Subversive Activities Control Bd., 367 U.S. 1, 71 (1961); I conflicting opinions of the two Houses and the committees of conference alone can grant compromises and
Tribe, American Constitutional Law, p. 336 (3rd ed.); See also concurring opinion of Justice Brandeis in Ashwander modify propositions of either Houses within the limits of the disagreement. Conferees are limited to the
v. Tennessee Valley Authority, 297 U.S. 288 (1936). consideration of differences between the two Houses.
154 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
154 SUPREME COURT REPORTS ANNOTATED Senate or House passed versions of a bill may be included in the conference report and actions to the contrary would
Abakada Guro Party List vs. Ermita 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
mittee. Most of the issues in the petitions at bar arose because the Bicameral Representatives to support the thesis of the respondents that a bicameral conference committee is
Conference Committee concerned exercised powers that went beyond clothed with an ex post veto power.
reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 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
3705 and 3555. In Tolentino v. Secretary of Finance, I ventured the view that representative democracy. For the inevitable, catastrophic effect of the thesis is to install a Bicameral
7

a Bicameral Conference Committee has limited powers and cannot be allowed Conference Committee as the Third Chamber of our Congress, similarly vested with the power to make
to act as if it were a “third house” of Congress. I further warned that unless laws but with the dissimilarity that its laws are not the sub-
its roving powers are reigned in, a Bicameral Conference Committee can 156

wreck the lawmaking process which is a cornerstone of the democratic, 156 SUPREME COURT REPORTS ANNOTATED
republican regime established in our Constitution. The passage of time Abakada Guro Party List vs. Ermita
ject of a free and full discussion of both Houses of Congress. With such a vagrant power, a Bicameral
fortifies my faith that there ought to be no legal u-turn on this preeminent Conference Committee acting as a Third Chamber will be a constitutional monstrosity.
principle. I wish, therefore, to reiterate my reasons for this unbending It needs no omniscience to perceive that our Constitution did not provide for a Congress composed of
view, viz.: 8 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
Section 209, Rule XII of the Rules of the Senate provides:
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 x x x 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 x x x who shall be elected from legislative districts x x x
and those who x x x 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 hocmembership 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
157
VOL. 469, SEPTEMBER 1, 2005 157
Abakada Guro Party List vs. Ermita
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 short-circuiting 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.
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
158
158 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 con-
159
VOL. 469, SEPTEMBER 1, 2005 159
Abakada Guro Party List vs. Ermita
ference, 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 x x x.” 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
1. 1.Rules of Procedure are derived from several sources. The principal sources are as follows:
1. a.Constitutional rules.
 2. b.Statutory rules or charter provisions.
3. c.Adopted rules.
4. d.Judicial decisions.
5. e.Adopted parliamentary authority.
6. f.Parliamentary law.
7. 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
160
160 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
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.
161
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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:
x x x. 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.
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162 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
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 “x x x 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 strictlyfollowing 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 furtherthan 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:
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.
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Abakada Guro Party List vs. Ermita
Sec. 89. Conference Committee Reports.—. . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure.
...
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 a bill on third and final reading.
 Section 35, Rule XII of the Rules of the Senate states: of discretion amounting to lack or excess of jurisdiction and should be struck
down as unconstitutional nullities, viz.:
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
a. Its deletion of the pro poor “no pass on provision” which is common in
which shall meet within ten (10) days after their composition. The President shall designate the both Senate Bill No. 1950 and House Bill No. 3705.
members of the Senate Panel in the conference committee with the approval of the Senate. Sec. 1 of House Bill No. 3705 provides: 9

Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to
the changes in, or amendments to the subject measure, and shall be signed by a majority of the read as follows:
members of each House panel, voting separately. SEC. 106. Value-added Tax on Sale of Goods or Properties.—
The House rule brightlines the following: (1) the power of the Conference xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of this Code, the
Committee is limited . . . it is only to settle differences with the Senate; (2) if Value-added Tax herein levied on the sale of petroleum products under Subparagraph (1) hereof shall be paid and
the differences are substantial, the Committee must report to the House for absorbed by the
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 H.B. No. 3555 has no “no pass on provision.” House Bill No. 3705 expresses the latest intent of the House on the matter.
9

165
Committee is limited - - - to settle differences with the House; (2) it can make VOL. 469, SEPTEMBER 1, 2005 165
changes or amendments only in the discharge of this limited power to settle
Abakada Guro Party List vs. Ermita
differences with the House; and (3) the changes or amendments are sellers of petroleum products who shall be prohibited from passing on the cost of such tax payments,
merely recommendatory for they still have to be approved by the Senate. 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 x x x.
Under both rules, it is obvious that a Bicameral Conference Committee is a
Sec. 3 of the same House bill provides:
mere agent of the House or the Senate with limited powers. The House Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further amended to
contingent in the Committee can- read as follows:
164 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
164 SUPREME COURT REPORTS ANNOTATED Value-added Tax imposed under this paragraph shall be paid and absorbed by the subject generation companies
Abakada Guro Party List vs. Ermita 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
not, on its own, settle differences which are substantial in character. If it is shall be borne and absorbed exclusively [by] the power-generating companies.
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 In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
proper instructions from the chambers that created it. It cannot exercise its
Value-added Tax on sale of Services and Use or Lease of Properties.—
unbridled discretion. Where there is no difference between the bills, it cannot x x x Provided, that the VAT on sales of electricity by generation companies, and services of
make any change. Where the difference is substantial, it has to return to the transmission companies and distribution companies, as well as those of franchise grantees of electrical
chamber of its origin and ask for appropriate instructions. It ought to be 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
indubitable that it cannot create a new law, i.e., that which has never been companies shall not pass on such tax payments to NAPOCOR or ultimately to the consumers,
discussed in either chamber of Congress. Its parameters of power are not including but not limited to residential end users, either as costs or in any other form whatsoever,
porous, for they are hedged by the clear limitation that its only poweris to directly or indirectly. x x x.
166
settle differences in bills and joint resolutions of the two chambers of
166 SUPREME COURT REPORTS ANNOTATED
Congress.
Abakada Guro Party List vs. Ermita
Fourth. Prescinding from these premises, I respectfully submit that the
following acts of the Bicameral Conference Committee constitute grave abuse 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
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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. 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. 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. 3.Fifteen percent (15%) for environmental conservation to fully implement a comprehensive
national reforestation program; and
4. 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.
168
168 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 law making structure
is unmistakable from the following provisions: (1) requiring that legislative
power shall be vested in a bicameral legislature; (2) providing for quorum 10
require-
_______________
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 sepa-
169
VOL. 469, SEPTEMBER 1, 2005 169
Abakada Guro Party List vs. Ermita
ments; (3) requiring that appropriation, revenue or tariff bills, bills
11
authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives; (4) requiring that bills 12
embrace one subject expressed in the title thereof; and (5) mandating 13
_______________
rate 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
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170 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 14
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 follow-
_______________
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.”
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VOL. 469, SEPTEMBER 1, 2005 171
Abakada Guro Party List vs. Ermita
ing 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 rule both in good times as in bad times. It is the Court’s uncompromising
question of who are most competent to serve. Chance governs, sometimes giving way to favor, rarely to
merit. obligation to defend the Constitution at all times lest it be condemned as an
xxx xxx xxx irrelevant relic.
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 16 268 SCRA 269, 289 (1997).
17 The Manila Standard Today, August 26, 2005, p. 1.
_______________ 173
VOL. 469, SEPTEMBER 1, 2005 173
15235 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- Abakada Guro Party List vs. Ermita
basis, and the bodies are generally placed in the position that to leave-it is a practical impossibility.” Thus, he WHEREFORE, I concur with the majority but dissent on the following points:
concludes that “conference committee action is the most undemocratic procedure in the legislative process.”
172
172 SUPREME COURT REPORTS ANNOTATED 1. a)I vote to withhold judgment on the constitutionality of the “standby
Abakada Guro Party List vs. Ermita authority” in Sections 4 to 6 of Republic Act No. 9337 as this issue is
It cannot be overemphasized that in a republican form of government, laws not ripe for adjudication.;
can only be enacted by all the duly elected representatives of the people. It 2. b)I vote to declare unconstitutional the deletion by the Bicameral
cuts against conventional wisdom in democracy to lodge this power in the Conference Committee of the pro poor “no pass on provision” on
hands of a few or in the claws of a committee. It is for these reasons that the electricity to residential consumers as it contravened the unequivocal
argument that we should overlook the excesses of the Bicameral Conference intent of both Houses of Congress; and
Committee because its report is anyway approved by both houses is a futile 3. c)I vote to declare Section 21 of Republic Act No. 9337 as
attempt to square the circle for an unconstitutional act is void and cannot be unconstitutional as it contains extraneous provisions not found in its
redeemed by any subsequent ratification. constituent bills.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral
SEPARATE OPINION
Conference Committee by holding that the Court cannot interpose its
checking powers over mere violations of the internal rules of Congress.
PANGANIBAN, J.:
In Arroyo, et al. v. de Venecia, et al., we ruled that when the violations affect
16

private rights or impair the Constitution, the Court has all the power, nay, the The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-
duty to strike them down. Martinez declares that the enrolled bill doctrine has been historically and
In conclusion, I wish to stress that this is not the first time nor will it be uniformly upheld in our country. Cited as recent reiterations of this doctrine
last that arguments will be foisted for the Court to merely wink at assaults on are the two Tolentino v. Secretary of Finance judgments and Fariñas v.1

the Constitution on the ground of some national interest, sometimes clear and Executive Secretary. 2

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 Precedence of Mandatory
news that our debt payments for the year 2006 will exceed Pph1 billion daily Constitutional Provisions
for interest alone. Experts underscore some factors that will further drive up Over the Enrolled Bill Doctrine
the debt service expenses such as the devaluation of the peso, credit
downgrades and a spike in interest rates. But no doomsday scenario will ever
17 I believe, however, that the enrolled bill doctrine is not absolute. It may be
3

justify the thrashing of the Constitution. The Constitution is meant to be our all-encompassing in some countries like
_______________ contravention of such conditions, restrictions or limitations. Insofar as the
8

1235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The second case is an en present case is concerned, the three most important restrictions or limitations
banc Resolution on the Motions for Reconsideration of the first case. to the enrolled bill doctrine are the “origination,” “no-amendment” and “three-
417 SCRA 503, December 10, 2003.
“[I]t is well-settled that the enrolled bill doctrine is conclusive upon the courts as regards the tenor of the reading” rules which I will discuss later.
2

measure passed by Con- Verily, these restrictions or limitations to the enrolled bill doctrine are
174 safeguarded by the expanded constitutional mandate of the judiciary “to
9

174 SUPREME COURT REPORTS ANNOTATED determine whether or not there has been a grave abuse of discretion
Abakada Guro Party List vs. Ermita amounting to lack or excess of jurisdiction on the part of any branch or
Great Britain, but as applied to our jurisdiction, it must yield to mandatory instrumentality of the government.” Even the ponente of Tolentino,
4
10 11

provisions of our 1987 Constitution. The Court can take judicial notice of the
form of government in Great Britain. It is unlike that in our country and, _______________
5 6

therefore,
mality. 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
gress and approved by the President.” Resins Inc. v. Auditor General, 134 Phil. 697, 700; 25 SCRA 754, 756, House considers the bill, the third reading follows. In the House of Commons, no
October 29, 1968, per Fernando, J., later C.J.; (citing Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, further amendments may be made, and the passage of the motion amounts to
366; 7 SCRA 347, 350, February 28, 1963, per Concepciónn, J., later C.J.). 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. passage of the whole bill. The House of Lords, however, may not amend a bill so as to
See Morales v. Subido, 136 Phil. 405, 412; 27 SCRA 131, February 27, 1969. insert a provision relating to taxation. http://en.wikipedia.org/
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. wiki/Constitution_of_the_United_Kingdom; http://www.oefre.unibe.
“[T]he signing of a bill by the Speaker of the House and the Senate President and the certification of the ch/law/icl/uk00000_.html; www.parliament.uk; and
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. http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4,
4 Mabanag v. Lopez Vito, supra, p. 12.
2005, 11:30am PST).
5 §1 of Rule 129 of the Rules of Court.

7 See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p.

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 818.
statute. Its Parliament has the power to change or abolish any written or unwritten element of the Constitution.
8 Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
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 9 Tolentino v. Secretary of Finance, supra.
Parliament. The House of Lords is the second chamber that complements the work of the Commons, whose members
10 2nd paragraph, §1 of Article VIII of the 1987 Constitution.
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 11 Tolentino v. Secretary of Finance, supra.
reading, is a mere for-
176
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176 SUPREME COURT REPORTS ANNOTATED
VOL. 469, SEPTEMBER 1, 2005 175
Abakada Guro Party List vs. Ermita
Abakada Guro Party List vs. Ermita
the learned Mr. Justice Vicente V. Mendoza, concedes in another decision that
the doctrine from which it originated could be modified accordingly by our
7

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
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

on the exercise of congressional prerogatives, the judiciary has both the power
out differences between the Senate and the House of Representatives versions
and the duty to strike down congressional actions that are done in plain
of the E-VAT bills is one such “branch or instrumentality of the government,”
13
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.
Second, the BCC may choose to adopt the Senate version either in part or in
toto, endorsing it also without changes. In so doing, the question of
origination arises. Under the 1987 Constitution, all “revenue x x x bills x x x
shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.” 17

In general, the BCC has at least five options in performing its functions: If the revenue bill originates exclusively from the Senate, then obviously
(1) adopt the House version in part or in toto, (2) adopt the Senate version in the origination provision of the Constitution
18

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?
My short answer is: No, except those relating to income taxes referred to in
_______________
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.

Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let me explain. 17 §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.
Adopting the House 342, March 13, 1911.
Version in Part or In Toto 18 §24 of Article VI of the 1987 Constitution.

178
First, the BCC had the option of adopting the House bills either in part or in 178 SUPREME COURT REPORTS ANNOTATED
toto, endorsing them without changes. Abakada Guro Party List vs. Ermita
would be violated. If, however, it originates exclusively from the House and
_______________
presumably passes the three-reading requirement there, then the question to
12Arroyo v. De Venecia, 343 Phil. 42, 61-62; 277 SCRA 268, 286, August 14, 1997, per Mendoza, J. contend with is whether the Senate amendments complied with the
13These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950. “germane” principle.
177
While in the Senate, the House version may, per Tolentino, undergo
VOL. 469, SEPTEMBER 1, 2005 177
extensive changes, such that the Senate may rewrite not only portions of it
Abakada Guro Party List vs. Ermita
but even all of it. I believe that such rewriting is limited by the “germane”
19

Since these bills had passed the three-reading requirement under the principle: although “relevant” or “related” to the general subject of taxation,
14
20 21

Constitution, it readily becomes apparent that no procedural impediment the Senate version is not necessarily “germane” all the time. The “germane”
15

would arise. There would also be no question as to their origination, because principle requires a legal—not necessarily an economic or political—
16
22

the bills originated exclusively from the House of Representatives itself. interpretation. There must be an “inherent logical connection.” What may be 23

In the present case, the BCC did not ignore the Senate and adopt any of germane in an economic or political sense is not necessarily germane in
the House bills in part or in toto. Therefore, this option was not taken by the the legal sense. Otherwise, any provision in the Senate version that is entirely
BCC. 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
Adopting the Senate
interpretation, the origination principle would surely be rendered inutile.
Version in Part or In Toto
To repeat, in Tolentino, the Court said that the Senate may even write its
own version, which in effect would be an
_______________ 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.
Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
19

28 Cruz, Philippine Political Law (2002), p. 111.

Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.
20

21 Statsky, West’s Legal Thesaurus/Dictionary (1986), p. 348. 180

22 To argue that the raising of revenues makes the non-VAT provisions of a VAT bill automatically germane is to
180 SUPREME COURT REPORTS ANNOTATED
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 Abakada Guro Party List vs. Ermita
Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-317.
final valid act of the Legislative Department until the BCC obtains the
23 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S. Ct. 2611, 2622, June 23, 2005, per Kennedy, J.

179 approval of both houses of Congress. 29

VOL. 469, SEPTEMBER 1, 2005 179 Standby Authority. I believe that the BCC did not exceed its authority
Abakada Guro Party List vs. Ermita when it crafted the so-called “standby authority” of the President. The
amendment by substitution. The Court went further by saying that “the originating bills from the House imposed a 12 percent VAT rate, while the
24
30

Constitution does not prohibit the filing in the Senate of a substitute bill in bill from the Senate retained the original 10 percent. The BCC opted to 31

anticipation of its receipt of the bill from the House, so long as action by the initially use the 10 percent Senate provision and to increase this rate
Senate as a body is withheld pending receipt of the House bill.” After all, the _______________ 25

initiative for filing a revenue bill must come from the House on the theory 26

that, elected as its members are from their respective districts, the House is Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
29

There is no allegation in any of the memoranda submitted to this Court that the consolidated bill was not
more sensitive to local needs and problems. By contrast, the Senate whose approved. In fact, both houses of Congress voted separately and majority of each house approved it.
members are elected at large approaches the matter from a national On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106, 107 & 108 the Tax Code by
30

increasing the VAT rate to 12% on every sale, barter or exchange of goods or properties; importation of goods; and
perspective, with a broader and more circumspect outlook.
27 28
sale or exchange of services, including the use or lease of properties.
Even if I have some reservations on the foregoing sweeping §§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,
pronouncements in Tolentino, I shall not comment any further, because the including the use or lease of properties, but decreasing such rate to 8% on every importation of certain goods; 6% on
BCC, in reconciling conflicting provisions, also did not take the second option 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
of ignoring the House bills completely and of adopting only the Senate version to subsequent increases of such reduced rates), and on the gross receipts derived from services rendered on the sale
in part or in toto. Instead, the BCC used or applied the third option as will be of generated power. The Tax Code referred to in this case is RA 8424, otherwise known as the “Tax Reform Act of
1997.”
discussed below. §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax Code by retaining the VAT rate of
31

10% on every sale, barter or exchange of goods or properties; and on the sale or exchange of services, including the
Compromising use or lease of properties, and the sale of electricity by generation, transmission, and distribution companies.
181
by Consolidating
VOL. 469, SEPTEMBER 1, 2005 181
As a third option, the BCC may reach a compromise by consolidating both the Abakada Guro Party List vs. Ermita
Senate and the House versions. It can adopt some parts and reject other parts to the 12 percent House provision, effective January 1, 2006, upon the
of both bills, and craft new provisions or even a substitute bill. I believe this 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
option is viable, provided that there is no violation of the origination and and four-fifth percent (2 4/5%) or
germane principles, as well as the three-reading rule. After all, the report (ii) National Government Deficit as a percentage of GDP of the previous year exceeds one and one-
generated by the BCC will not become a 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
Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. SeeCruz, Philippine Political Law (2002), p.
24
Deficit, and GDP —as well as the interrelationship among them—can easily
33 34

154.
be derived by the finance secretary from the proper government bodies ended just the midnight before, isn’t it?
charged with their determination. The law is complete and standards have “Atty. Gorospe:
Yes, Your Honor.
_______________
“Justice Panganiban:
32 §§4-6 of the consolidated bill amending §§106-108 of the Tax Code, respectively. Conference Committee Report x x x if it’s only determined on March 1[,] then how can the law
on HBs 3555 & 3705, and SB 1950, pp. 4-7. become effective January 1[.] In other words, how will the [people
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 be] able to pay the tax if ever that formula is exceeded x x x?” (pp.
follows: 59-60);
VAT Collection > 2.8% xxx
GDP “Atty. Gana:
or Well, x x x it would take a grace period of 6 to 8 months[,]
National Government Deficit > 1.5% because obviously, determination could not be made on January
GDP 1, 2006. Yes, they were under the impression that at the earliest it
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. would take 30 days.
34 GDP refers to the value of all goods and services produced domestically; the sum of gross value added of all
“Justice Panganiban:
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). Historically, when [will] these figures [be] available[:] the GDP,
182 [VAT] collection?” (p. 192);
182 SUPREME COURT REPORTS ANNOTATED xxx
Abakada Guro Party List vs. Ermita “Justice Panganiban:
been fixed. Only the fact-finding mathematical computation for its
35
But certainly not on January 1. Therefore, by January 1, people
implementation on January 1, 2006, is necessary. would not know whether the rate would be increased or not,
Once either of the factual and mathematical events provided in the law even if there is no discretion?
takes place, the President has no choice but to implement the increase of the “Atty. Gana:
VAT rate to 12 percent. 36
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?
35See Pelaez v. Auditor General, 122 Phil. 965, 974; 15 SCRA 569, 576-577, December 24, 1965. It will take weeks, or months to be able to determine that?
36The acts of retroactively implementing the 12 percent VAT rate, should the finance secretary be able to make 183
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. VOL. 469, SEPTEMBER 1, 2005 183
The following excerpts from the Transcript of the Oral Arguments in G.R. Nos. 168461, 168463, 168056, and Abakada Guro Party List vs. Ermita
168207, held on July 14, 2005 at the Supreme Court Session Hall, are instructive on the position of petitioners:
“Atty. Gorospe:
This eventuality has been predetermined by Congress. 37

[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); “Atty. Gana:
xxx Well, they anticipated it, would take at most by March.” (p. 193);
“Justice Panganiban: and
Now [let’s see] when it is possible then to determine this formula. It xxx
cannot be on the first day of January 2006, because the year [2005] “Justice Panganiban:
 March, I will ask the government later on when they argue. Because it is important. The administrative regulations are
“Atty. Gana: important[,] because they clarify the law and it will guide
As early as January but not later than 60 to 90 days.” (boldface taxpayers. So[,] by January 1[,] [taxpayers] would not be
supplied; p. 194). Culled from the same record, the following wondering. Do we charge the end consumers 10 [percent] or 12
excerpts show the position of public respondents: [percent]? The regulations should be able to spell that out [i]n the
“Justice Panganiban: same manner that even now the various consumers of various
It will be based on actual figures? products and services must be able to get from your regulations how
“Usec. Bonoan: much they [would] be charged, how much should gasoline stations
It will be based on actual figures. charge in addition to their correct prices, how much carriers should
“Justice Panganiban: charge[,] so there [would] be no confusion.
That creates a problem[,] because where do you get the actual “Usec. Bonoan:
figures[?] 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
“Usec. Bonoan:
million pesos) for the first quarter alone of 2004 is 83,542.83, or 83 percent of revenue collections amounting to
I understand that[,] traditionally[,] we can come in March, but 100,654.01. Divided into GDP of 13,053, the
there is no impediment to speeding up the gathering. 184
“Justice Panganiban: 184 SUPREME COURT REPORTS ANNOTATED
Speed it up. February 15? Abakada Guro Party List vs. Ermita
“Usec. Bonoan: The taxing power has not been delegated by Congress to either or both the
Even within January, Your Honor, I think this can be…. President and the finance secretary. What was delegated was only the power
“Justice Panganiban: to ascertain the facts in order to bring the law into operation. In fact, there
Alright at the end of January, it’s just estimate to get the figures in was really no “delegation’ to speak of; there was merely a declaration of
January. an administrative, not a legislative, function. 38

“Usec. Bonoan: I concur with the ponencia in that there was no undue delegation
Yes, Your Honor (pp. 661-662); and of legislative power in the increase from 10 percent to 12 percent of the VAT
xxx rate. I respectfully disagree, however, with the statements therein that, first,
“Justice Panganiban: the secretary of finance is “acting as the agent of the legislative department”
My only point is, I raised this earlier and I promised counsel for the or an “agent of Congress” in determining and declaring the event upon which
petitioner whom I was questionin[g] that I will raise it with its expressed will is to take effect; and, second, that the secretary’s
you, whether the date January 1, 2006 would present an personality “is in reality but a projection of that of Congress.”
impossibility of a condition happening. The secretary of finance is not an alter ego of Congress, but of
“Usec. Bonoan: the President. The mandate given by RA 9337 to the secretary is not
It will not, Your Honor. equipollent to an authority to make laws. In passing this law, Congress did
“Justice Panganiban: not restrict or curtail the constitutional power of the President to retain
So, your position [is] it will not present an impossibility. Elaborate control and supervision over the entire Executive Department. The law
on it in your memorandum. should be construed to be merely asking the President, with a
“Usec. Bonoan: recommendation from the President’s alter ego in finance matters, to
Yes, Your Honor. determine the factual bases for making the increase in VAT rate
“Justice Panganiban: operative. Indeed, as I have mentioned earlier, the fact-
39
_______________ branches of government, outside the range of judicial cognizance. “[T]he
43 44

quotient is already 6.4 percent. http://www.nscb.gov.ph/sna/2005/ 1stQ2005/2005per1.asp; and the 2003 Bureau right to select the measure and objects of taxation devolves upon the
of Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visited July 14, 2005, 10:45am PST). Congress, and not upon the courts, and such selections are valid unless
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), constitutional limitations are overstepped.” Moreover, each house of
38
45

p. 333. Congress has the power and authority to determine the rules of its
See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern Cross Cement Corp. v.
proceedings. The contention that this case is not ripe for determination
39
46
Philippine Cement
185 because there is no violation yet of the Constitution regarding the exercise of
VOL. 469, SEPTEMBER 1, 2005 185 the President’s standby authority has no basis. The question raised is
Abakada Guro Party List vs. Ermita whether the BCC, in passing the law, committed grave abuse of discretion,
finding condition is a mere administrative, not legislative, function. not whether the provision in question had been violated. Hence, this case is
The ponencia states that Congress merely delegates the implementation of not premature and is, in fact, subject to judicial determination.
the law to the secretary of finance. How then can the latter be its Amendments on Income Taxes. I respectfully submit that the
agent? Making a law is different from implementing it. While the first (the amendments made by the BCC (that were culled
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 Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J.
legislature does not have the power to implement laws. Therefore, to the The necessity, desirability or expediency of a law must be addressed to Congress as the body that is responsible
43

electorate, for “legislators are the ultimate guardians of the liberties and welfare of the people in quite as great
congressional agency arises only in the first, not in the second. The first is a 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.)
legislative function; the second, an executive one. Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
44

Petitioners’ argument is that because the GDP does not account for the Flint v. Stone Tracy Co., 220 US 107, 167, 31 S. Ct. 342, 355, March 13, 1911, per Day, J.
45

§16(3) of Article VI of the 1987 Constitution.

economic effects of so-called underground businesses, it is an inaccurate
46

“Parliamentary rules are merely procedural, and with their observance, the courts have no concern. They may be
indicator of either economic growth or slowdown in transitional waived or disregarded by the legislative body.” Arroyo v. De Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.;
economies. Clearly, this matter is within the confines of lawmaking. This (citing Osmeña, Jr. v. Pendatun, 109 Phil. 863, 870-871, October 28, 1960, per Bengzon, J.).
40

187
Court is neither a substitute for the wisdom, or lack of it, in Congress, nor an 41
VOL. 469, SEPTEMBER 1, 2005 187
arbiter of flaws within the latter’s internal rules. Policy matters lie within
42

Abakada Guro Party List vs. Ermita

the domain of the political
from the Senate version) regarding income taxes are not legally germane to 47

_______________ the subject matter of the House bills. Revising the income tax rates on
domestic, resident foreign and nonresident foreign corporations; increasing
Manufacturers Corp., G.R. No. 158540, August 3, 2005, 465 SCRA 532, 660.
40Escudero Memorandum, pp. 38-39. the tax credit against taxes due from nonresident foreign corporations on
GDP data are far from perfect measures of either economic output or welfare. There are three major problems: intercorporate dividends; and reducing the allowable deduction for interest
(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 expense are legally unrelated and not germane to the subject matter
resources in order to avoid crime or risks to national security; and (3) it is difficult to account correctly for contained in the House bills; they violate the origination principle. The 48

improvements in the quality of goods. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), pp. 35-36.
41Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003. reasons are as follows:
42“Any meaningful change in the method and procedures of Congress or its committees must x x x be sought in One, an income tax is a direct tax imposed on actual or presumed income—
that body itself.”
186
gross or net—realized by a taxpayer during a given taxable year, while a 49

186 SUPREME COURT REPORTS ANNOTATED VAT is an indirect tax not in the context of who is directly and legally liable
Abakada Guro Party List vs. Ermita for its payment, but in terms of its nature as “a tax on
consumption.” The former cannot be passed on to the consumer, but pay dividends, while intercorporate dividends are certainly not goods or
50

the latter can. It is too wide a stretch of the imagination to even relate one properties for sale, barter, exchange, lease or importation. Certainly, input
51

concept with the other. In like manner, it is inconceivable VAT credits are different from tax credits on dividends received by
nonresident foreign corporations.
_______________
_______________
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 52 Mamalateo, Philippine Income Tax (2004), p. 379.
corporations at 35% (30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in 2009); and to reduce 53 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
the allowable deductions for interest expense by 42% (33% in 2009) of the interest income subject to final tax. 54 Mamalateo, Philippine Income Tax (2004), p. 380.
48 The amendments to income taxes also partake of the nature of taxation without representation. As I will
55 De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems, and Solutions (1998), pp.
discuss in the succeeding paragraphs of this Opinion, they did not emanate from the House of Representatives that,
195-196 & 222-224.
under §24 of Article VI of the 1987 Constitution, is the only body from which revenue bills should exclusively
originate. 189
49 Mamalateo, Philippine Income Tax (2004), p. 1.
VOL. 469, SEPTEMBER 1, 2005 189
50 Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), G.R. No.

152609, 462 SCRA 197, 215, June 29, 2005, per Panganiban, J. See Deoferio, Jr. & Mamalateo, The Value Added Tax Abakada Guro Party List vs. Ermita
in the Philippines (2000), p. 36.
51 De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
Three, itemized deductions from gross income partake of the nature of a tax
188 exemption. Interest—which is among such deductions—refers to the amount
56

188 SUPREME COURT REPORTS ANNOTATED paid by a debtor to a creditor for the use or forbearance of money. It is an 57

Abakada Guro Party List vs. Ermita expense item that is paid or incurred within a given taxable year on
how the provisions that increase corporate income taxes can be considered indebtedness in connection with a taxpayer’s trade, business or ex ercise of
as mitigating measures for increasing the VAT and, as I will explain later, for profession. In order to reduce revenue losses, Congress enacted RA
58

effectively imposing a maximum of 3 percent tax on gross sales or revenues 8424 which reduces the amount of interest expense deductible by a taxpayer
59

because of the 70 percent cap. Even the argument that the corporate income from gross income, equal to the applicable percentage of interest income
tax rates will be reduced to 30 percent does not hold water. This reduction subject to final tax. To assert that reducing the allowable deduction in
60

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 finalwithholding 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 creditablewithholding tax system, taxes withheld on certain
53
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
54
law to still file a tax return, report the tax base, and pay the difference
between the tax withheld and the tax due. 55
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
52
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 author-
_______________

Mamalateo, Philippine Income Tax (2004), p. 173.

From this observation alone, it can already be seen that not only are 56

57 See §78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, then Collector of Internal
dividends alien to the tax base upon which the VAT is imposed, but their Revenue, and promulgated by Manuel Roxas, then Secretary of Finance, later President of the Republic of the
respective methods of withholding are totally different. VAT-registered Philippines, on February 11, 1941, XXXIX OG 18, 325.
58 Mamalateo, Philippine Income Tax (2004), p. 196.

persons may not always be nonresident foreign corporations that declare and 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,
to harmonize or to find a compromise in settling the apparent differences in
resident foreign, and nonresident foreign corporations, and then dividing the difference obtained by the increased these versions, was within the sound discretion of the BCC.
65

rate. Hence, it is computed as follows:

35% - 20% = 15%
In like manner, HB 3555 contained provisions on the withholding of
15% : 35% = 42%, the amount of reduction. creditable VAT at the rates of 5 percent, 8 percent, 10.5 percent, and 12
190 percent. HB 3705 had no such equiva-
66

190 SUPREME COURT REPORTS ANNOTATED

_______________
Abakada Guro Party List vs. Ermita
ity to make amendments not only implies the power to make insertions, but §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and 11% of their respective total
63

also deletions, in order to resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the in retail trade.
petroleum products subject to excise tax (and the raw materials used in the
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
§7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim for input tax credit of goods
64

purchased or imported for use in trade or business, through an even depreciation or amortization over the month of
manufacture of such products), the sellers of petroleum products, and the acquisition and the 59 succeeding months, if the aggregate acquisition cost of such goods exceeds P 660,000.
generation companies. The analogous provision in Senate Bill (SB) No. 1950
61 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
dealt with electricity, businesses other than generation companies, and August 16, 2005. Such spread-out recognizes industries where capital assets are constructed or assembled.
services of franchise grantees of electric utilities. In contrast, there was a
62 No cap is found in HB 3705.
65

§5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VAT be deducted and withheld by the
66

marked absence of the no pass-on provision in HB 3555. Faced with such government or by any of its political subdivisions, instrumentalities or agencies—including government-owned-and-
variances, the BCC had the option of retaining or modifying the no pass-on 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
provisions and determining their extent, or of deleting them altogether. In the purchase of goods and 8% of the gross receipts for services rendered by contractors on every sale or installment
opting for deletion to resolve the variances, it was merely acting within its payment. The VAT that is deducted and withheld shall be creditable against their respective VAT liabilities—10.5%,
in case of government public works contrac-
discretion. No grave abuse may be imputed to the BCC. 192
The 70 Percent Cap on Input Tax and the 5 PercentFinal 192 SUPREME COURT REPORTS ANNOTATED
Withholding VAT. Deciding on the 70 percent cap and the 5 percent final Abakada Guro Party List vs. Ermita
withholding VAT in the consolidated bill is also within the power of the BCC. lent amendment, and SB 1950 pegged the rates at only 5 percent and 10
While HB 3555 in- percent. I believe that the decision to impose a final (not creditable) VAT and
67

_______________ 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
61

62
§§1-3 of HB 3705.
§5 of SB 1950. There seems to be a discrepancy between the Conference Committee Report and the various
BCC.
pleadings before this Court. While such report, attaching a copy of the bill as reconciled and approved by its Indeed, the tax credit method under our VAT system is not only practical,
conferees, as well as the report submitted by the Senate’s Committee on Ways & Means to the Senate President on but also principally used in almost all taxing jurisdictions. This does not
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,” mean, however, that in the eyes of Congress through the BCC, our country
pp. 9-11; Escudero Memorandum, p. 42; and Respondents’ Memorandum, pp. 109-110). Notably, the qualified dissent can neither deviate from this method nor modify its application to suit our
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. fiscal requirements. The VAT is usuallycollected through the tax credit
191 method (and in the past, even through the cost deduction method or a mixture
VOL. 469, SEPTEMBER 1, 2005 191 of these two methods), but there is no hard and fast rule that 100 percent of
68

Abakada Guro Party List vs. Ermita the input taxes will always be allowed as a tax credit.
cluded limits of 5 percent and 11 percent on input tax, SB 1950 proposed an 63
In fact, it was Maurice Lauré, a French engineer, who invented the VAT. 69

even spread over 60 months. The decision to put a cap and fix its rate, so as In 1954, he had the idea of imposing an indi-
64
_______________ Yes, Your Honor.
tors; and 12% of the payments for the lease or use of properties orproperty rights to nonresident owners. “Justice Panganiban:
67 §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the VAT be deducted and withheld by
It’s just a cash flow problem for them, essentially?
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 “Atty. Baniqued:
services rendered by contractors. The VAT deducted and withheld shall be at the rates of 5% of the gross payment for Yes x x x.” (p. 375).
the purchase of goods and on the gross receipts for services rendered by contractors, including public works 73 The 5 percent final withholding tax may also be charged as part of a supplier’s Cost of Sales.
contractors. The VAT that is deducted and withheld shall be creditable against the VAT liability of the seller; and 194
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. 194 SUPREME COURT REPORTS ANNOTATED
69 http://explanation-guide.info/meaning/Maurice-Lauré.html (Last visited August 23, 2005, 3:25pm PST).
Abakada Guro Party List vs. Ermita
193
VOL. 469, SEPTEMBER 1, 2005 193
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 74

Abakada Guro Party List vs. Ermita

available tax credit certificates for such asset account until retirement from or
rect tax on consumption, called taxe sur la valeur ajoutée, which was quickly 70

cessation of business, or changes in or cessation of VAT-registered

adopted by the Direction Générale des Impost, the new French tax authority
status. This is a matter of policy, not legality. The Court cannot step beyond
75

of which he became joint director. Consequently, taxpayers at all levels in the

the confines of its constitutional power, if there is absolutely no clear showing
production process, rather than retailers or tax authorities, were forced to
of grave abuse of discretion in the enactment of the law.
administer and account for the tax them-selves. 71

That the unutilized input VAT would be rendered useless is merely

Since the unutilized input VAT can be carried over to succeeding quarters,
speculative. Although it is recorded as a deferred asset in the books of a
76

there is no undue deprivation of property. Alternatively, it can be passed on to

company, it remains to be a mere privilege. It may be written off or expensed
the consumers; there is no law prohibiting that. Merely speculative and
72

outright; it may also be denied as a tax credit.

unproven, therefore, is the contention that the law is arbitrary and
There is no vested right in a deferred input tax account; it is a mere
oppressive. Laws that impose taxes are necessarily burdensome, compulsory,
73

statutory privilege. The State may modify or withdraw such privilege, which
77

and involuntary.
is merely an asset granted by operation of law. Moreover, there is no vested78

The deferred input tax account—which accumulates the unutilized input

VAT—remains an asset in the accounting
_______________
70 This refers to a “tax on value added”—TVA in French and VAT in English.
71 http://en.wikipedia.org/wiki/ Maurice-Lauré (Last visited August 23, 2005, 3:20pm PST).
72 The Transcript of the Oral Arguments in G.R. 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 G.R. No. 168461:
right in gener-
_______________
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

“Justice Panganiban: 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.
So, the final consumer pays the tax? 77 See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.

“Atty. Baniqued: 78 The law referred to is not only the Tax Code, but also RA 9298, otherwise known as the “Philippine

Accountancy Act of 2004.”

Yes, Your Honor. 195
“Justice Panganiban: VOL. 469, SEPTEMBER 1, 2005 195
The trade people in between the middlemen just take it as an input and Abakada Guro Party List vs. Ermita
then [collect] it as output, isn’t it?
ally accepted accounting principles. These refer to accounting concepts,
79

Atty. Baniqued:
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 The matter of business establishments shouldering 30 percent of output
physical science, for these are merely developed and continually modified by 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 81

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. 1.Securities and Exchange Commission (SEC);

80 Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 515.
2. 2.Accounting Standards Council; Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy in the Philippines and
3. 3.Standards issued by the International Accounting Standards Board (now Committee); and adopt measures—such as the promulgation of accounting and auditing standards, rules and regulations, and best
4. 4.Accounting principles and practices for which there has been a long history of acceptance and usage. 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
If there appears to be a conflict between any of the bodies listed above, the pronouncements of the first listed accepted best practices.
81 The VAT is collected on each sale of goods or properties or upon the actual or constructive receipt of
body shall be applied. SEC Securities Regulation Code Rule 68(1)(b)(iv) as amended, cited in Appendix “C” of
consideration for services, starting from the production stage, followed by the intermediate
Morales, The Philippine Securities Regulation Code (Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank, and increasingly recognized worldwide, 197
international accounting standards (IAS) have been merely adopted by Philippine regulatory bodies and accredited VOL. 469, SEPTEMBER 1, 2005 197
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 Abakada Guro Party List vs. Ermita
imposition is arguably another tax on gross—not net—income and thus a
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
deviation from the concept of VAT as a tax on consumption; it also assumes
(PRBOA) of the Professional Regulatory Commission supports the adoption of IAS. The Philippine Institute of
that sales or revenues are on cash basis or, if on credit, given credit terms
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.
shorter than a quarter of a year. However, such additional imposition and
http://www.picpa.com.ph/adb/index.htm (Last visited August 23, 2005, 3:15pm PST).
196 assumption are also arguably within the power of Congress to make. The
196 SUPREME COURT REPORTS ANNOTATED State may in fact choose to impose an additional 3 percent tax on gross
Abakada Guro Party List vs. Ermita income, in lieu of the 70 percent cap, and thus subject the income of
local and international regulatory accounting bodies. To state otherwise and businesses to two types of taxes—one on gross, the other on net. These
80

recognize such asset account as a vested right is to limit the taxing power of impositions may constitute double taxation, which is not constitutionally 82

the State. Unlimited, plenary, comprehensive and supreme, this power cannot proscribed. 83

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 stages in the distribution process, and culminating with the sale to the final consumer. This is the essence of a
legal ground for invalidating the law. Profit margins are a variable of sound 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
business judgment, not of legal doctrine. The law applies equally to all input tax credit, the remaining 30 percent becomes an outright expense that is, however, immediately payable and
businesses; it is up to each of them to determine the best formula for selling 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
their goods or services in the face of stiffer competition. There is, thus, no tax computed by multiplying 30 percent to the 10 percent VAT that is imposed on gross sales, receipts or revenues. It
violation of the equal protection clause. If the implementation of the 70 is not a tax on tax and, mathematically, it is derived as follows:
percent cap would cause an ad infinitum deferment of input taxes or an 30% x 10% = 3% of gross sales, receipts or revenues.
unequal effect upon different types of businesses with varying profit margins
and capital requirements, then the remedy would be an amendment of the “Double taxation means taxing the same property [or subject matter] twice when it should be taxed only once;
82

that is, ‘taxing the same person twice by the same jurisdiction for the same thing.’” Commissioner of Internal
law—not an unwarranted and outright declaration of unconstitutionality. Revenue v. Solidbank Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J.; (citing Afisco Insurance Corp. v.
Court of Appeals, 361 Phil. 671, 687; 302 SCRA 1, 16, January 25, 1999, per Panganiban, J.). See Commissioner of
Internal Revenue v. Bank of Commerce, G.R. No. 149636, 459 SCRA 638, June 8, 2005.
 83 “The rule x x x is well-settled that there is no constitutional prohibition against double taxation.” China
Banking Corp. v. Court
198
198 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. This is another type of tax imposed by the Tax Code,
84
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, “rooted in the doctrine of 85
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
_______________
of Appeals, 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. Commission on Elections, 420 Phil. 524, 530; 368 SCRA 453, 456, October 26, 2001, per
Sandoval-Gutierrez, J.
87 Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
199
VOL. 469, SEPTEMBER 1, 2005 199
Abakada Guro Party List vs. Ermita
RA 9337 was enacted precisely to achieve the objective of raising revenues to
defray the necessary expenses of government. The means that this law
88
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.
89
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
_______________
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.
200
200 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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, x x x then we would have a serious problem, Your Honor.
201
VOL. 469, 201
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1, 2005
Abakada Guro Party List vs. Ermita
“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 pet roleum, Your Honor.
“Justice Panganiban:
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.
“Justice Panganiban:
But it can be passed as a part of sales, sales costs
rather.
“Atty. Baniqued:
But the petroleum dealers here themselves……
interrupted
“Justice Panganiban:
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].
“Justice Panganiban:
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.
“Justice Panganiban:
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]
202
202 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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?
“Justice Panganiban:
Yes.
“Atty. Baniqued:
Then, it would complicate… interrupted
“Justice Panganiban:
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 doesnot 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
“Justice Panganiban:
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.
“Justice Panganiban:
Yes, but the issue here in this Court, is whether that act of Congress
is unconstitutional.
203
VOL. 469, 203
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Abakada Guro Party List vs. Ermita
“Atty. Baniqued:
Yes, we believe it is unconstitutional, Your Honor.
“Justice Panganiban:
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.
“Justice Panganiban:
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
“Justice Panganiban: “Atty. Baniqued:
That’s why I say, that there is need to refine the Yes, Your Honor.
implementing rules so that everyone will know, the “Justice Panganiban:
customers will know how much to pay for gasoline, not And that doesn’t apply at all times, isn’t it?
only gasoline, gasoline, and so on, diesel and all kinds “Atty. Baniqued:
of products, so there’ll be no confusion and there’ll be Well……
no undue taking advantage. There will be a smooth “Justice Panganiban:
implementation[,] if the law were to be upheld by the That doesn’t at all times?
Court. In your case, as I said, it may be unwise to pass “Atty. Baniqued:
that on to the customers, but definitely, the dealers will For capital goods costing less than 1 million,Your Honor, then….
not bear that [—] to suffer the loss that you mentioned “Justice Panganiban:
in your consolidated balance sheets. Certainly, the That will not apply?
dealers will not bear that [cost], isn’t it? “Atty. Baniqued:
“Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input
It will be a very hard decision to make, Your Honor. [VAT], Your Honor.
204 “Justice Panganiban:
204 SUPREME COURT REPORTS ANNOTATED Yes, but we talked already about the 70 [percent].
Abakada Guro Party List vs. Ermita “Atty. Baniqued:
“Justice Panganiban: Yes, Your Honor.
Why, you will not pass it on? “Justice Panganiban:
“Atty. Baniqued: When you made your presentation on the balance sheet, it is as if
I cannot speak for the dealers…. interrupted. every capital expenditure you made is subject to the 5 [percent,]
“Justice Panganiban: rather the [five year] depreciation schedule[.] [T]hat’s not so. So, the
As a consumer, I will thank you if you don’t pass it on[;] but you or presentation you made is a little inaccurate and misleading.
your clients as businessm[e]n, I know, will pass it on. “Atty. Baniqued:
“Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that
As I have said, Your Honor, there are many constraints on their this applies only to capital goods costing more than one [million].
ability to do that[,] and that is why the first step that we are seeking 205
is to seek redress from this Honorable Court[,] because we feel that VOL. 469, 205
the imposit on is excessive and oppressive….. interrupted SEPTEMBER
“Justice Panganiban: 1, 2005
You can find redress here, only if you can show that the law is Abakada Guro Party List vs. Ermita
unconstitutional. “Justice Panganiban:
“Atty. Baniqued: Yes, but you combined it later on with the 70 [percent]
We realized that, Your Honor. cap to show that the dealers are so disadvantaged. But
“Justice Panganiban: you didn’t tell us that that will apply only when capital
Alright. Let’s talk about the 5 [percent] [d]epreciation rate, but equipment or goods is one million or more. And in
that applies only to the capital equipment worth over a million? 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.
“Justice Panganiban:
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.
“Atty. Baniqued:
Yes, Your Honor, we apologize if it has caused a little
confusion….
“Justice Panganiban:
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….
“Justice Panganiban:
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
206
206 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
imposition is unreasonable and oppressive, it will remain so, even
after it is passed on, Your Honor.
“Justice Panganiban:
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.
“Justice Panganiban:
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…..
“Justice Panganiban:
Why?
“Atty. Baniqued:
By way of, for example sales to NAPOCOR or NTC…. interrupted
“Justice Panganiban:
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.
“Justice Panganiban:
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.
“Justice Panganiban:
You will charge that[.] [T]herefore[,] the sales to the Supreme Court
 by that gas station will effectively be higher? Yes, Your Honor, it is our submission that this
“Atty. Baniqued: limitation in the input [VAT] credit as well as the
Yes, Your Honor. amortization…….
“Justice Panganiban: “Justice Panganiban:
So, the Supreme Court will pay more, you will not [be] going to All you talk about is equal protection clause, about due
[absorb] that 5 [percent], will you? process, depreciation of property without observance
“Atty. Baniqued: of due process[,] could really be a remedy than a
If it is passed on, Your Honor, that’s of course we agree…. business way.
Interrupted. “Atty. Baniqued:
“Justice Panganiban: Business in the level of the petroleum dealers, Your
Not if, you can pass it on…. Honor, or in the level of Congress, Your Honor.
“Atty. Baniqued: “Justice Panganiban:
Yes, we can…. interrupted Yes, you can pass them on to customers[,] in other
“Justice Panganiban: words. It’s the customers who should [complain].
There is no prohibition to passing it on[.] [P]robably the gas station “Atty. Baniqued:
will simply pass it on to the Supreme Court and say[,] well[,] there Yes, Your Honor… interrupted
is this 5 [percent] “Justice Panganiban:
207 And perhaps will not elect their representatives
VOL. 469, 207 anymore[.]
SEPTEMBER 1, “Atty. Baniqued:
2005 Yes, Your Honor…..
Abakada Guro Party List vs. Ermita “Justice Panganiban:
final VAT on you so[,] therefore, for every tank full For agreeing to it, because the wisdom of a law is not
you buy[,] we’ll just have to [charge] you 5 [percent] for the Supreme Court to pass upon.
more. Well, the Supreme Court will probably say, well, “Atty. Baniqued:
anyway, that 5 [percent] that we will pay the gas It just so happens, Your Honor, that what is [involved]
dealer, will be paid back to the government, isn’t it[?] here is a commodity that when it goes up, it affects
So, how [will] you be affected? everybody….
“Atty. Baniqued: “Justice Panganiban:
I hope the passing on of the burden, Your Honor, Yes, inflationary and inflammatory….
doesn’t come back to party litigants by way of increase “Atty. Baniqued:
in docket fees, Your Honor. …just like what Justice Puno says it shakes the entire
“Justice Panganiban: economic foundation, Your Honor.
But that’s quite another m[a]tter, though…(laughs) 208
[W]hat I am saying, Mr. [C]ounsel is, you still have to 208 SUPREME COURT REPORTS ANNOTATED
show to us that your remedy is to declare the law Abakada Guro Party List vs. Ermita
unconstitutional[,] and it’s not business in character. “Justice Panganiban:
“Atty. Baniqued: 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.
“Justice Panganiban:
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
“Justice Panganiban:
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 …..
“Justice Panganiban:
In other words, that’s your remedy [--] to take it up with the
Department of Energy
“Atty. Baniqued:
…..unreasonable price increases, Your Honor.
“Justice Panganiban:
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.
“Justice Panganiban:
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 AdministrativeMatters. Finally, the
BCC’s amendments regarding other
209
VOL. 469, SEPTEMBER 1, 2005 209
Abakada Guro Party List vs. Ermita
taxes are both germane in a legal sense and reasonably necessary in an
90
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 meas-ures have to 91
be put in place or increased rates imposed, in
_______________
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 x x x and other socially sensitive products such as kerosene and fuel
oil substantially lessened the impact of VAT. The reduction in import duty x x x 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 G.R. Nos. 168461, 168463, 168056, and 168207 on July 14, 2005 also
reveals the effect of mitigating measures upon petitioners in G.R. 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
210
210 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. Directly related to the proposed VAT changes, these amendments are
92
expected also to have a salutary effect on the national economy.
The no-amendment rule in the Constitution was not violated by the BCC,
93
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.
_______________
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]irlinecompanies, 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 justif ication to increase the fares
by 10 [percent;] at best 7 [percent], correct?
“Atty. Baniqued:
I guess so, Your Honor, yes.” (pp. 367-368).
92 §28(1) of Article VI of the 1987 Constitution.
93 §26(2) of Article VI of the 1987 Constitution.
211
VOL. 469, SEPTEMBER 1, 2005 211
Abakada Guro Party List vs. Ermita
The no pass-on provisions in the congressional bills are the only item raised congressional bills that are referred to it; and it may do so only on the
by petitioners concerning deletion. As I have already mentioned earlier,
94
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
_______________
94 These bills refer to HB 3705 and SB 1950.
95 §26(2), supra.
212
212 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
duty of striking down provisions of a law that in their enactment violate
conditions, restrictions or limitations imposed by the Constitution. The 96
Bicameral Conference Committee (BCC) is a mere creation of Congress.
Hence, the BCC may resolve differences only in conflicting provisions of
condition that such resolution does not violate the origination, the three-
reading, and the no-amendment rules of the Constitution.
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,
_______________
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.
213
VOL. 469, SEPTEMBER 1, 2005 213
Abakada Guro Party List vs. Ermita
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 CONCURRING AND DISSENTING OPINION
people. On the other hand, respondents have justified it by comparing it to
YNARES-SANTIAGO, J.:
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.” Thus, in upholding the Philippine ratification of
97
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
_______________
97 Panganiban, Leveling the Playing Field (2004), PRINT-TOWN Group of Companies, pp. 46-47.
214
214 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
presented to overthrow such presumption, this Court will resolve every doubt
in its favor.” As pointed our in Cawaling Jr. v. Comelec, the grounds for
98
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
99
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 creditagainst 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 exercise of powers vested upon the two other branches are properly observed.
Representatives and the Senate Rules, the Bicameral Conference Committee This is the very essence of judicial authority conferred upon the Court under
is mandated to settle differences between the disagreeing provisions in the Section 1, Article VII of the 1987 Constitution.
House bill and Senate bill. However, the ponenciaconstrued 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 Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
1

the House bill or Senate Angara v. Electoral Commission, 63 Phil. 139, 158 (1936).
2

216
_______________ 216 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
98 338 Phil. 546, 604-605; 272 SCRA 18, 80, May 2, 1997, per Panganiban, J.
99 420 Phil. 525, 531; 368 SCRA 453, 457, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The Philippine The Rules of the House of Representatives and the Rules of the Senate
Judges Association v. Prado, 227 SCRA 703, 706, November 11, 1993, per Cruz, J.).
100 Veterans Federation Party v. Commission on Elections, 396 Phil. 419, 452-453; 342 SCRA 244, 283, October 6,
provide that in the event there is disagreement between the provisions of the
2000, per Panganiban, J.; (citing Garcia v. Commission on Elections, 227 SCRA 100, 107-108, October 5, 1993). House and Senate bills, the differences shall be settled by a bicameral
215 conference committee.
VOL. 469, SEPTEMBER 1, 2005 215 By this, I fully subscribe to the theory advanced in the Dissenting Opinion
Abakada Guro Party List vs. Ermita of Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of
bill, (b) decide that neither provisions in the House bill or the provisions in Finance that the authority of the bicameral conference committee was limited
3

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. 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
2 3 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873, 115931, 25 August 1994, 235
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
1 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.
_______________

SCRA 630, 750.

 217 Dissenting Opinion in Tolentino v. Secretary of Finance, there is absolutely no
4

VOL. 469, SEPTEMBER 1, 2005 217 legal warrant for the bold submission that a Bicameral Conference
Abakada Guro Party List vs. Ermita Committee possesses the power to add/delete provisions in bills already
When the Bicameral Conference Committee goes beyond its limited function approved on third reading by both Houses or an ex post veto power.
by substituting its own judgment for that of either of the two houses, it In view thereof, it is my submission that the amendments introduced by
violates the internal rules of Congress and contravenes material restrictions the Bicameral Conference Committee which are not found either in the House
imposed by the Constitution, particularly on the passage of law. While or Senate versions of the VAT reform bills, but are inserted merely by the
concededly, the internal rules of both Houses do not explicitly limit the Bicameral Conference Committee and thereafter included in Republic Act No.
Bicameral Conference Committee to a consideration only of conflicting 9337, should be declared unconstitutional. The insertions and deletions made
provisions, it is understood that the provisions of the Constitution should be do not merely settle conflicting provisions but materially altered the bill, thus
read into these rules as imposing limits on what the committee can or cannot giving rise to the instant petitions.
do. As such, it cannot perform its delegated function in violation of the three- I, therefore, join the concurring and dissenting opinion of Mr. Justice
reading requirement and the no-amendment rule. Reynato S. Puno.
Section 26(2) of Article VI of the 1987 Constitution provides that: CONCURRING AND DISSENTING OPINION
(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
SANDOVAL-GUTIERREZ, J.:
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment hereto shall be
Adam Smith, the great 18th-century political economist, enunciated the
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and naysentered in
the Journal. dictum that “the subjects of every state ought to contribute to the support of
Thus, before a bill becomes a law, it must pass three readings. Hence, government, as nearly as possible, in proportion to their respective abilities;
the ponencia’s submission that despite its limited authority, the Bicameral that is, in proportion to the revenue which they respectively enjoy under
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 Supra, p. 811. 4

since it would be immediately put into vote by the respective houses. In effect, 219
it is not a bill that was passed by the entire Congress but by the members of VOL. 469, SEPTEMBER 1, 2005 219
the ad hoc committee only, which of course is constitutionally infirm. Abakada Guro Party List vs. Ermita
I disagree that the no-amendment rule referred only to “the procedure to the protection of the state.” At no other time this dictum becomes more urgent
1

be followed by each house of Congress with regard to bills initiated in each of and obligatory as in the present time, when the Philippines is in its most
said respective houses” be-
218
218 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
cause 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
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. 1.It is “high time to re-examine the test of germaneness proffered
in Tolentino”;
2. 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 I Undue Delegation of Legislative Power
Bill No. 3705 is “unconstitutional.” Taxation is an inherent attribute of sovereignty. It is a power that is purely 5

legislative and which the central legislative body cannot delegate either to the
In addition to the above points raised by Mr. Senior Justice Puno, may I executive or judicial
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 ABAKADA GURO Party List (Formerly AASJAS), officers Samson S. Alcantara and Ed Vincent S. Albano.
2

Sections 4 to 6 which violate the principle of non-delegation of legislative Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M. Lacson, Alfredo S. Lim,
3

Jamby A.S. Madrigal and Sergio R. Osmenña III.

power. These Sections authorize the President, upon recommendation of the Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, Rodolfo G. Plaza, Darlene
4

Secretary of Finance, to raise the VAT rate from 10% to 12% effective 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,
January 1, 2006, if the conditions specified therein are met, thus: Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casiño.
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 5 Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA 647 cited in Vitug,

1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions Acosta, Tax Law and Jurisprudence, Second Edition, at p. 7.
has been satisfied: 221
VOL. 469, SEPTEMBER 1, 2005 221
1. (i)Value-added tax collection as a percentage of Gross Domestic Product (GDP) of Abakada Guro Party List vs. Ermita
the previous year exceeds two and four-fifth percent (2 4/5%); or
2. (ii)National government deficit as a percentage of GDP of the previous year exceeds department of government without infringing upon the theory of separation of
one and one-half percent (1 1/2%). powers. The rationale of this doctrine may be traced from the democratic
6

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
1 Book V of The Wealth of Nations. only in the Legislature. Composed of the people’s representatives, it is “closer
220 to the pulse of the people and… are therefore in a better position to determine
220 SUPREME COURT REPORTS ANNOTATED both the extent of the legal burden the people are capable of bearing and the
Abakada Guro Party List vs. Ermita benefits they need.” Also, this set-up provides security against the abuse of
7

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, 168207 and 168463 assail the
2 3
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 “ex-clusive origination.” They cited as their basis Article VI, Section 28 (2);
Article III, Section 1; and Article VI, Section 24 of the Constitution.
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…
4 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.
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
_______________
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, S.J., The 1987 Constitution of the Republic of the Philippines, A Commentary, 1996 Edition, at p. 687.
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222 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
potestas delegata non delegare potest. As Judge Cooley enunciated:
8
“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:
_______________
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 pp. 8-9.
223
VOL. 469, SEPTEMBER 1, 2005 223
Abakada Guro Party List vs. Ermita
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. This is a derivative of the more familiar maxim express mention is
11
implied exclusion or expressio unius est exclusio alterius.Considering that
Section 28 (2), Article VI expressly speaks only of “tariff rates, import and 12 13
export quotas, tonnage and wharfage
14 15
_______________
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 p. 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 p. 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 p. 579).
15 Tonnage dues are duties laid upon vessels according to their tonnage or cubical capacity. (Id., at p. 1488).
224
224 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
dues and other duties and imposts, “by no stretch of imagination can this
16 17
enumeration be extended to include the VAT.
And 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 regard is not whether or not the law is being enforced in accordance with the
percent (1 1/2%). prescribed man-
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 Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C.J., p. 786.
19

Cruz, Constitutional Law, 1987 Edition, at p. 101.

her authority in arbitrary and discretionary fashion. 20

226
_______________ 226 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
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Abakada Guro Party List vs. Ermita
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
ner 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
225 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
227
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SEPTEMBER 1,
2005
Abakada Guro Party List vs. Ermita
Senator Osmeña.
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 imp rove your
grades and I will give you an allowance. That is the
analogy of this.
xxxxxx
Senator Osmeña.
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.
x x x We are saying, kung mataas ang grade mo,
dadagdagan ko ang allowance mo. Katulad ng
sinabi natin dito. 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
_______________
21 TSN, May 10, 2005, Annex ‘E” of the Petition in G.R. No. 168056.
228
228 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
deficiency of revenue vis-à-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 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 Tolentino vs. Secretary of Finance, this Court expounded on the foregoing
23
provision by holding that:
“x x x 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 x x x. 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
_______________
22
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p. 3.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
 229 term “exclusive” as “possessed to the exclusion of others; appertaining to the
VOL. 469, SEPTEMBER 1, 2005 229 subject alone, not including, admitting, or pertaining to another or others.” 26

Abakada Guro Party List vs. Ermita As for the term “originate,” its meaning are “to cause the beginning of; to
that a revenue statute—and not only the bill which initiated the legislative process culminating in the give rise to; to initiate; to start on a course or journey; to take or have origin; to
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 be deprived; arise; begin or start.” 27

co-equality of the legislative power of the two houses of Congress and in fact, make the House superior With the foregoing definitions in mind, it can be reasonably concluded that
to the Senate.” when Section 24, Article VI provides that revenue bills shall originate
The case at bar gives us an opportunity to take a second hard look at the exclusively from the House of Representatives, what the Constitution
efficacy of the foregoing jurisprudence. mandates is that any revenue statute must begin or start solely and only in
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI the House. Not the Senate. Not both Chambers of Congress. But there is more
of the 1935 Constitution. The latter provision was modeled from Section 7 (1), to it than that. It also means that “an act for taxation must pass the House
Article I of the United States Constitution, which states: first.” It is no consequence what amendments the Senate adds. 28

“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 24 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 793.
Id.
British practice and experience with the House of Commons. As one
25

26 City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31, 1967, 21 SCRA 665, 673.

commentator puts it: 27 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 1592.

28 Davies, Legislative Law and Process, (2d. Ed. 1986), at p. 89.

“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 231
of the crown and the aristocracy. While the power of taxation, of revenue, and of supplies VOL. 469, SEPTEMBER 1, 2005 231
remained in the hands of a popular branch, it was difficult for usurpation to exist for any
Abakada Guro Party List vs. Ermita
length of time without check, and prerogative must yield of that necessity which controlled
at once the sword and the purse.” A perusal of the legislative history of R.A. No. 9337 shows that it did not
But while the fundamental principle underlying the vesting of the power to “exclusively originate” from the House of Representatives.
propose revenue bills solely in the House of Representatives is present in both The House of Representatives approved House Bill Nos.
the Philippines and US Constitutions, stress must be laid on the differences 3555 and 3705. These Bills intended to amend Sections 106, 107, 108, 109,
29 30

between 110, 111 and 114 of the NIRC. For its part, the Senate approved Senate Bill
230 No. 1950, taking into consideration House Bill Nos. 3555 and 3705. It
31

230 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.” The term
“exclusive” is defined as “excluding or having power to exclude; limiting to or
limited to; single, sole, undivided, whole.” In one case, this Court define the
25
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
24 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, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters
106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, outside of VAT, such as income
_______________ _______________

29 Entitled “An Act Restructuring the Value-Added Tax, Amending for the Purpose Sections 106, 107, 108, 110 and 32 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 484.
114 of the National Internal Revenue Code of 1997, As amended, and For Other Purposes.” Approved on January 27, 33 Supra.
2005. 233
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. VOL. 469, SEPTEMBER 1, 2005 233
31 Entitled “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148,
Abakada Guro Party List vs. Ermita
151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended, and For Other Purposes.”
Approved on April 13, 2005. tax, percentage tax, franchise tax, taxes on banks and other financial
232 intermediaries, excise taxes, etc.
232 SUPREME COURT REPORTS ANNOTATED Thus, I am of the position that the Senate could not, without violating the
Abakada Guro Party List vs. Ermita germaneness rule and the principle of “exclusive origination,” propose tax
237 and 288 of the National Internal Revenue Code of 1997, As Amended and matters not included in the House Bills.
For Other Purposes.” WHEREFORE, I vote to CONCUR with the majority opinion except with
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House respect to the points above-mentioned.
of Representatives. It has a legislative identity and existence separate and CONCURRING AND DISSENTING OPINION
apart from House Bills No. 3555 and 3705. Instead of concurring or proposing
amendments, Senate Bill No. 1950 merely “takes into consideration” the two CALLEJO, SR., J.:
House Bills. To take into consideration means “to take into account.”
Consideration, in this sense, means “deliberation, attention, observation or I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as
contemplation. Simply put, the Senate in passing Senate Bill No. 1950, a tax I concur with the majority opinion but vote to declare as unconstitutional the
32

measure, merely took into account House Bills No. 3555 and 3705, but did not deletion of the “no-pass on provision” contained in Senate Bill No. 1950 and
concur with or amend either or both bills. As a matter of fact, it did not even House Bill No. 3705 (the constituent bills of Republic Act No. 9337).
take these two House Bills as a frame of reference.
The present petitions provide an opportune
In Tolentino, the majority subscribed to the view that Senate may amend
occasion for the Court to re-examine
the House revenue bill by substitution or by presenting its own version of the
Tolentino v. Secretary of Finance
bill. In either case, the result is “two bills on the same subject.” This is the 33

source of the “germaneness” rule which states that the Senate bill must be In ruling that Congress, in enacting R.A. No. 9337, complied with the formal
germane to the bill originally passed by the House of Representatives. requirements of the Constitution, the ponencia relies mainly on the Court’s
In Tolentino, this was not really an issue as both the House and Senate Bills rulings in Tolentino v. Secretary of Finance. To recall, Tolentinoinvolved 1

in question had one subject—the VAT. Republic Act No. 7716, which similarly amended the NIRC by widening the
The facts obtaining here is very much different from Tolentino. It is very tax base of the VAT system. The procedural attacks against R.A. No. 9337 are
apparent that House Bills No. 3555 and 3705 merely intended to amend substantially the same as those leveled against R.A. No. 7716, e.g., violation
Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC of 1997, pertaining of the “Origination Clause” (Article VI, Section 24) and the “Three-Reading
to the VAT provisions. On the other hand, Senate Bill No. 1950 intended to Rule” and the “No-Amendment Rule” (Article VI, Section 26[2]) of the
amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, Constitution.

_______________
 1 G.R. No. 115455, 25 August 1994, 235 SCRA 630. similarly empowered to make amendments not found in either the House or
234
Senate bills.
234 SUPREME COURT REPORTS ANNOTATED
The ponencia upholds the acts of the Bicameral Conference Committee
Abakada Guro Party List vs. Ermita
with respect to R.A. No. 9337, following the said ruling in Tolentino.
The present petitions provide an opportune occasion for the Court to re-
To my mind, this unqualified adherence by the majority opinion
examine its rulings in Tolentino particularly with respect to the scope of the
in Tolentino, and now by the ponencia, to the practice of the US Congress and
powers of the Bicameral Conference Committee vis-à-vis Article VI, Section
its conference committee system ought to be re-examined. There are
26(2) of the Constitution.
significant textual differences between the US Federal Constitution’s and our
The crucial issue posed by the present petitions is whether the Bicameral
Constitution’s prescribed congressional procedure for enacting laws.
Conference Committee may validly introduce amendments that were not
Accordingly, the degree of freedom accorded by the US Federal Constitution
contained in the respective bills of the Senate and the House of
to the US Congress markedly differ from that accorded by our Constitution to
Representatives. As a corollary, whether it may validly delete provisions
the Philippine Congress.
uniformly contained in the respective bills of the Senate and the House of
Section 7, Article I of the US Federal Constitution reads:
Representatives. [1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may
In Tolentino, the Court declared as valid amendments introduced by the propose or concur with Amendments as on other Bills.
Bicameral Conference Committee even if these were not contained in the [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
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 2 Tolentino v. Secretary of Finance, supra, at pp. 667-668.
measure at issue, either by deleting provisions to which both houses have already agreed or by inserting new 236
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 236 SUPREME COURT REPORTS ANNOTATED
which make it an entirely new bill. The versions are now altogether different, permitting a conference committee to Abakada Guro Party List vs. Ermita
draft essentially a new bill …
it, but if not he shall return it, with his Objections to the House in which it shall have originated, who
The result is a third version, which is considered an “amendment in the nature of a substitute,” the
shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such
only requirement for which being that the third version be germane to the subject of the House and
Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent together with the
Senate bills.
Objections, to the other House, by which it shall, likewise, be reconsidered, and if approved by two
Indeed, this Court recently held that it is within the power of a conference committee to include in
thirds of that House, it shall become a Law. But in all such Cases the Votes of both Houses shall be
its report an entirely new provision that is not found either in the House bill or in the Senate Bill. If the
determined by yeas and nays, and the Names of the Persons voting for and against the Bill shall be
committee can propose an amendment consisting of one or two provisions, collectively considered as an
entered on the Journal of each House respectively. If any Bill shall not be returned by the President
“amendment in the nature
within ten Days (Sundays excepted) after it shall have been presented to him, the Same shall be a Law,
235
in like Manner as if he had signed it, unless the Congress by their Adjournment prevent its return in
VOL. 469, SEPTEMBER 1, 2005 235 which Case it shall not be a Law.
Abakada Guro Party List vs. Ermita [3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House of
of a substitute,” so long as such an amendment is germane to the subject of the bills before the Representatives may be necessary (except on a question of Adjournment) shall be presented to the
committee. After all, its report was not final but needed the approval of both houses of Congress to President of the United States; and before the Same shall take Effect, shall be approved by him, or
become valid as an act of the legislative department. The charge that in this case the Conference being disapproved by him, shall be repassed by two thirds of the Senate and House of Representatives,
Committee acted a third legislative chamber is thus without any basis.” 2
according to the Rules and Limitations prescribed in the Case of a Bill.
The majority opinion in Tolentino relied mainly on the practice of the United On the other hand, Article VI of our Constitution prescribes for the following
States legislature in making the foregoing disquisition. It was held, in effect, procedure for enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be expressed in the
that following the US Congress’ practice where a conference committee is title thereof.
permitted to draft a bill that is entirely different from the bills of either the (2) No bill passed by either House shall become a law unless it has passed three readings on separate
House of Representatives or Senate, the Bicameral Conference Committee is 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.
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
237
VOL. 469, SEPTEMBER 1, 2005 237
Abakada Guro Party List vs. Ermita
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. 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. 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
_______________
3 See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure, 71 U. Chi. L. Rev. 361
(Spring 2004).
238
238 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
239
VOL. 469, SEPTEMBER 1, 2005 239
Abakada Guro Party List vs. Ermita
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 differ-
240
240 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
ences 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
242
Constitution are mechanisms instituted to remedy the “evils” inherent in a 242
bicameral system of legislature, including the conference committee system.
Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of the can they circumvent this rule by coursing new provisions through the instrumentality of a conference
Constitution on the Bicameral Conference Committee and the amendments it committee created by Congress and meeting in secret? The effect of the Court’s uncritical embrace of the
introduced to R.A. No. 9337 has “effectively dismantled” the “three-reading practice of the American Congress and its conference committees is to dismantle the no-amendment
rule.
rule” and “noamendment rule.” As posited by Fr. Joaquin Bernas, a member
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,
SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
5

The task at hand for the Court, but which the ponenciaeschews, is to
of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is not unusual circumscribe the powers of the Bicameral Conference Committee in light of
that the final version approved by one House differs from what has been approved by the other. The the “three-reading” and “noamendment” rules in Article VI, Section 26(2) of
“conference committee,” consisting of members nominated from both Houses, is an extra-constitutional the Constitution.
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. The Bicameral Conference Committee, in
deleting the “no pass on provision” contained in
_______________
Senate Bill No. 1950 and House Bill No. 3705,
4 Galloway, G., Congress at the Crossroads, pp. 98-100. violated Article VI , Section 26(2) of the Constitution
241
VOL. 469, SEPTEMBER 1, 2005 241 Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief
Abakada Guro Party List vs. Ermita Justice) opined that the duty of the Bicameral Conference Committee was
However, since conference committees have merely delegated authority from Congress, they should not limited to the reconciliation of disagreeing provisions or the resolution of
perform functions that Congress itself may not do. Moreover, their proposals need confirmation by both
Houses of Congress.
differences or inconsistencies. This proposition still applies as can be gleaned
In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits of what from the following text of Sections 88 and 89, Rule XIV of the Rules of the
conference committees may do. The petitioners contended that the consolidation of the House and House of Representatives:
Senate bills made by the conference committee contained provisions which neither the Senate bill nor
Sec. 88. Conference Committee.—In the event that the House does not agree with the Senate on the in both House Bill (HB) No. 3705 and Senate Bill (SB) No. 1950. HB 3705
amendments to any bill or joint resolution, the differences may be settled by the conference committees
of both chambers. proposed to amend Sections 106 and 108 of the NIRC by expressly stating
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to therein that sellers of petroleum products and power generation companies
and support the House Bill. If the differences with the Senate are so substantial that they materially selling electricity are prohibited from passing on the VAT to the consumers.
impair the House Bill, the panel shall report such fact to the House for the latter’s appropriate action.
SB 1950 proposed to amend Section 108 by likewise prohibiting power
_______________ generation companies from passing on the VAT to the consumers. However,
5 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary, pp. 702-703 (1996 Ed.).
these “no pass on provisions” were altogether deleted by the Bicameral
243 Conference Committee. At the least, since there was no disagreement
VOL. 469, SEPTEMBER 1, 2005 243 between HB 3705 and SB 1950 with respect to the “no pass on provision” on
Abakada Guro Party List vs. Ermita the sale of electricity, the Bicameral Conference Committee acted beyond the
Sec. 89. Conference Committee Reports.—. . . Each report shall contain a detailed, sufficiently scope of its authority in deleting the pertinent proviso.
explicit statement of the changes in or amendments to the subject measure. At this point, it is well to recall the rationale for the “noamendment rule”
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior and the “three-reading rule” in Article VI, Section 26(2) of the Constitution.
to the voting thereon. The House shall vote on the Conference Committee report in the same manner The proscription on amendments upon the last reading is intended to subject
and procedure as it votes on a bill on third and final reading. all bills and their amendments to intensive deliberation by the legislators and
and Rule XII, Section 35 of the Rules of the Senate: the ample ventilation of issues to afford the public an opportunity to express
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 their opinions or objections thereon. Analogously, it is said that the “three-
6

which shall meet within ten (10) days after their composition. The President shall designate the reading rule” operates “as a self-binding mechanism that allows the
members of the Senate Panel in the conference committee with the approval of the Senate. legislature to guard against the consequences of its own future passions,
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 myopia, or herd behavior. By requiring that bills be read and debated on
members of each House panel, voting separately. successive days, legislature may anticipate and forestall future occasions on
Justice Davide further explained that under its limited authority, the which it will be seized by deliberative pathologies.” As Jeremy Bentham, a 7

Bicameral Conference Committee could only (a) restore, wholly or partly, the noted political analyst, put it: “[t]he more susceptible a people are of
specific provisions of the House Bill amended by the Senate Bill; (b) sustain, excitement and being led astray, so much the more ought they
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. 6 Dissenting Opinion of Justice Romero in Tolentino, supra.
Justice Romero, who also dissented in Tolentino, added that the conference 7 Vermuele, supra.
245
committee is not authorized to initiate or propose completely new matters
VOL. 469, SEPTEMBER 1, 2005 245
although under certain legislative rules like the Jefferson’s Manual, a
Abakada Guro Party List vs. Ermita
conference committee may introduce germane matters in a particular bill.
However, such matters should be circumscribed by the committee’s sole to place themselves under the protection of forms which impose the necessity
authority and function to reconcile differences. of reflection, and prevent surprises.”
8

244 Reports of the Bicameral Conference Committee, especially in cases where

244 SUPREME COURT REPORTS ANNOTATED substantial amendments, or in this case deletions, have been made to the
Abakada Guro Party List vs. Ermita respective bills of either house of Congress, ought to undergo the “three-
In the case of R.A. No. 9337, the Bicameral Conference Committee made an reading” requirement in order to give effect to the letter and spirit of Article
“amendment by deletion” with respect to the “no pass on provision” contained VI, Section 26(2) of the Constitution.
 The Bicameral Conference Committee Report that eventually became R.A. Ratification by Congress did not cure the
No. 9337, in fact, bolsters the argument for the strict compliance by Congress unconstitutional act of the Bicameral Conference
of the legislative procedure prescribed by the Constitution. As can be gleaned Committee of deleting the “no pass on provision”
from the said Report, of the 9 Senators-Conferees, only 5 9

Senators unqualifiedly approved it. Senator Joker P. Arroyo expressed his

10
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, fourteen (14) approved
the same with reservations while three voted no. All the reservations
13
_______________
8 Id. citing Bentham, J., Political Tactics.
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
11 12 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

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.
Enrolled Bill Doctrine is not applicable where, as in
11 Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D. Singson, Junie E. Cua, this case, there is grave violation of the Constitution
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, As expected, the ponencia invokes the enrolled bill doctrine to buttress its
Alan Peter S. Cayetano, Joseph Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and Imee R. refusal to pass upon the validity of the assailed
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.

Dissenting Opinion in Tolentino, supra.

246
14

247
246 SUPREME COURT REPORTS ANNOTATED
VOL. 469, SEPTEMBER 1, 2005 247
Abakada Guro Party List vs. Ermita
Abakada Guro Party List vs. Ermita
expressed by the conferees relate to the deletion of the “no pass on provision.”
acts of the Bicameral Conference Committee. Under the “enrolled bill
Only eleven (11) unqualifiedly approved it. In other words, even among
doctrine,” the signing of a bill by the Speaker of the House and the Senate
themselves, the conferees were not unanimous on their Report. Nonetheless,
President and the certification of the Secretaries of both houses of Congress
Congress approved it without even thoroughly discussing the reserva ti ons or
that it was passed are conclusive of its due enactment. In addition
qualifications expressed by the conferees therein.
to Tolentino, the ponencia cites Fariñas v. Executive Secretary where the 15

This “take it or leave it” stance vis-à-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.
Court declined to go behind the enrolled bill vis-à-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 VOL. 469, SEPTEMBER 1, 2005 249
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 Abakada Guro Party List vs. Ermita
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
pass on provision” contained in the constituent bills of Republic Act No. 9337.
merely procedural, and with their observance, the courts have no concern. They may be waived or disregarded by the CONCURRING AND DISSENTING OPINION
legislative body.’ Consequently, ‘mere failure to conform to parliamentary usage will not invalidate the action (taken
by a deliberative body) when the
AZCUNA, J.:
_______________
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional
G.R. No. 147387, 10 December 2003, 417 SCRA 503.
abdication of Congress of its power to tax through its delegation to the
15

248
248 SUPREME COURT REPORTS ANNOTATED President of the decision to increase the rate of the tax from 10% to 12%,
Abakada Guro Party List vs. Ermita effective January 1, 2006, after any of two conditions has been satisfied. 1

requisite number of members have agreed to a particular measure. 16 The two conditions are:
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. 1. (i)Value-added tax collection as a percentage of Gross Domestic Product
No. 9006 merely involved the internal rules of both houses of Congress. The (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%);
procedural irregularities allegedly committed by the conference committee or
therein did not amount to a violation of a provision of the Constitution. 2. (ii)National 17 government deficit as a percentage of GDP of the previous
In contrast, the act of the Bicameral Conference Committee of deleting the year exceeds one and one-half percent (1 1/2%). 2

“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 The Constitution states that “Congress may, by law, allow the President to fix within specified limits, and
1

strike down any act of a branch or instrumentality of government or any of its 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
officials done with grave abuse of discretion amounting to lack or excess of Government.” (Art. VI, Sec. 28 [2], emphasis supplied.)
jurisdiction. 18 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.
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
2

Justice Reynato S. Puno and vote to dismiss the petitions with respect to SEC.“SEC. 4. Section 106 of the same Code, as amended, is hereby further amended to read as follows:
106. Value-added Tax on Sale of Goods or Properties.—
Sections 4, 5 and 6 of Republic Act No. 9337 for being premature. Further, I “(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
vote to declare as unconstitutional Section 21 thereof and the deletion of the 250
“no 250 SUPREME COURT REPORTS ANNOTATED
_______________
Abakada Guro Party List vs. Ermita
A scrutiny of these “conditions” shows that one of them is certain to happen
16 Id., pp. 529-530. (Emphases mine.).
17 By way of explanation, the constitutional issues raised in Fariñaswere (1) whether Section 14 of R.A. No. 9006
on January 1, 2006.
was a rider or that it violated Article VI, Section 26(1) of the Constitution requiring that “[e]very bill passed by The first condition is that the collection from the E-VAT exceeds 2 4/5% of
Congress shall embrace only one subject which shall be expressed in the title thereof”; and (2) whether Section 14 of the Gross Domestic Product (GDP) of the previous year, a ratio that is known
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 as the tax effort.
in Fariñasallegedly violated the internal rules of either house of Congress, but it was not alleged therein that they The second condition is that the national government deficit exceeds 1
amounted to a violation of any constitutional provision on legislative procedure.
18 Article VIII, Section 1, CONSTITUTION. 1/2% of the GDP of the previous year.
249
 Note that the law says that the rate shall be increased if any of the two Accordingly, there is here no abdication by Congress of its power to fix the
conditions happens, i.e., if condition (i) orcondition (ii) occurs. rate of the tax since the rate increase provided under the law, from 10% to
Now, in realistic terms, considering the short time-frame given, the only 12%, is definite and certain
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 Condition has been defined by Escriche as “every future and uncertain event upon which an obligation or
3

increasing the tax effort through the E-VAT, to the extent needed to reduce 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 national deficit to 1 1/2% or less, will trigger the happening of condition (i) the event.
under the law. Thus, the happening of condition (i) or condition (ii) is in ...
An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be
reality certain and unavoidable, as of January 1, 2006. considered as one with a term. (IV TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES, 144).
_______________ 252
252 SUPREME COURT REPORTS ANNOTATED
(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 Abakada Guro Party List vs. Ermita
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after to occur, effective January 1, 2006. All that the President will do is state
any of the following conditions has been satisfied:
which of the two conditions occurred and there-upon implement the rate
1. “(i)Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year increase.
exceeds two and four-fifth percent (2 4/5%); or At first glance, therefore, it would appear that the decision to increase the
2. “(ii)National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).” 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.
251 Nevertheless, the contrary is true and thus it would be best in these
VOL. 469, SEPTEMBER 1, 2005 251 difficult and critical times to let our people know precisely what burdens they
Abakada Guro Party List vs. Ermita are being asked to bear as the necessary means to recover from a crisis that
This becomes all the more clear when we consider the figures provided during calls for a heroic sacrifice by all.
the oral arguments. It is for this reason that the Court required respondents to submit a copy of
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos. the rules to implement the E-VAT, particularly as to the impact of the tax on
The tax effort of the present VAT is now at 1.5%. prices of affected commodities, specially oil and electricity. For the onset of
The national budgetary deficit against the GDP is now at 3%. the law last July 1, 2005 was confusing, resulting in across-the-board
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort increases of 10% in the prices of commodities. This is not supposed to be the
from VAT, now at 1.5%, to at least 3%, thereby exceeding the 2 4/5 percent effect of the law, as was made clear during the oral arguments, because the
ceiling in condition (i), making condition (i) happen. If, on the other hand, this law also contains provisions that mitigate the impact of the E-VAT through
is not done, then condition (ii) happens—the budget deficit remains over 1.5%. reduction of other kinds of taxes and duties, and other similar measures,
What is the result of this? The result is that in reality, the law does not specially as to goods that go into the supply chain of the affected products. A
impose any condition, or the rate increase there-under, from 10% to 12%, proper implementation of the E-VAT, therefore, should cause only the
effective January 1, 2006, is unconditional. For a condition is an event that appropriate incremental increase in prices, reflecting the net incremental
may or may not happen, or one whose occurrence is uncertain. Now while 3
effect of the tax, which is not necessarily 10%, but possibly less, depending on
condition (i) is indeed uncertain and condition (ii) is likewise uncertain, the the products involved.
combination of both makes the occurrence of one of them certain.
 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
253
VOL. 469, SEPTEMBER 1, 2005 253
Abakada Guro Party List vs. Ermita
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 handon-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 Subject Matter
CODE Provision
Section 27 Rate 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 destroy while this Court sits,” and we should very well live up to this
nonresident foreign corpora-
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Abakada Guro Party List vs. Ermita
tions; (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.
DISSENTING AND CONCURRING OPINION
TINGA, J.:
The E-VAT Law, as it stands, will exterminate our country’s small to medium
1
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
_______________
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.
1 Republic Act No. 9337. Referred to intext as “E-VAT Law.”
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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, and 168730, even as I 2 to any other branch of government or private persons, unless its delegation is
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 legis-
_______________
2 Except insofar as it prays that Section 21 of the E-VAT Law be declared unconstitutional. Infra.
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lative power. In appreciating the aspect of undue delegation as regards
taxation statutes, the fundamental point remains that the power of taxation
is inherently legislative, and may be imposed or revoked only by the
3
legislature. In tandem with Section 1, Article VI of the Constitution which
4
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.
Moreover, this plenary power of taxation cannot be delegated by Congress
authorized by the Constitution itself. In this regard, the situation stands
6
different from that in the recent case Southern Cross v.
PHILCEMCOR, wherein I noted in my ponencia that the Tariff Commission
7
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 Con-
_______________
3 J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at pp. 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.
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gress. 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, and that the details as to the enforcement and
8
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 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.
 1. (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
2. (ii)national government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent 1 1/2%).
_______________
8 See People v. Vera, 65 Phil. 56, 117 (1937).
9 Decision, infra.
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Sec. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.—
(a) In General.—There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior
to the release of such goods from customs custody: Provided, That where the customs duties are determined on the
basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes,
if any: provided, further, that the President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the
following conditions has been satisfied.
1. (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
2. (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 of 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.
1. (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
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(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 exceeds one
and one-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. While all reasonable doubts should be
10
_______________
10 Carpio v. Executive Secretary, G.R. No. 96409 February 14, 1992, 206 SCRA 290, 298; citing In re Guarina, 24
Phil. 37.
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Abakada Guro Party List vs. Ermita
resolved in favor, of the constitutionality of a statute, it should necessarily 11
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 x x x.”
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 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. 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
_______________
11 People v. Vera, supra note 8.
12 See Section 2, National Internal Revenue Code.
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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 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. This recognition of 14
agency must be qualified. I do not doubt the ability of Congress to delegate to
the Secretary of Finance administrative functions
_______________
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.
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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. Herein, Congress cannot delegate to either the President
15
or the Secretary of Finance the discretion to raise the tax, as such power
belongs exclusively to the legislative branch of government.
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 264
ground that the law, as written, implies some form of 264 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
_______________
sentatives of the people, the principle evolved that money bills must originate
15 Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard Measures Act, which in the House of Commons and may not be amended by the House of
required a positive final determination by the Tariff Commission before the DTI or Agriculture Secretaries could Lords. The principle was adopted across the shores in the United States, and
17

impose general safeguard measures, operated as a valid restriction and limitation on the exercise by the executive
branch of government of its tariff powers. was famously described by James Madison in The Federalist Papers as
263 follows:
VOL. 469, SEPTEMBER 1, 2005 263 This power over the purse, may in fact be regarded as the most complete and effectual weapon with
which any constitution can arm the immediate representatives of the people, for obtaining a redress of
Abakada Guro Party List vs. Ermita every grievance, and for carrying into effect every just and salutary measure. 18

discretion on the part of the President who was, after all, “authorized” to There is an eminent difference from the British system from which the
increase the tax rate. It is critical for the Court to disabuse this notion right principle emerged, and from our own polity. To this day, only members of the
now. British House of Commons are directly elected by the people, with the
members of the House of Lords deriving their seats from hereditary peerage.
The Continued Viability of
Even in the United States, members of the Senate were not directly elected by
Tolentino v. Secretary of Finance
the people, but chosen by state legislatures, until the adoption of the
One of the more crucial issues now before us, one that has seriously divided Seventeenth Amendment in 1913. Hence, the rule assured the British and
the Court, pertains to the ability of the Bicameral Conference Committee to American people that tax legislation arises with the consent of the sovereign
introduce amendments to the final bill which were not contained in the House people, through their directly elected representatives. In our country though,
bill from which the E-VAT Law originated. Most of the points addressed by both members of the House and Senate are directly elected by the people,
the petitioners have been settled in our ruling in Tolentino v. Secretary of hence the vitality of the original conception of the rule has somewhat lost
Finance, yet a revisit of that precedent is urged upon this Court. On this luster.
16

score, I offer my qualified concurrence with the ponencia. Still, the origination clause deserves obeisance in this jurisdiction, simply
Two key provisions of the Constitution come into play: Sections 24 and because it is provided in the Constitution.
26(2), Article VI of the Constitution. They read: _______________
Section 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 17 M. Evans, ‘A SOURCE OF FREQUENT AND OBSTINATE ALTERCATIONS’: THE HISTORY AND
Senate may propose or concur with amendments. APPLICATION OF THE ORIGINATION CLAUSE.
18 The Federalist No. 58, at p. 394 (J. Madison) (J. Cooke ed. 1961), cited in J. M. Medina, The Origination Clause
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 in the American Constitution: A Comparative Survey, 23 Tulsa Law Journal 2, at p. 165.
days before its passage, except when the President certifies to the necessity of its immediate enactment 265
to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be VOL. 469, SEPTEMBER 1, 2005 265
allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in
the Journal.
Abakada Guro Party List vs. Ermita
Section 24 is also known as the origination clause, which derives origin from At the same time, its proper interpretation is settled precedent, as enunciated
British practice. From the assertion that the power to tax the public at large in Tolentino:
“To begin with, it is not the law—but the revenue bill—which is required by the Constitution to
must reside in the repre- “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
16 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
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 “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.
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 the house concerned,
_______________
19 Tolentino v. Secretary of Finance, supra note 16 at p. 661.
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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
20
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.
_______________
20 See Section 27(1), Article VI, CONSTITUTION.
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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. The
21
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.
_______________
21 Tolentino v. Secretary of Finance, supra note 16 at p. 668.
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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 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. As the Court noted
in Tatad v. Secretary of Energy: 22
_______________
22 G.R. No. 124360, 5 November 1997, 281 SCRA 330.
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[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 so 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
_______________
23 Id., at pp. 349-350.
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Abakada Guro Party List vs. Ermita
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.
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
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VOL. 469, SEPTEMBER 1, 2005 271
Abakada Guro Party List vs. Ermita
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
Tax Statutes and the Due Process Clause
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
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272 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
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. 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
_______________
24 People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
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Abakada Guro Party List vs. Ermita
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
law.” The purpose of the guaranty is to prevent governmental encroachment
25
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, the U.S. Supreme Court recognized that the
27
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
28 29
sanctuary for persons assailing the constitutionality of taxing statutes. The
oft-quoted pronouncement of Justice Fernando follows:
_______________
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 pp. 1150-1151.
24 27 292 U.S. 40 (1934).
28 Id., at p. 44.
29 G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
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274 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
273 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 Holme’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.
275
 VOL. 469, SEPTEMBER 1, 2005 275 are enacted by a representative legislature only after debate and deliberation,
Abakada Guro Party List vs. Ermita tax statutes will most likely, on their face, seem fair and even-handed. After
5. It is undoubted that the due process clause may be invoked where a taxing statute is so all, if Congress passes a tax law that on facial examination is obviously harsh
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
and unfair, it faces the wrath of the voting public, to say nothing of the media.
then becomes the duty of this Court to say that such an arbitrary act amounted to the In testing the validity of a tax statute as against the due process clause, I
exercise of an authority not conferred. That properly calls for the application of the Holmes think that the Court should go beyond a facial examination of the statute, and
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
seek to understand how exactly it would operate. The express terms of a
unreasonable, it is subject to attack on due process grounds. 30 statute, especially tax laws, are usually inadequate in spelling out the
Sison pronounces more concretely how a tax statute may contravene the due practical effects of its implementation. The devil is usually in the details.
process clause. Arbitrariness, confiscation, overstepping the state’s Admittedly, the degree of difficulty involved of judicial review of tax laws
jurisdiction, and lack of a public purpose are all grounds for nullity has increased with the growing complexities of business, economic and
encompassed under the due process invocation. accounting practices. These are sciences which laymen are not normally
Yet even these more particular standards as enunciated in Sison are quite equipped by their general education to fully grasp, hence the possible
exacting, and difficult to reach. Even the constitutional challenge posed insecurity on their part when confronted with such questions on these fields.
in Sison failed to pass muster. The majority cites Sison in asserting that due However, we should not cede ground to those transgressions of the people’s
process and equal protection are broad standards which need proof of such fundamental rights simply because the
persuasive character to lead to such a conclusion.
_______________
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 31 of the tax to be imposed on it.” I. CRUZ, CONSTITUTIONAL LAW, p. 85.
inherent nature of taxation is to 277
VOL. 469, SEPTEMBER 1, 2005 277
_______________ Abakada Guro Party List vs. Ermita
30Id., at pp. 660-662. mechanism employed to violate constitutional guarantees is steeped in
31
disciplines not normally associated with the legal profession. Venality cannot
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
be allowed to triumph simply due to its sophistication. This petition imputes
struck down as a deprivation of his property without due process of law. A property tax retroacting to as long as fifty
in the E-VAT Law unconstitutional oppression of the fatal variety, but in
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
276
order to comprehend exactly how and why that is so, one has to delve into the
276 SUPREME COURT REPORTS ANNOTATED complex milieu of the VAT system. The party alleging the law’s
Abakada Guro Party List vs. Ermita
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
cause pain and injury to the taxpayer, albeit for the greater good of society.
engage accordingly.
Perhaps whatever collective notion there may be of what constitutes an
arbitrary, confiscatory, and unreasonable tax might draw more from the fairy The Viability of the Clear and Present
tale/legend traditions of absolute monarchs and the oppressed peasants they Danger Doctrine as Counterweight
tax. Indeed, it is easier to jump to the conclusion that a tax is oppressive and To the Shibboleths of Speculation
unfair if it is imposed by a tyrant or an authoritarian state. and Wisdom
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
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.
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SUPREME COURT REPORTS ANNOTATED 278
Abakada Guro Party List vs. Ermita
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:
_______________
32 “After defining religion, the Court, citing Tañada 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.
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VOL. 469, SEPTEMBER 1, 2005 279
Abakada Guro Party List vs. Ermita
“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
280
280 SUPREME COURT REPORTS ANNOTATED Congress to amend the offending provisions rather than judicial nullification.
Abakada Guro Party List vs. Ermita But I maintain that the assailed provisions of the E-VAT Law violate the due
contravenes a primordial principle or guarantee on which our polity is process clause of the Constitution and must be stricken down.
founded.
If it can be shown that the E-VAT Law violates these provisions of the The Nature of VAT
Constitution, especially the due process clause, then the Court should
To understand why Sections 8 and 12 of the E-VAT law contravenes the due
accordingly act and nullify. Such is the essence of judicial review, which
process clause, it is essential to understand the nature of the value-added tax
stands as the sole barrier to the implementation of an unconstitutional law.
itself. Filipino consumers may comprehend VAT at its elemental form, having
The Separate Opinion of Justice Panganiban notes that “[t]he Court cannot
been accustomed for several years now in paying an extra 10% of the listed
step beyond the confines of its constitutional power, if there is absolutely no
selling price for a wide class of consumer goods. From the perspective of the
clear showing of grave abuse of discretion in the enactment of the law.” This, 33

end consumer, such as the patron who purchases a meal from a fastfood
I feel, is an unduly narrow view of judicial review, implying that such merely
restaurant, VAT is simply a tax on transactions involving the sale of goods.
encompasses the procedural aspect by which a law is enacted. If the policy of
The tax is shouldered by the buyer, and is based on a percentage of the
the law, and/or the means by which such policy is implemented run counter to
purchase price. Since an excise or percentage tax shares the same
the Constitution, then the Court is empowered to strike down the law, even if
characteristics, there could be some confusion as between such taxes and the
the legislative and executive branches act within their discretion in
VAT.
legislating and signing the law.
However, VAT is distinguishable from the standard excise or percentage
It is also asserted that if the implementation of the 70% cap imposes an
taxes in that it is imposable not only on the final transaction involving the
unequal effect on different types of businesses with varying profit margins
end user, but on previous stages as well so long as there was a sale involved.
and capital requirements, then the remedy would be an amendment of the
Thus, VAT does not simply pertain to the extra percentage paid by the buyer
law. Of course, the remedy of legislative amendment applies to even the most
34

of a fast-food meal, but also that paid by restaurant itself to its suppliers of
unconstitutional of laws. But if our society can take cold comfort in the ability
raw food products. This multi-stage system is more acclimated to the vagaries
of the legislature to amend its enactments as the defense against
of the modern industrial climate, which has long surpassed the stage when
unconstitutional laws, what remains then as the function of judicial review?
there was only one level of transfer between the farmer who harvests the crop
This legislative capacity to amend unconstitutional laws runs concurrently
and the person who eats the crop. Indeed, from the extraction or production of
with the judicial capacity to strike down unconstitutional laws. In fact, the
the raw material to its final consumption by a user, several transactions or
long-standing tradition has been reliance on the judicial branch, and not the
sales
legislative branch, for salvation from unconstitutional laws. 282
_______________ 282 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Separate Opinion, infra.
materialize. The VAT system assures that the government shall reap income
33

34 Ibid.
281 for every transaction that is had, and not just on the final sale or transfer.
VOL. 469, SEPTEMBER 1, 2005 281 The European Union, which has long required its member states to apply
Abakada Guro Party List vs. Ermita the VAT system, provided the following definition of the tax which I deem
I do recognize that the Separate Opinion of Justice Panganiban ultimately clear and comprehensive:
proceeds from the premise that the assailed provisions of the E-VAT Law may 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,
be merely unwise, but not unconstitutional. Hence, its preference to rely on
whatever the number of transactions that take place in the production and distribution
processbefore 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. Section 105 of the NIRC assures that “the amount of tax may be
36
_______________
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.
283
VOL. 469, SEPTEMBER 1, 2005 283
Abakada Guro Party List vs. Ermita
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
284
284 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 stability, if not survival of the business thus just became more crucial.
the P500,000.00 is deducted from the P1,000,000.00 output VAT, and X is The maintenance of the proper equilibrium is not an easy matter. Increasing
required to remit only P500,000.00 of the output VAT it collected from the selling price of the goods
customers. 286
On the other hand, if the input VAT prepaid exceeds the output VAT 286 SUPREME COURT REPORTS ANNOTATED
collected, then the business need not remit any amount as output VAT for the Abakada Guro Party List vs. Ermita
quarter. Moreover, the difference between the input VAT and the output VAT sold does not necessarily increase the gross sales, as it could have the counter-
may be credited as input VAT by the business in the succeeding quar- effect of repelling the consumer and diminishing the number of goods sold. At
285 the same time, keeping the selling price low may increase the volume of goods
VOL. 469, SEPTEMBER 1, 2005 285 sold, but not necessarily the amount of gross sales.
Abakada Guro Party List vs. Ermita Profit is a chancy matter, and in cases of small to medium enterprises,
ter. Thus, if in the First Quarter of a year, Business X prepays P1,000,000.00 usually small if any. It is quite common for retail and distribution enterprises
as input VAT, and collects only P500,000.00 as output VAT, it need not remit to incur profits of less than 1% of their gross revenues. Low profitability is not
any amount of output VAT to the government. Moreover, in the Second an automatic badge of poor business skills, but a reality dictated by the laws
Quarter, Business X can credit the remaining P500,000.00 as part of its input of the marketplace. The probability of profit is lower than that of capital
VAT for that quarter. Hence, if in the Second Quarter, X actually prepays expenditures, and ultimately, many business establishments end up with a
P400,000.00 as input VAT, and collects P500,000.00 as output VAT, it may higher input tax than output tax in a given quarter. This would be especially
add the P500,000.00 input VAT from the previous quarter to the P400,000.00 true for small to medium enterprises who do not reap sufficient profits from
prepaid in the current quarter, bringing the total input VAT it could claim to its business in the first place, and for those firms that opt to also invest in
P900,000.00. Since the input VAT of P900,000.00 now exceeds the output capital expenses in addition to the overhead. Whatever miniscule profit
VAT collected of P500,000, then X need not remit any output VAT as well to margins that can be obtained usually spell the difference between life and
the government for the Second Quarter. death of the business.
However, reality is far bleaker than that befaced by Business X. The VAT The possibility of profit is further diminished by the fact that businesses
collected and remitted is not the most relevant statistic evaluated by the have to shoulder the input VAT in the purchase of their capital expenses. Yet
business. The figure of primary concern of the enterprise would be the profit the erstwhile VAT system was not tainted by the label of oppressiveness and
margin, which is simply the excess of revenue less expenditures. Revenue is neither did it bear the confiscatory mode. This was because of the immediate
derived from the gross sales of the business. Expenditures encompass all relief afforded from the input taxes paid by the crediting system. In theory,
expenses incurred by the business including overhead expenses, wages and VAT is not supposed to affect the profit margin. If such margin is affected, it is
purchases of capital goods. Crucially, expenditures would include the input only because of the prepayment of the input taxes, and this should be remedied
VAT prepaid by the business on its capital expenditures. by the immediate recovery through the crediting system of the settled input
Since a significant amount of the capital outlay incurred by a business is taxes.
subjected to the prepayment of input taxes, the necessity of recovering these The new E-VAT law changes all that, and puts in jeopardy the survival of
losses through the output VAT collected becomes more impelling. These small to medium enterprises.
output taxes are obviously proportional to the volume of gross sales—the 287
higher the gross sales, the higher the output VAT collected. The output taxes VOL. 469, SEPTEMBER 1, 2005 287
collected on sales answer for not only those input taxes paid on the purchase of Abakada Guro Party List vs. Ermita
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 Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input amount of the declarable input VAT to 70% in a quarter, the following results
system—the 70% cap on the creditable input tax that may be carried over into obtain, as presented in tabular form:
the next quarter—is provided in Section 8 of the law, which amends Section Particulars 1st 2ndQuarter 3rdQuarter 4thQuarter
110(A) of the NIRC, among others. Section 110(A) as amended would now Quarter
read: Output VAT 60,000 60,000 100,000 50,000
Input VAT 100,000 34,000 50,000
Sec. 110. Tax Credits.—
(Actual) + Carry [input] [input] [input]
(B) Excess Output or Input Tax.—If at the end of any taxable quarter the output tax exceeds the input Over +58,000 +116,000 +80,000
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the [excess [excess [excess
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
creditable] creditable] creditable]
quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any 100,000 158,000 150,000 130,000
input tax attributable to zero rated sales by a VAT-registered person may at his option be refunded or Declarable Input (60,000 (60,000 (100,000 (50,000
credited against other internal revenue taxes, subject to the provisions of Section 112. (emphasis
supplied) VAT (70% of x70%) x70%) x70%) x70%)
All hope for entrepreneurial stability is dashed with the imposition of the 70% output VAT) 42,000 42,000 70,000 35,000
cap. Under the E-VAT Law, the business, regardless of stability or financial Lower of actual (60,000 - (60,000 - (100,000- (50,000-
capability, is obliged to remit to the government every quarter at least 30% of and 70% cap – 42,000) 42,000) 70,000) 35,000)
the output VAT collected from customers, or roughly 3% of the amount of allowable VAT 18,000 18,000 30,000 15,000
gross sales. Thus, if a quarterly gross sales of Y Business totaled P1,000,000, Payable
and Y is prudent enough to keep its capital expenses down to P980,000, it Creditable Input (100,000– (158,000– (150,000- (130,000-
would then appear on paper that Y incurred a profit of P20,000. However, VAT 42,000) 42,000) 70,000) 35,000)
with the 70% cap, Y would be obliged to remit to the government P30,000, 58,000 116,000 80,000 95,000
thus wiping out the profit margin for the quarter. Y would be entitled to This stands in contrast to same business VAT accountability under the
credit the excess input VAT it prepaid for the next quarter, but the present system, using the same variables of output VAT and input VAT. The
continuous operation of the 70% cap obviates whatever benefits this may give, need to distinguish a de-
and cause the accumulation of the unutilized creditable input VAT which 289
should be returned to the business. VOL. 469, SEPTEMBER 1, 2005 289
288 Abakada Guro Party List vs. Ermita
288 SUPREME COURT REPORTS ANNOTATED clarable input VAT is obviated with the elimination of the 70% cap.
Abakada Guro Party List vs. Ermita Particulars 1st 2nd Quarter 3rd Quarter 4th Quarter
The difference is even more dramatic if seen how the unutilized creditable Quarter
input VAT accumulates over a one year period. To illustrate, Business Y Output VAT 60,000 60,000 100,000 50,000
prepays the following amounts of input VAT over a one-year period: Input VAT 100,000 34,000 [input] 50,000 [input]
P100,000.00—First Quarter; P100,000.00—2nd Quarter; P34,000.00—3rd (Actual) + [input] +80,000 + 14,000
Quarter; and P50,000.00—4th Quarter. On the other hand, Y collects the Carry Over +40,000 [excess (excess
following amounts of output VAT from consumers: P60,000.00—First [excess creditable] creditable)
Quarter; P60,000.00—2nd Quarter; P100,000.00—3rd Quarter; and creditable]
P50,000.00—4th Quarter. Applying the 70% cap, which would limit the 100,000 140,000 114,000 50,000
 Particulars 1st 2nd Quarter 3rd Quarter 4th Quarter
Quarter
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. Simply put, the
37
_______________
“The most basic law in finance!” Understand the Time Value of Money. http://www.free-financial-
37
advice.net/time-value-of-money. html. Last visited, 30 August 2005.
290
290 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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 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
_______________
38 Time Value of Money. http://www.jetobjects.com/components/finance/TVM/concepts.html. Last visited, 30
August 2005.
291
VOL. 469, SEPTEMBER 1, 2005 291
Abakada Guro Party List vs. Ermita
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
38 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. It would be incorrect to assume that increase the
39
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.
_______________
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
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
293
VOL. 469, SEPTEMBER 1, 2005 293
Abakada Guro Party List vs. Ermita
is your basic Catch-22 situation—no matter which means the enterprise
40

characterize this illegal option as “viable.”

292 employs to recover from the E-VAT Law, it will still go down in flames.
292 SUPREME COURT REPORTS ANNOTATED Section 8 of the E-VAT law, while ostensibly even-handed in application,
Abakada Guro Party List vs. Ermita fails to appreciate valid substantial distinctions between large scale
In analyzing the effects of the 70% cap, and appreciating how it violates the enterprises and small and medium enterprises. The latter group, owing to the
due process clause, we should not focus solely on the end consumers. limited capability for capital investment, subsists on modest profit margins,
Undoubtedly, consumers will face hardships due to the increased prices, but whereas the former expects, by reason of its substantial capital investments,
their threshold of physical survival, as individual people, is significantly less a high margin. In essentially prohibiting the recovery of small profit margins,
than that of enterprises. Somehow, I do not think the new E-VAT would the E-VAT law effectively sends the message that only high margin businesses
generally deprive consumers of the bare necessities such as food, water, are welcome to do business in the Philippines. It stifles any entrepreneurial
shelter and clothing. There may be significant deprivation of comfort as a ambitions of Filipinos unfortunate enough to have been born poor yet seek a
result, but not of life. better life by sacrificing all to start a small business.
The same does not hold true for businesses. The standard of “deprivation of Pilipinas Shell Dealers, on whom the burden to establish the violation of
life” of juridical persons employs different variables than that of natural due process and equal protection lies, offers the following chart of the income
persons. What food and water may be for persons, profit is for an enterprise— statement of a typical petroleum dealer:
the bare necessity for survival. For businesses, the implementation of the
QUARTERLY PROFIT AND LOSS STATEMENT
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 DEALER “A”
of a business.
It is easy to admonish both the consumer and the enterprise to cut back on Price VAT (without 70% VAT (with 70%
expenditures to survive the new E-VAT Law. However, this can be cap) cap)
realistically expected only of the consumer. The small/medium enterprise Sales/Output 32,748,534 3,274,853.40 3,274,853.40
cannot just cut back easily on expenditures in order to survive the Cost of Sales 31,834,717 3,183,471.70
implementation of the E-VAT Law. For such businesses, expenditures do not Gross 913,817
normally contemplate unnecessary expenses such as executive perks which Margin
can be dispensed with without injury to the enterprises. These expenditures
pertain to expenses necessary for the survival of the enterprise, such as _______________
 40 In Joseph Heller’s Catch-22, Yossarian, a World War II pilot reasoned that if he feigned insanity, he would be
Abakada Guro Party List vs. Ermita
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 bomb ing runs he had that the very vitality, if not life of our domestic economy is at stake, I think it
sought to avoid in the first place.
derelict to our duty to block out these urgent concerns presented to the Court
294
with blind faith tinged with irrational Panglossian optimism. 41
294 SUPREME COURT REPORTS
The obligation of the majority to refute on the merits the arguments of the
ANNOTATED
Petroleum Dealers becomes even more grave considering that the respondents
Abakada Guro Party List vs. Ermita
have abjectly failed in to convincingly dispute the claims. During oral
Operating Expenses Non- 536,249
arguments, respondents attempted to counter the arguments that the 70%
vatable items Vatable Items 317,584 31,758.40
cap was oppressive and confiscatory by presenting the following illustration,
Total Cost 853,833 which I fear is severely misleading:
Net Profit 59,984 Slide 1
Total Input Tax 3,215,230.10 2,292,397.38 Item Cost VAT
VAT Payable 59,623.30 982,456.02 Sales 1,000,000.00 100,000.00
Unutilized Input VAT 922,832.72 Purchases 800,000.00 80,000.00
*computed by multiplying output VAT by 70% [3,274,853.40 x 70% Due BIR without Due BIR with 70% cap
= 2,292.397.38] cap
The presentation of the Pilipinas Shell Dealers more or less jibes with my Output VAT 100,000.00 Output VAT 100,000.00
own observations on the impact of the 70% cap. The dealer whose income is Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00
illustrated above has to outlay a cash amount of P922,832.72 more than what Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
would have been shelled out if the 70% cap were not in place. Considering Excess Input VAT 10,000.00
that the net profit of the dealer is only P59,984.00, the consequences could Carry-over to next
very well be fatal, especially if these state of events persist in succeeding quarter
quarters. Slide 2
The burden of proof was on the Pilipinas Shell Dealers’ to prove their Item Cost VAT
allegations, and accordingly, these figures have been duly presented to the Sales 1,000,000.00 100,000.00
Court for appreciation and evaluation. Instead, the majority has shunted Purchases 600,000.00 60,000.00
aside these presentations as being merely theoretical, despite the fact that Due BIR without cap Due BIR with 70% cap
they present a clear and present danger to the very life of our nation’s Output VAT 100,000.00 Output VAT 100,000.00
enterprises. The majority’s position would have been more credible had it Actual Input VAT (60% of output Allowable Input VAT 60,000.00
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. 41 Pangloss was a famed character ridiculed in Voltaire’s Candide,renowned for his absolute blind faith in

Sadly, the majority refuses to confront the figures or engage in a optimism, no matter how dire the circumstances.
296
meaningful demonstration of how these assailed provisions truly operate.
296 SUPREME COURT REPORTS ANNOTATED
Instead, it counters with platitudes and bromides that do not intellectually
Abakada Guro Party List vs. Ermita
satisfy. Considering
295 VAT) 60,000.00
VOL. 469, SEPTEMBER 1, 2005 295 Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
 Excess Input VAT ___0_____ Total Available Input VAT 90,000.00
Carry-over to next quarter Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
This presentation of the respondents is grossly deceptive, as it fails to account Net VAT Payable 30,000.00
for the excess creditable input VAT that remains unutilized due to the 70% Total Available Input VAT 90,000.00
cap. This excess or creditable input VAT is supposed to be carried over for the Allowable Input VAT 70,000.00
computation of the input VAT of the next quarter. Instead, this excess or Excess Input VAT to be carried over to next Quarter 20,000.00
creditable input VAT magically disappears from the table of the respondents. Quarter 3
In their memorandum, the Pilipinas Shell Dealers counter with their own Cost VAT
presentation using the same variables as respondents’, but taking into Sales 1,000,000.00 100,000.00
account the excess creditable input VAT and extending the situation over a Purchases 800,000.00 80,000.00
one-year period. I cite with approval the following chart of the Pilipinas Shell
42
Due BIR with 70% cap
Dealers: Output VAT 100,000.00
Slide 1 Less: Input VAT
Quarter 1 Excess Input VAT fr. 2nd Qtr. 20,000.00
Item No. Cost VAT Input VAT-Current Qtr. 80,000.00
Sales 1,000,000.00 100,000.00 Total Available Input VAT 100,000.00
Purchases 800,000.00 80,000.00 Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Due BIR with 70% cap Net VAT Payable 30,000.00
Output VAT 100,000.00 298
Allowable Input VAT 70,000.00 298 SUPREME COURT REPORTS
Net VAT Payable 30,000.00 ANNOTATED
Excess Input Vat 10,000.00 Abakada Guro Party List vs. Ermita
Carry-over to next quarter Total Available Input VAT 100,000.00
Allowable Input VAT 70,000.00
_______________
Excess Input VAT to be carried 30,000.00
42 Id., at pp. 29-30. over to next quarter
297 Quarter 4
VOL. 469, SEPTEMBER 1, 2005 297 Cost VAT
Abakada Guro Party List vs. Ermita Sales 1,000,000.00 100,000.00
Quarter 2 Purchases 800,000.00 80,000.00
Cost VAT Due BIR with 70% cap
Sales 1,000,000.00 100,000.00 Output VAT 100,000.00
Purchases 800,000.00 80,000.00 Less: Input VAT
Due BIR with 7-% cap Excess Input VAT fr. 3rd Qtr. 30,000.00
Output VAT 100,000.00 Input VAT-Current Qtr. 80,000.00
Less: Input VAT Total Available Input VAT 110,000.00
Excess Input VAT fr. 1st Qtr. 10,000.00 Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
Input VAT-Current Qtr. 80,000.00 Net VAT Payable 30,000.00
Quarter 4 prevents this from happening, as it limits the ability of the business to
Cost VAT recover the prepaid input taxes. This is unconscionable, since in the first
Allowable Input VAT 110,000.00 place, these intervening Players—the manufacturers, producers, traders,
Total Available Input VAT 70,000.00 retailers—are not even supposed to sustain the losses incurred by reason of
Excess Input VAT to be carried over to 40,000.00 the prepayment of the input taxes. Worse, they would be obliged every
next quarter quarter to pay to the government from out of their own pockets the equivalent
The 70% cap is not merely an unwise imposition. It is a burden of 30% of the output taxes, no matter their own particular financial condition.
designed, either through sheer heedlessness or cruel calculation, to Worst, this twin yoke on the taxpayer of having to sustain a debit equivalent
kill off the small and medium enterprises that are the soul, if not the to 30% of output taxes,
heart, of our economy. It is not merely an undue taking of property, 300
but constitutes an unjustified taking of life as well. 300 SUPREME COURT REPORTS ANNOTATED
And what legitimate, germane purposes does this lethal 70% cap Abakada Guro Party List vs. Ermita
serve? It certainly does not increase the government’s revenue since and having to await forever in order to recover the prepaid taxes would
the unutilized creditable impair the cash flow and prove fatal for a shocking number of businesses
299 which, as they now stand, have to make do with a minimum profit that
VOL. 469, SEPTEMBER 1, 2005 299 stands to be wiped out with the introduction of the 70% cap.
Abakada Guro Party List vs. Ermita Nonetheless, the majority notes that the excess creditable input tax may be
input VAT should be entered in the government books as a debt the subject of a tax credit certificate, which then could be used in payment of
payable as it is supposed to be eventually repaid to the taxpayer, and internal revenue taxes, or a refund to the extent that such input taxes have
so on the contrary it increases the government’s debts. I do see that not been applied against output taxes. What the majority fails to 43

the 70% cap temporarily allows the government to brag to the world mention is that under Section 10 of the E-VAT Law, which amends
of an increased cash flow. But this situation would be akin to the Section 112 of the NIRC, such credit or refund may not be done while
provincial man who borrows from everybody in the barrio in order to the enterprise remains operational:
show off money and maintain the pretense of prosperity to visiting SEC. 10. Section 112 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.—
city relatives. The illusion of wealth is hardly a legitimate state xxx
purpose, especially if projected at the expense of the very business retirement “(B) Cancellation of VAT Registration.—A person whose registration has been cancelled due to
from or cessation of business or due to changes or cessation of status under Section 106(C) of
life of the country. this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit
The majority, in an effort to belittle these concerns, points out that that the certificate
xxx
for any unused input tax which may be used in payment of his other internal revenue taxes.

excess input tax remains creditable in succeeding quarters. However, as seen This stands in marked contrast to Section 112(B) of the NIRC as it read prior
in the above illustration, the actual application of the excess input tax will to this amendment. Under the previous rule, a VAT-registered person was
always be limited by the amount of output taxes collected in a quarter, as a entitled to apply for the tax credit certificate or refund paid on capital goods
result of the 70% cap. Thus, it is entirely possible that a VAT-registered even while it remained in operation:
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 Decision, infra.
43

were only P100,000. 301

The burden of the VAT may fall at first to the immediate buyers, but it is VOL. 469, SEPTEMBER 1, 2005 301
supposed to be eventually shifted to the endconsumer. The 70% cap effectively Abakada Guro Party List vs. Ermita
SEC. 112. Refunds or Tax Credits of Input Tax.— However, the same Standards hold that “[t]o the extent that it is not
xxx
probable that taxable profit will be available against which the unused tax
“(B) Capital Goods.—A VAT-registered person may apply for the issuance of a tax credit certificate losses or unused tax credits can be utilised, the deferred tax asset is not
or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such recognised.” As demonstrated, the continuous operation of the 70% cap
47

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.
precludes the recovery of input VAT prepaid months or years prior. Moreover,
This provision, which could have provided foreseeable and useful relief to the the inability to claim a refund or tax credit
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 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.
registration due to retirement from or cessation of business. This is the See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS TO THE SECURITIES AND
44 45

cruelest cut of all. Only after the REGULATIONS CODE.

Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.
46

47 Section 36, Id.

_______________
303
44 This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12 July 2005, submitted by
VOL. 469, SEPTEMBER 1, 2005 303
respondents in its Compliancedated 16 August 2005: Abakada Guro Party List vs. Ermita
“[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 certificate until after the business has already ceased virtually renders it
domestic goods/services is when the same are directly attributable to zero-rated or effectively zero-rated sales (of
goods/services). x x x improbable for the input VAT to be recovered. As such, under the
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
International Accounting Standards, it is with all likelihood that the prepaid
business or change in the status of the taxpayer as a VAT registered taxpayer. As provided for in Section 112(B0, in case of input VAT, ostensibly creditable, would actually be reflected as a loss. What 48

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 heretofore was recognized as an asset would now, with the imposition of the
302 70% cap, be now considered as a loss, enhancing the view that the 70% cap is
302 SUPREME COURT REPORTS ANNOTATED ultimately confiscatory in nature.
Abakada Guro Party List vs. Ermita This leads to my next point. The majority asserts that the input tax is not
business ceases to be may the State be compelled to repay the entire a property or property right within the purview of the due process clause. I 49

amount of the unutilized input tax. It is like a macabre form of respectfully but strongly disagree.
sweepstakes wherein the winner is to be paid his fortune only when Tellingly, the BIR itself has recognized that unutilized input VAT is one of
he is already dead. Aanhin pa ang damo kung patay na ang kabayo. those assets, corporate attributes or property rights that, in the event of a
Moreover, the inability to immediately credit or otherwise recover the merger, are transferred to
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 48 In his Separate Opinion, Justice Panganiban asserts that the deferred input tax credit is not really confiscated

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
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
45
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)

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.
to bolster his stated position that “[t]here is no vested right in a deferred input tax account; it is a mere statutory
46 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.
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Abakada Guro Party List vs. Ermita
the surviving corporation by operation of law. Assets would fall under the
50
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
52
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. Moreover, the Constitution
53
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.
_______________
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.
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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 hereby further amended to read as follows:
“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): 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
51 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
306
306 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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
54
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
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VOL. 469, SEPTEMBER 1, 2005 307
Abakada Guro Party List vs. Ermita
tax administration.” With the amortization requirement, the taxpayer would
55
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. 12. Section 114 of the same Code, as amended, is hereby further amended to read as follows:
“SEC. 114. Return and Payment of Value-Added Tax.—
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. x x x
_______________
55 Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v. Tan, G.R. No. L-81311, 30 June
1988, 163 SCRA 371.
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Abakada Guro Party List vs. Ermita
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.
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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.
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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. Double taxation is not expressly
56
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 57
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 had cause to make the 58
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:
_______________
56 J. Vitug and E. Acosta, supra note 3 at p. 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 Court of Industrial Relations v. Lednicky, L-18169, July 31, 1964, 11 SCRA
609 and Ssn Miguel Brewery, 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.
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Abakada Guro Party List vs. Ermita
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 provid-
_______________
59 Id., at p. 856.
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Abakada Guro Party List vs. Ermita
ing 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 entrepre-
313
VOL. 469, SEPTEMBER 1, 2005 313
Abakada Guro Party List vs. Ermita
neurial 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. 1)DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack
of merit;
2. 2)PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare
Section 21 of the E-VAT Law as unconstitutional;
3. 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.
CONCURRING OPINION
CHICO-NAZARIO, J.:
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, by essentially increasing the
1
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
_______________
 1 Presidential Decree No. 1158, as amended up to Rep. Act No. 8424. Speaker of the House of Representatives and the Senate President, and
314
certified by the Secretaries of both Houses of Congress, shall be conclusive
314 SUPREME COURT REPORTS ANNOTATED
proof of its due enactment. 4

Abakada Guro Party List vs. Ermita

Petitioners’ arguments failed to convince me of the wisdom of abandoning
without taxes, the government would be paralyzed. Without the tax reforms
the enrolled bill doctrine. I believe that it is more prudent for this Court to
2

introduced by Rep. Act No. 9337, the then Secretary of the Department of
remain conservative and to continue its adherence to the enrolled bill
Finance, Cesar V. Purisima, assessed that “all economic scenarios point to the
doctrine, for to abandon the said doctrine would be to open a Pandora’s Box,
National Government’s inability to sustain its precarious fiscal position,
giving rise to a situation more fraught with evil and mischief. Statutes
resulting in severe erosion of investor confidence and economic stagnation.”
enacted by Congress may not attain finality or conclusiveness unless declared
3

Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural
so by this Court. This would undermine the authority of our statutes because
enactment and in its substance, I hereby concur in full in the foregoing
despite having been signed and certified by the designated officers of
majority opinion, penned by my esteemed colleague, Justice Ma. Alicia
Congress, their validity would still be in doubt and their implementation
Austria-Martinez.
would be greatly hampered by allegations of irregularities in their passage by
According to petitioners, the enactment of Rep. Act No. 9337 by Congress
the Legislature. Such an uncertainty in the statutes would indubitably result
was riddled with irregularities and violations of the Constitution. In
in confusion and disorder. In all probability, it is the contemplation of such a
particular, they alleged that: (1) The Bicameral Conference Committee
scenario that led an American judge to proclaim, thus –
exceeded its authority to merely settle or reconcile the differences among . . . Better, far better, that a provision should occasionally find its way into the statute through mistake,
House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in Rep. or even fraud, than, that every Act, state and national, should at any and all times be liable to put in
Act No. 9337 provisions not found in any of the said bills, or deleting from 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. . . .
Rep. Act No. 9337 or amending provisions therein even though they were not
5

in conflict with the provisions of the other bills; (2) The amendments _______________
introduced by the Bicameral Conference Committee violated Article VI,
Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA 503, 529.
4

Section 26(2), of the Constitution which forbids the amendment of a bill after Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall Field & Co. v. Clark, 143 U.S. 294,
5

it had passed third reading; and (3) Rep. Act No. 9337 contravened Article VI, 304.
316
Section 24, of the Constitution which prescribes that revenue bills should
316 SUPREME COURT REPORTS ANNOTATED
originate exclusively from the House of Representatives.
Abakada Guro Party List vs. Ermita
Invoking the expanded power of judicial review granted to it by the
Constitution of 1987, petitioners are calling upon 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
2Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February 1988, 158 SCRA 9.
should not violate the basic principle of separation of powers. The expanded
3Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then Secretary of the Department of jurisdiction does not contemplate judicial supremacy over the other branches
Finance, Cesar V. Purisima, dated 04 July 2005, attached as Annex “A” of the Very Urgent Motion to Lift Temporary of government. Thus, in resolving the procedural issues raised by the
Restraining Order, filed by the Office of the Solicitor General on 04 July 2005.
315 petitioners, this Court should limit itself to a determination of compliance
VOL. 469, SEPTEMBER 1, 2005 315 with, or conversely, the violation of a specified procedure in the Constitution
Abakada Guro Party List vs. Ermita for the passage of laws by Congress, and not of a mere internal rule of
this Court to look into the enactment of Rep. Act No. 9337 by Congress and, proceedings of its Houses.
consequently, to review the applicability of the enrolled bill doctrine in this It bears emphasis that most of the irregularities in the enactment of Rep.
jurisdiction. Under the said doctrine, the enrolled bill, as signed by the 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.
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
317
VOL. 469, SEPTEMBER 1, 2005 317
Abakada Guro Party List vs. Ermita
their own creation. In a number of cases, this Court already made a
6
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, which reads—
7
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
_______________
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.
318
318 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. Now, there is a 8
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. 320
_______________
8 Supra, note 6.
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Abakada Guro Party List vs. Ermita
Furthermore, the procedural issues raised by the petitioners were already
addressed and resolved by this Court in Tolentino v. Executive
Secretary. Since petitioners failed to proffer novel factual or legal argument
9 amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject
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. A VAT-registered
person incurs input VAT because he complied
_______________
9Supra, note 3.
10Petition 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.
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SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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.
319 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
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
10 1997 by Rep. Act No. 9337, which imposed the 70% cap on input VAT credits,
is a legitimate exercise by
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Abakada Guro Party List vs. Ermita
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 11
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. 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.
_______________
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).
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322 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
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. Petroleum dealers did not 16
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.
13 It should be remembered that prior to Rep. Act No. 9337, the petroleum
dealers’ input VAT credits were inexistent—
_______________
15 Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 722 (1956).
16 Section 109(e) of the National Internal Revenue Code of 1997.
323
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Abakada Guro Party List vs. Ermita
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-à-vis their output VAT per quarter. Without such fact, I
consider their objection to the 70% cap arbitrary because there is no basis 17

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
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324 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
Code, as amended by Rep. Act No. 9337. The latter taxpayer is exempt from arguments before this Court that they cannot pass on to the consumers the
17
18
TSN, 18 April 2005, IV-2, p. 5.
Section 116 of the National Internal Revenue Code, as amended by Rep. Act No. 9337.
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Abakada Guro Party List vs. Ermita
leum 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

VAT on the basis that his sale or lease of goods or properties or services do VAT burden and increase the prices of their goods, it is worthy to quote below
not exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax this Court’s ruling in Churchill v. Concepcion, to wit— 19

on his gross receipts in lieu of the VAT. If a taxpayer with presumably a “It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely
18

smaller business is required to pay three percent (3%) gross receipts tax, a hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and that the
type of tax which does not even allow for any crediting, a VAT-taxpayer with 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
a bigger business should be obligated, likewise, to pay a minimum of 30% is confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of the taxing
output VAT (which should be equivalent to 3% of the gross selling price per power of the Legislature dependent upon and restricted by the opinion of two interested witnesses?
good or property or service sold). The cap assures the government a collection 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.”
of at least 30% output VAT, contributing to an improved cash flow for the As a final observation, I perceive that what truly underlies the opposition to
government. Rep. Act No. 9337 is not the question of its constitutionality, but rather the
Attention is further called to the fact that the output VAT is the VAT wisdom of its enactment. Would it truly raise national revenue and benefit
imposed on the sales by a VAT-taxpayer; it is paid by the purchasers of the the entire country, or would it only increase the burden of the Filipino people?
goods, properties, and services, and merely collected through the VAT- Would it contribute to a revival of our economy or only contribute to the
registered seller. The latter, therefore, serves as a collecting agent for the difficulties and eventual closure of businesses? These are issues that we
government. The VAT-registered seller is merely being required to remit to cannot resolve as the
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 34 Phil. 969, 973 (1916).
19

profit and loss statement of a “typical dealer.” How these data represent the 326
financial status of a typical dealer, I would not know when there was no effort 326 SUPREME COURT REPORTS ANNOTATED
to explain the manner by which they were surveyed, collated, and averaged Abakada Guro Party List vs. Ermita
out. Without establishing their source therefor, the figures and computations Supreme Court. As this Court explained in Agustin v. Edu, to wit— 20

presented by the petroleum dealers are merely self-serving and “It does appear clearly that petitioner’s objection to this Letter of Instruction is not premised on lack of
unsubstantiated, deserving scant consideration by this Court. Even assuming 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
that these figures truly represent the financial standing of petro- 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 Under the value-added tax system, a zero-rated sale by a VAT-registered
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 person, which is a taxable transaction for VAT purposes, shall not result in
violate any Constitutional provision, the Courts merely interpret and apply them regardless of whether any output tax, but the input tax on his purchase of goods, properties or
or not they are wise or salutary.’ For they, according to Justice Labrador, ‘are not supposed to override services related to such zero-rated sale shall be available as tax credit or
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 refund. (Commissioner of Internal Revenue vs. Cebu Toyo Corporation, 451
competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is SCRA 447 [2005])
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 ——o0o——
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
_______________

20 G.R. No. L-49112, 02 February 1979, 88 SCRA 195.

21 Id., pp. 210-211.
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Abakada Guro Party List vs. Ermita
hold the members of said Congress accountable by using their voting power in
the next elections.
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.
Petitions in G.R. Nos. 168056, 168207, 168461, 168463 and 168730 are
dismissed.
Notes.—The VAT law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn had been that
granted to the press. (Tolentino vs. Secretary of Finance, 235 SCRA
630 [1994])
The computation of the output VAT of the seller should be based on the
selling price appearing on its own VAT invoice, not on the selling price
appearing on that of the customer. (Atlas Consolidated Mining &
Development Corporation vs. Commissioner of Internal Revenue, 318 SCRA
386 [1999])