Abakada Guro Party List vs.

Ermita

Facts:

R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
3555 and 3705, and Senate Bill No. 1950. As mandated by the rules of both
houses of Congress, the Bicameral Conference Committee acted on the
disagreeing provisions of both the House and Senate bills.

Petitioners ABAKADA Guro Partylist et.al. 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):
1. Section 4 imposes a 10% VAT on sale of goods and properties,
2. Section 5 imposes a 10% VAT on importation of goods, and
3. Section 6 imposes a 10% VAT on sale of services and use or lease of properties.

These questioned provisions contain a uniform proviso (which is the so called

stand-by authority of the President) authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006 after any of the following conditions are satisfied:
(i) Valueadded tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and fourfifth percent
(2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and onehalf percent (1 1/2%).

4. Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input
tax on depreciable goods shall be amortized over a 60month period, if the
acquisition, excluding the VAT components, exceeds One Million Pesos (P1,
000,000.00);

5. 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

6. 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.

The OSG, in behalf of respondents, commented that R.A. No. 9337 enjoys the
presumption of constitutionality. Respondents argue that:

1. 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 in the case of
Tolentino vs. Sec. of Finance.
2. 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.
3. R.A. No. 9337 is the anchor of the government’s fiscal reform agenda that
will tilt the balance towards a sustainable macroeconomic environment
necessary for economic growth.

Issues:

Whether or not R.A. 9337 is unconstitutional?

Ruling:

No. R.A. 9337 is not unconstitutional.

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.

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 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.
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. R.A. No. 9337 is
also equitable. The law is equipped with a threshold margin.

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.
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 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