Abakada V ERMITA FD

G.R. No.
168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE
SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and
HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR., Respondent.
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G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA,
PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R.
OSMEA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA,
SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., COMMISSIONER OF
THE BUREAU OF INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President,
ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its President,
RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE PHILIPPINES
represented by its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business
under the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES
MARTINEZ doing business under the name and style of "SHELL GATE N. DOMINGO";
BETHZAIDA TAN doing business under the name and style of "ADVANCE SHELL
STATION"; REYNALDO P. MONTOYA doing business under the name and style of "NEW
LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and
style of "RED FIELD SHELL SERVICE STATION"; DONICA CORPORATION represented by
its President, DESI TOMACRUZ; RUTH E. MARBIBI doing business under the name and style
of "R&R PETRON STATION"; PETER M. UNGSON doing business under the name and style
of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing
business under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN
CESAR P. POSADAS doing business under the name and style of "STARCARGA
ENTERPRISES"; ADORACION MAEBO doing business under the name and style of "CMA
MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and style of
"LEONAS GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO
doing business under the name and style of "FIRST CHOICE SERVICE CENTER";
MERCEDITAS A. GARCIA doing business under the name and style of "LORPED SERVICE
CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT
GAS STATION"; MA. ISABEL VIOLAGO doing business under the name and style of
"VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART CORPORATION represented
by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HARVARD
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HERITAGE CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO
MANUEL doing business under the name and style of "ROMMAN GASOLINE STATION";
ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE
STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of Internal
Revenue, Respondent.
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G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J.
VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO, OSCAR G.
MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA, JUSTIN
MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B.
MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C.
LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO, 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, Respondent.
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G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.
MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE MARIO BUNAG,
in his capacity as the OIC Commissioner of the Bureau of Internal Revenue; and HON.
ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the Bureau of Customs,
Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by
everyone, and the more man enjoys the advantages of society, the more he ought to hold himself
honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax benefits
these are the reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the
wisdom of which, the Court even with its extensive constitutional power of review, cannot probe.
The petitioners in these cases, however, question not only the wisdom of the law, but also
perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A.
No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and
3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee
on Ways and Means approved the bill, in substitution of House Bill No. 1468, which
Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the
bill on January 7, 2005 for immediate enactment. On January 27, 2005, the House of
Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep.
Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother
bill" is House Bill No. 3555. The House Committee on Ways and Means approved the bill on
February 2, 2005. The President also certified it as urgent on February 8, 2005. The House of
Representatives approved the bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on
March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill
No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M.
Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11,
2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555,
House Bill No. 3705, and Senate Bill No. 1950, "after having met and discussed in full free and
conference," recommended the approval of its report, which the Senate did on May 10, 2005, and
with the House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was
transmitted to the President, who signed the same into law on May 24, 2005. Thus, came R.A.
No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a
temporary restraining order, effective immediately and continuing until further orders, enjoining
respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking
through Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a
little background. You know when the law took effect on July 1, 2005, the Court issued a TRO at
about 5 oclock in the afternoon. But before that, there was a lot of complaints aired on television
and on radio. Some people in a gas station were complaining that the gas prices went up by 10%.
Some people were complaining that their electric bill will go up by 10%. Other times people
riding in domestic air carrier were complaining that the prices that theyll have to pay would
have to go up by 10%. While all that was being aired, per your presentation and per our own
understanding of the law, thats not true. Its not true that the e-vat law necessarily increased
prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the
Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the

elimination of the Excise Tax and the import duties. That is why, it is not correct to say that the
VAT as to petroleum dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10%
to cover the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would
probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to
deliver a point that different industries, different products, different services are hit differently.
So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present
imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a
mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best
7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day,
were being increased arbitrarily by 10%. And thats one reason among many others this Court
had to issue TRO because of the confusion in the implementation. Thats why we added as an
issue in this case, even if its tangentially taken up by the pleadings of the parties, the confusion
in the implementation of the E-vat. Our people were subjected to the mercy of that confusion of
an across the board increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should
be 6% depending on these mitigating measures and the location and situation of each product, of
each service, of each company, isnt it?
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to clarify all these by means
of a more detailed implementing rules, in case the law is upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5
imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions contain a

uniformproviso authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have
been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of
its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise
assailing the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate
to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners
also contend that the increase in the VAT rate to 12% contingent on any of the two conditions
being satisfied violates the due process clause embodied in Article III, Section 1 of the
Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the 12%
increase is ambiguous because it does not state if the rate would be returned to the original 10%
if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are
unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which
is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the
GDP of the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of
a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association
of Pilipinas Shell Dealers, Inc.,et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding the
VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of
input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final
withholding tax on gross payments of goods and services, which are subject to 10% VAT under
Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of
properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or
property without due process of law under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law. Petitioners further contend that
like any other property or property right, the input tax credit may be transferred or disposed of,
and that by limiting the same, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal
protection of the law under Article III, Section 1 of the Constitution, as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital
equipment; or (3) has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI,
Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to
output tax ratio that will suffer the consequences thereof for it wipes out whatever meager
margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed
this petition forcertiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337
on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in
violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121,
125,7 148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article
VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition
on July 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the
creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes
they collect, thus violating the principle that tax collection and revenue should be solely
allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing
these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI,
Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12% once any of the two conditions
provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70%
limitation on the creditable input tax, the 60-month amortization on the purchase or importation
of capital goods exceedingP1,000,000.00, 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 governments fiscal reform
agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt
the balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added
tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its
nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease
of goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the
end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else.11 Examples are
individual and corporate income taxes, transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode. Prior to 1978, the system was a single-stage tax computed under the "cost
deduction method" and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the "cost deduction method" and "tax credit method"
was used to determine the value-added tax payable.13 Under the "tax credit method," an entity
can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using
the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference
Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No.
9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against
the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of
taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it
would be utterly impracticable to transact the business of the nation, either at all, or at
least with decency, deliberation, and order."19Thus, Article VI, Section 16 (3) of the
Constitution provides that "each House may determine the rules of its proceedings." Pursuant to
this inherent constitutional power to promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as
follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on
the amendment to any bill or joint resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere
to and support the House Bill. If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact to the House for the latters
appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report
prior to the voting thereon. The House shall vote on the Conference Committee Report in the
same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the
provision of any bill or joint resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the conference committee with the
approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of
the changes in, or amendments to the subject measure, and shall be signed by a majority of the
members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled
version thereof with the explanatory statement of the conference committee shall be attached to
the report.
...
The creation of such conference committee was apparently in response to a problem, not
addressed by any constitutional provision, where the two houses of Congress find themselves in
disagreement over changes or amendments introduced by the other house in a legislative bill.
Given that one of the most basic powers of the legislative branch is to formulate and implement
its own rules of proceedings and to discipline its members, may the Court then delve into the
details of how Congress complies with its internal rules or how it conducts its business of
passing legislation? Note that in the present petitions, the issue is not whether provisions of the
rules of both houses creating the bicameral conference committee are unconstitutional, but
whether the bicameral conference committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill doctrine," thus,
declining therein petitioners plea for the Court to go behind the enrolled copy of the bill.
Assailed in said case was Congresss 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 Courts consistent
adherence to the rule. The Court finds no reason to deviate from the salutary rule in this
case where the irregularities alleged by the petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the
House. This Court is not the proper forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules are merely procedural and with
their observance the courts have no concern. Whatever doubts there may be as to the
formal validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its
ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts
the power to inquire into allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was
held: "At any rate, courts have declared that the rules adopted by deliberative bodies are subject
to revocation, modification or waiver at the pleasure of the body adopting them.And it has been
said that "Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative body."
Consequently, "mere failure to conform to parliamentary usage will not invalidate the
action (taken by a deliberative body) when the requisite number of members have agreed
to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting
provisions in the House and Senate bills. Akin to the Farias case,22 the present petitions also
raise an issue regarding the actions taken by the conference committee on matters regarding
Congress compliance with its own internal rules. As stated earlier, one of the most basic and
inherent power of the legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it
believes that said members violated any of its rules of proceedings. Even the expanded
jurisdiction of this Court cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary
of Finance,23the Court already made the pronouncement that "[i]f a change is desired in the
practice [of the Bicameral Conference Committee] it must be sought in Congress since this
question is not covered by any constitutional provision but is only an internal rule of each
house." 24 To date, Congress has not seen it fit to make such changes adverted to by the Court. It
seems, therefore, that Congress finds the practices of the bicameral conference committee to be
very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court
observes that there was a necessity for a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the
other, reveals that there were indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:
House Bill No. 3555
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importat
use or lease of properties (amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision
With regard to 70% limit on input tax credit
Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally distributed ove
and services other than capital goods shall not exceed 5% of the total amount of such goods and services; and for
exceed 11% of the total amount of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise
taxes
Provided for amendments to

several NIRC provisions
regarding corporate income,
percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard
to (1) what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity
generation, transmission and distribution companies should not be passed on to consumers, as
proposed in the Senate bill, or both the VAT imposed on electricity generation, transmission and
distribution companies and the VAT imposed on sale of petroleum products should not be passed
on to consumers, as proposed in the House bill; (3) in what manner input tax credits should be
limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise
and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and
Senate bills, the Bicameral Conference Committee was mandated by the rules of both houses of
Congress to act on the same by settling said differences and/or disagreements. The Bicameral
Conference Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap
in the difference between the 10% VAT rate proposed by the Senate, and the various rates with
12% as the highest VAT rate proposed by the House, by striking a compromise whereby the
present 10% VAT rate would be retained until certain conditions arise, i.e., the value-added tax
collection as a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%,
or National Government deficit as a percentage of GDP of the previous year exceeds 1%, when
the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to
12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to consumers or whether both
the VAT imposed on electricity generation, transmission and distribution companies and the VAT
imposed on sale of petroleum products may be passed on to consumers, the Bicameral
Conference Committee chose to settle such disagreement by altogether deleting from its Report
any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the
Bicameral Conference Committee decided to adopt the position of the House by putting a
limitation on the amount of input tax that may be credited against the output tax, although it
crafted its own language as to the amount of the limitation on input tax credits and the manner of
computing the same by providing thus:
(A) Creditable Input Tax. . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds one million
Pesos (P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good
is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread
over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED
that the input tax inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED,
HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may
at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax,
franchise, percentage and excise taxes, the conference committee decided to include such
amendments and basically adopted the provisions found in Senate Bill No. 1950, with some
changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the differences between the disagreeing
provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile"
and "harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on
disagreeing provisions were meant only to reconcile and harmonize the disagreeing provisions
for it did not inject any idea or intent that is wholly foreign to the subject embraced by the
original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted
by the Senate is retained until such time that certain conditions arise when the 12% VAT wanted
by the House shall be imposed, appears to be a compromise to try to bridge the difference in the
rate of VAT proposed by the two houses of Congress. Nevertheless, such compromise is still
totally within the subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the
Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the
Senate Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that
no sector should be a beneficiary of legislative grace, neither should any sector be discriminated
on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets 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, lets keep the VAT simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really
enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral
Conference Committee came to a compromise on the percentage rate of the limitation or cap on
such input tax credit, but again, the change introduced by the Bicameral Conference Committee
was totally within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of
Representatives, one of the major objectives was to "plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and
"[b]y introducing limitations on the claiming of tax credit, we are capping a major leakage that
has placed our collection efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in
Senate Bill No. 1950, since said provisions were among those referred to it, the conference
committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion
amounting to lack or excess of jurisdiction committed by the Bicameral Conference Committee.
In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of
Finance,30 the Court recognized the long-standing legislative practice of giving said conference
committee ample latitude for compromising differences between the Senate and the House. Thus,
in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of Congress
to become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without any
basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "NoAmendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add
or delete provisions in the House bill and the Senate bill after these had passed three readings is
in effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987
Constitution), fails to convince the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have
undergone three readings in each of the two houses. If that be the case, there would be no end to
negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the
first time in either house of Congress, not to the conference committee report.32 (Emphasis
supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be
followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or amendment.
Verily, to construe said provision in a way as to proscribe any further changes to a bill after one
house has voted on it would lead to absurdity as this would mean that the other house of
Congress would be deprived of its constitutional power to amend or introduce changes to said
bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction
by the Bicameral Conference Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes. Petitioners refer to the following
provisions, to wit:
Section 27
Rates of Income Tax on Domestic Corporation
28(A)(1)
Tax on Resident Foreign Corporation
28(B)(1)
Inter-corporate Dividends
34(B)(1)
Inter-corporate Dividends
116
Tax on Persons Exempt from VAT
117
Percentage Tax on domestic carriers and keepers of Garage
119
Tax on franchises
121
Tax on banks and Non-Bank Financial Intermediaries
148
Excise Tax on manufactured oils and other fuels
151
Excise Tax on mineral products
236
Registration requirements
237
Issuance of receipts or sales or commercial invoices
288
Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate
from the House. They aver that House Bill No. 3555 proposed amendments only regarding
Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed
amendments only to Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which amendments were not found in the
House bills are not intended to be amended by the House of Representatives. Hence, they argue
that since the proposed amendments did not originate from the House, such amendments are a
violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added
tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No.
1950 proposing amendments not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of
provisions not dealing directly with the value- added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the constitutional provision authorizing
the Senate to propose or concur with amendments to a revenue bill that originated from the
House?
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 Senates
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.
Given, then, the power of the Senate to propose amendments, the Senate can propose its
own version even with respect to bills which are required by the Constitution to originate in
the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax
bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation
on the extent of the amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been
touched in the House bills are still in furtherance of the intent of the House in initiating the
subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill
introduced on the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of
solving the countrys serious financial problems. To do this, government expenditures must be
strictly monitored and controlled and revenues must be significantly increased. This may be
easier said than done, but our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the administration. It is supported with
a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-added
tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged
that on top of our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a
balanced budget by the year 2009, we need to seize windows of opportunities which might
seem poignant in the beginning, but in the long run prove effective and beneficial to the
overall status of our economy. One such opportunity is a review of existing tax rates,
evaluating the relevance given our present conditions.34(Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is
to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and
control of the leakages in revenues from income taxes and value-added taxes. As these house
bills were transmitted to the Senate, the latter, approaching the measures from the point of
national perspective, can introduce amendments within the purposes of those bills. It can provide
for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing
the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation
were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in
additional revenues annually even while by mitigating prices of power, services and petroleum
products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the
VAT on twelve goods and services. The rest of the tab P10.5 billion- will be picked by
corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the
consumer. Why should the latter bear all the pain? Why should the fiscal salvation be only on the
burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35
percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the rate will slide
back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency
provision that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal
medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
sacrifice brief. We would like to assure them that not because there is a light at the end of the
tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will
be there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on
provisions in the tax on income of corporations are germane to the purpose of the house bills
which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to
the reforms to the VAT system, as these sections would cushion the effects of VAT on consumers.
Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as they would be
paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften
the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on
bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the
VAT chain, we will however bring down the excise tax on socially sensitive products such as
diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what
was taken from the right. Rather, these sprang from our concern of softening the impact of VAT,
so that the people can cushion the blow of higher prices they will have to pay as a result of
VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are
necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes
of the house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the
Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the
NIRC, violate the following provisions of the Constitution:

A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend
in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from
10% to 12% when a certain condition is met, constitutes undue delegation of the legislative
power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor:provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 %).
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.
follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services: provided, that the President, upon the recommendation of the Secretary of
(12%), after any of the following conditions has been satisfied.
and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate
is a virtual abdication by Congress of its exclusive power to tax because such delegation is not
within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as
well as on the sale or exchange of services, which cannot be included within the purview of
tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on goods or merchandise
imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President
the legislative power to tax is contrary to republicanism. They insist that accountability,
responsibility and transparency should dictate the actions of Congress and they should not pass
to the President the decision to impose taxes. They also argue that the law also effectively
nullified the Presidents power of control, which includes the authority to set aside and nullify
the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create
the conditions provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the
imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an
unelected bureaucrat, contrary to the principle of no taxation without representation. They submit
that the Secretary of Finance is not mandated to give a favorable recommendation and he may
not even give his recommendation. Moreover, they allege that no guiding standards are provided
in the law on what basis and as to how he will make his recommendation. They claim,
nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter, such that, ultimately, it is the
President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means "what has
been delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as
delegated power constitutes not only a right but a duty to be performed by the delegate through
the instrumentality of his own judgment and not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives." The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as theauthority to make a
complete law complete as to the time when it shall take effect and as to whom it shall be
applicable and to determine the expediency of its enactment.40 Thus, the rule is that in order
that a court may be justified in holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely legislative in nature that is, one
appertaining exclusively to the legislative department. It is the nature of the power, and not the
liability of its use or the manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following
recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the
Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;

(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is
valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate;41 and (b) fixes a standard the limits of
which are sufficiently determinate and determinable to which the delegate must conform in
the performance of his functions.42 A sufficient standard is one which defines legislative policy,
marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates
the circumstances under which the legislative command is to be effected.43 Both tests are
intended to prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept
and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left the hands
of the legislature so that nothing was left to the judgment of any other appointee or delegate of
the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the
law, which necessarily involves a discretion as to what it shall be, and conferring an
authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the
hands of the legislature. It is true that laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a particular community. In
Wayman vs. Southard, the Supreme Court of the United States ruled that the legislature may
delegate a power not legislative which it may itself rightfully exercise. The power to ascertain
facts is such a power which may be delegated. There is nothing essentially legislative in
ascertaining the existence of facts or conditions as the basis of the taking into effect of a
law. That is a mental process common to all branches of the government. Notwithstanding
the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority
on account of the complexity arising from social and economic forces at work in this modern
industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional
Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United
States in the following language speaking of declaration of legislative power to administrative
agencies: The principle which permits the legislature to provide that the administrative
agent may determine when the circumstances are such as require the application of a law is
defended upon the ground that at the time this authority is granted, the rule of public
policy, which is the essence of the legislative act, is determined by the legislature. In other
words, the legislature, as it is its duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the
administrative official is not the legislative determination of what public policy demands,
but simply the ascertainment of what the facts of the case require to be done according to
the terms of the law by which he is governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but the ascertainment of the
contingency upon which the Act shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law shall take effect upon the
happening of future specified contingencies leaving to some other person or body the power
to determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and
repeal them; the test is the completeness of the statute in all its terms and provisions when it
leaves the hands of the legislature. To determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope and definiteness of the measure
enacted. The legislative does not abdicate its functions when it describes what job must be
done, who is to do it, and what is the scope of his authority. For a complex economy, that may
be the only way in which the legislative process can go forward. A distinction has rightfully
been made between delegation of power to make the laws which necessarily involves a
discretion as to what it shall be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to be exercised under and in pursuance of the law,
to which no valid objection can be made. The Constitution is thus not to be regarded as
denying the legislature the necessary resources of flexibility and practicability. (Emphasis
supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine
certain facts or conditions, or the happening of contingencies, on which the operation of a statute
is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies
or limitations on their authority.49 While the power to tax cannot be delegated to executive
agencies, details as to the enforcement and administration of an exercise of such power may be
left to them, including the power to determine the existence of facts on which its operation
depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the
duty of correlating information and making recommendations is the kind of subsidiary activity
which the legislature may perform through its members, or which it may delegate to others to
perform. Intelligent legislation on the complicated problems of modern society is impossible in
the absence of accurate information on the part of the legislators, and any reasonable method of
securing such information is proper.51 The Constitution as a continuously operative charter of

government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed
determinations which it has declared to be prerequisite to application of legislative policy to
particular facts and circumstances impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections
4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective
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 nonoperation 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 wordshall is used in the common proviso. The use of the word shall connotes a
mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the
idea of discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty which cannot be evaded
by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion
by the President does not come into play. It is a clear directive to impose the 12% VAT rate when
the specified conditions are present. The time of taking into effect of the 12% VAT rate is based
on the happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that
the law effectively nullified the Presidents power of control over the Secretary of Finance by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary
of Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase
"upon the recommendation of the Secretary of Finance." Neither does the Court find persuasive
the submission of petitioners Escudero, et al. that any recommendation by the Secretary of
Finance can easily be brushed aside by the President since the former is a mere alter ego of the
latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means
that as head of the Department of Finance he is the assistant and agent of the Chief Executive.
The multifarious executive and administrative functions of the Chief Executive are performed by
and through the executive departments, and the acts of the secretaries of such departments, such
as the Department of Finance, performed and promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an
advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the
President."55
In the present case, in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect.56The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of Congress. Thus, being the
agent of Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former for
that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a
fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of
Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%)
or the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance,
by legislative mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue delegation of
legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible.57 Congress does not abdicate its functions or unduly delegate
power when it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the legislative
process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the province of the Court to inquire into, its task
being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause,
influence or create the conditions to bring about either or both the conditions precedent does not
deserve any merit as this argument is highly speculative. The Court does not rule on allegations
which are manifestly conjectural, as these may not exist at all. The Court deals with facts, not
fancies; on realities, not appearances. When the Court acts on appearances instead of realities,
justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax
Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and
additional tax burden on the people. Petitioners also argue that the 12% increase, dependent on
any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not
state if the VAT rate would be returned to the original 10% if the rates are no longer satisfied.
Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions
set forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of
the law are clear. It does not provide for a return to the 10% rate nor does it empower the
President to so revert if, after the rate is increased to 12%, the VAT collection goes below the
24/5 of the GDP of the previous year or that the national government deficit as a percentage of
GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or
limitations be introduced where none is provided for. Rewriting the law is a forbidden ground
that only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case
the Court finds none, petitioners argument is, at best, purely speculative. There is no basis for
petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present.
The rule is that where the provision of the law is clear and unambiguous, so that there is no
occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be
based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There
is another condition, i.e., the national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
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. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal
condition of government has reached a relatively sound position or is towards the direction of a
balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal
house is in a relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is
indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection
does not render it unconstitutional so long as there is a public purpose for which the law was
passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need
for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by
Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the
people as little as possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and
their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe.
During the Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly
depicted the countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position
where 90 percent of our revenue is used for debt service. So, for every peso of revenue that we
currently raise, 90 goes to debt service. Thats interest plus amortization of our debt. So clearly,
this is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries
that borrow money from that international financial markets. Our debt to GDP is approximately
equal to our GDP. Again, that shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is
not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically
global growth and low interest rates. The past few months, we have seen an inching up, in fact, a
rapid increase in the interest rates in the leading economies of the world. And, therefore, our
ability to borrow at reasonable prices is going to be challenged. In fact, ultimately, the question is
our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is
now, at least based on the forecast of most financial institutions. So, we were assuming that
raising 80 billion would put us in a position where we can then convince them to improve our
ability to borrow at lower rates. But conditions have changed on us because the interest rates
have gone up. In fact, just within this room, we tried to access the market for a billion dollars
because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount,
we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We
were trying to access last week and the market was not as favorable and up to now we have not
accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end
our deficit reduction. Because it is deficit that is causing the increase of the debt and we are in
what we call a debt spiral. The more debt you have, the more deficit you have because interest
and debt service eats and eats more of your revenue. We need to get out of this debt spiral. And
the only way, I think, we can get out of this debt spiral is really have a front-end adjustment in
our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not
for the Court to judge. In theFarias case, the Court refused to consider the various arguments
raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the
wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to achieve the
desired results, whether, in short, the legislative discretion within its prescribed limits should be
exercised in a particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the
executive policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice
or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and
Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following
provisions of the Constitution:
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No.
9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending
Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their
argument is premised on the constitutional right against deprivation of life, liberty of property
without due process of law, as embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal
protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption
of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the
amount of input tax that may be credited against the output tax. It states, in part: "[P]rovided, that
the input tax inclusive of the input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of goods or local purchase of
good and services, including lease or use of property, in the course of trade or business, from a
VAT-registered person, and Output Tax is the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that
may be claimed. In effect, a portion of the input tax that has already been paid cannot now be
credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax,
and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the
input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and
remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B),
which provides that "if the input tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters." In addition, Section 112(B) allows a VAT-registered person
to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the
extent that such input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as
petitioners exaggeratedly contend. Their analysis of the effect of the 70% limitation is
incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs
VAT for a given quarter. It does not proceed further to the fact that such unapplied/unutilized
input tax may be credited in the subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the
70% limitation on the input tax. According to petitioner, the limitation on the creditable input tax
in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which
violates the principle that tax collection and revenue should be for public purposes and
expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he
buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In
computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input
taxes that he paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess,
which has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zerorated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes, at the taxpayers option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person
can credit his input tax only up to the extent of 70% of the output tax. In laymans term, the
value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a taxable transaction. There is
no retention of any tax collection because the person/taxpayer has already previously paid the
input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party
directly liable for the payment of the tax is the seller.71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited without
due process of law.
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered persons entitlement to the creditable input tax is a mere
statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may change or take away rights, which
were created by the law of the state, although it may not take away property, which was vested
by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are
not recoverable from the taxes payable, although it becomes part of the cost, which is deductible
from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax
on all sales, it was then that the crediting of the input tax paid on purchase or importation of
goods and services by VAT-registered persons against the output tax was introduced.73 This was
adopted by the Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A.
No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by
law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A.
No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade
or business for which deduction for depreciation is allowed under this Code, shall be spread
evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million
pesos (P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods
is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread
over such a shorter period: Provided, finally, That in the case of purchase of services, lease or use
of properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of
the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input
tax on purchase or importation of capital goods with acquisition cost of P1 Million pesos,
exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input
tax. Petitioners argument is without basis because the taxpayer is not permanently deprived of
his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in
this case amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress
also justified its move by saying that the provision was designed to raise an annual revenue of
22.6 billion.77 The legislature also dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax incentives provided by law, and citing
the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government
for taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC,
reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs)
shall, before making payment on account of each purchase of goods and services which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment. For
purposes of this Section, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following
the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more
simplified VAT withholding system. The government in this case is constituted as a withholding
agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be
withheld -- 3% on gross payments for purchases of goods; 6% on gross payments for services
supplied by contractors other than by public works contractors; 8.5% on gross payments for
services supplied by public work contractors; or 10% on payment for the lease or use of
properties or property rights to nonresident owners. Under the present Section 114(C), these
different rates, except for the 10% on lease or property rights payment to nonresidents, were
deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed
to creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate
of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997),
the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as full and final payment of the income tax due
from the payee on the said income. The liability for payment of the tax rests primarily on the
payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
underwithholding, the deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld
on certain income payments are intended to equal or at least approximate the tax due of the
payee on said income. Taxes withheld on income payments covered by the expanded
withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are
subject to a 5% rate, which constitutes as full payment of the tax payable on the transaction. This
represents the net VAT payable of the seller. The other 5% effectively accounts for the standard
input VAT (deemed input VAT), in lieu of the actual input VAT directly or attributable to the
taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended
to treat differently taxable transactions with the government.80 This is supported by the fact that
under the old provision, the 5% tax withheld by the government remains creditable against the
tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of
three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross
receipts for services rendered by contractors on every sale or installment payment which shall
becreditable against the value-added tax liability of the seller or contractor: Provided,
however, That in the case of government public works contractors, the withholding rate shall be
eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits
Congresss intention to treat transactions with the government differently. Since it has not been
shown that the class subject to the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not the only
ones subjected to the 5% final withholding tax. It applies to all those who deal with the
government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the
BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may
form part of the cost. Equally, should the actual input tax be less than 5%, the difference is
treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government
gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will
not engage in a legal joust where premises are what ifs, arguments, theoretical and facts,
uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes life
in Macbeth,82 "full of sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or valueadded. It need not take an astute businessman to know that it is a matter of exception that a
business will sell goods or services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the States power is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of
input tax, or invests in capital equipment, or has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in
the subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the
methods of assessment, valuation and collection. Petitioners alleged distinctions are based on
variables that bear different consequences. While the implementation of the law may yield
varying end results depending on ones profit margin and value-added, the Court cannot go
beyond what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons
or things without distinction. This might in fact sometimes result in unequal protection. What the
clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain
particulars and different from all others in these same particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens.
S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No.
4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners, supports their stance that the 70%
limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed
legislations. Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
rate is uniform on the same class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all
goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties,
importation of goods, and sale of services and use or lease of properties. These same sections
also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by the government. It must be stressed that the rule
of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and
only demands uniformity within the particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of
0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
receipts not exceedingP1,500,000.00.88 Also, basic marine and agricultural food products in their
original state are still not subject to the tax,89 thus ensuring that prices at the grassroots level will
remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the
tax are sales of farm and marine products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within
the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and
unduly favors those with high profit margins. Congress was not oblivious to this. Thus, to
equalize the weighty burden the law entails, the law, under Section 116, imposed a 3%
percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual
sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in effect,
bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equalfooting.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the
tax on those previously exempt. Excise taxes on petroleum products91 and natural gas92 were
reduced. Percentage tax on domestic carriers was removed.93 Power producers are now exempt
from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous 32%.95 Intercorporate dividends of nonresident foreign corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporations domicile was increased to 20%.96 The Philippine Amusement and
Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.97 Even the sale by
an artist of his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is
equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but
regressive. It is the smaller business with higher input tax-output tax ratio that will suffer the
consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was
also lifted from Adam Smiths Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue
which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle
of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same regardless of
income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The
disparity lies in the income earned by a person or profit margin marked by a business, such that
the higher the income or profit margin, the smaller the portion of the income or profit that is
eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT
eats away. At the end of the day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall evolve a progressive system of
taxation. The constitutional provision has been interpreted to mean simply that direct taxes are .
. . to be preferred [and] as much as possible, indirect taxes should be minimized. (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed,
the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with
the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI,
28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not
impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In
the case of the VAT, the law minimizes the regressive effects of this imposition by providing for
zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a
first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it turning
a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the
law seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional
simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the
judiciary should stand ready to afford relief. There are undoubtedly many wrongs the judicature
may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of
remedies for all political or social ills; We should not forget that the Constitution has judiciously
allocated the powers of government to three distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the independence of the three, and a zealous
regard of the prerogatives of each, knowing full well that one is not the guardian of the others
and that, for official wrong-doing, each may be brought to account, either by impeachment, trial
or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos.
168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A.
No. 9337, the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon
finality of herein decision.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
HILARIO G. DAVIDE, JR.
Chief Justice
REYNATO S. PUNO
ARTEMIO V. PANGANIBAN
Associate Justice
Associate Justice
LEONARDO A. QUISUMBING
CONSUELO YNARES-SANTIAGO
Associate Justice
Associate Justice
ANGELINA SANDOVAL-GUTIERREZ
ANTONIO T. CARPIO
Associate Justice
Associate Justice
RENATO C. CORONA
CONCHITA CARPIO-MORALES
Associate Justice
Associate Justice
ROMEO J. CALLEJO, SR.
ADOLFO S. AZCUNA
Associate Justice
Associate Justice
DANTE O. TINGA
MINITA V. CHICO-NAZARIO
Associate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Court.
Chief Justice
Footnotes
1
Entitled "An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue
Code of 1997, As Amended and For Other Purposes."
2
Entitled, "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As
Amended, and For Other Purposes."
Entitled, "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes."
4
Entitled, "An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of
1997, As Amended, and For Other Purposes."
5
Section 26, R.A. No. 9337.
TSN, July 14, 2005.
Section 125 of the National Internal Revenue Code, as amended, was not amended by
R.A. No. 9337, as can be gleaned from the title and body of the law.
8
Section 105, National Internal Revenue of the Philippines, as amended.
Ibid.
10
Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First
Edition 2000).
11
Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.
12
Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA, 217.
13
Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
14
Commissioner of Internal Revenue vs. Seagate, G.R. No. 153866, February 11, 2005.
15
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, G.R. Nos. L81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
16
Entitled, "An Act Restructuring the Value-Added Tax (VAT) System, Widening its Tax
Base and Enhancing its Administration, And for these Purposes Amending and Repealing
the Relevant Provisions of the National Internal Revenue Code, as amended, and for
other Purposes."
17
Entitled, "An Act Amending Republic Act No. 7716, otherwise known as the ValueAdded Tax Law and Other Pertinent Provisions of the National Internal Revenue Code,
as Amended."
18
Entitled, "An Act Amending the National Internal Revenue Code, as Amended, and for
other Purposes."
19
Story, Commentaries 835 (1833).
20
G.R. No. 147387, December 10, 2003, 417 SCRA 503.
21
Id., pp. 529-530.
22
Supra., Note 20.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Id., p. 670.
25
Westers Third New International Dictionary, p. 1897.
26
TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill

No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4.
27
Id., p. 3.
28
Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Lapus,

TSN, January 7, 2005, pp. 34-35.
29
G.R. No. 105371, November 11, 1993, 227 SCRA 703.
30
Supra, Note 23.
31
Id., p. 668.
32
Id., p. 671.
33
Id., pp. 661-663.
34
Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
35
Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
36
Id., p. 726.
37
See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139, 156.
38
Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19, 1997,
270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12, 1939, 68 Phil.
328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996). Judge Cooley enunciates
the doctrine in the following oft-quoted language: "One of the settled maxims in
constitutional law is, that the power conferred upon the legislature to make laws cannot
be delegated by that department to any other body or authority. Where the sovereign
power of the state has located the authority, there it must remain; and by the
constitutional agency alone the laws must be made until the Constitution itself is
changed. The power to whose judgment, wisdom, and patriotism this high
prerogative has been intrusted cannot relieve itself of the responsibility by choosing
other agencies upon which the power shall be devolved, nor can it substitute the
judgment, wisdom, and patriotism of any other body for those to which alone the
people have seen fit to confide this sovereign trust." (Cooley on Constitutional
Limitations, 8th ed., Vol. I, p. 224)
39
United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
40
16 Am Jur 2d, Constitutional Law, 337.
41
Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974 citing
Calalang vs. Williams, No. 47800, December 2, 1940, 70 Phil. 726; Pangasinan Transp.
Co. vs. Public Service Commission, No. 47065, June 26, 1940, 70 Phil. 221; Cruz vs.
Youngberg, No. 34674, October 26, 1931, 56 Phil. 234; Alegre vs. Collector of Customs,
No. 30783, August 27, 1929, 53 Phil. 394 et seq.
42
Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2, January
28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959, 105 Phil 677;
People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S. vs. Nag Tang Ho, No.
L-17122, February 27, 1922, 43 Phil. 1; Compaia General de Tabacos vs. Board of
Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
43
Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
44
Eastern Shipping Lines, Inc. vs. POEA, No. L-76633, October 18, 1988, 166 SCRA
533, 543-544.
45
No. 45685, November 16, 1937, 65 Phil. 56.
46
Id., pp. 115-120.
47
Supra, note 43.
48
Id., pp. 496-497.
49
16 C.J.S., Constitutional Law, 138.
50
Ibid.
51
16 Am Jur 2d, Constitutional Law 340.
52
Yajus vs. United States, 321 US 414, 88 L Ed 834, 64 S Ct. 660, 28 Ohio Ops 220.
53
Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004; Enriquez vs. Court
of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA 377; Codoy vs. Calugay,
G.R. No. 123486, August 12, 1999, 312 SCRA 333.
54
Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No. 142943,
April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed., p. 45.
55
Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.
56
Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514, citing
Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
57
Compaia General de Tabacos de Filipinas vs. The Board of Public Utility

Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674, October 26,
1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56, 113;
Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481; Tatad vs. Secretary of the
Department of Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330; Alunan vs.
Mirasol, supra.
58
Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180.
59
United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of Land
Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner of Internal
Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA 617, 630.
60
Commission on Internal Revenue vs. American Express International, Inc. (Philippine

Branch), G.R. No. 152609, June 29, 2005.
61
Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977, 77
SCRA 469, 473.
62
Respondents Memorandum, pp. 168-169.
63
The Wealth of Nations, Book V, Chapter II.
64
Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338.
65
TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill

No. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
66
G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524.
67
National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 SCRA
245, 249.
68
Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
69
Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.
70
Ibid.
71
Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & 134588,
July 8, 2005.
72
United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221
SCRA 108, 115.
73
E.O. No. 273, Section 1.
74
Section 5.
75
Section 110(B).
76
Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
77
Id., Session No. 67, March 7, 2005, p. 726.
78
Id., Session No. 71, March 15, 2005, p. 803.
79
Revenue Regulations No. 14-2005, 4.114-2(a).
80
Commissioner of Internal Revenue vs. Philam, G.R. No. 141658, March 18, 2005.
81
Revenue Regulations No. 14-2005, Sec. 4. 114-2.
82
Act V, Scene V.
83
Philippine Rural Electric Cooperatives Association, Inc. vs. DILG, G.R. No. 143076,
June 10, 2003, 403 SCRA 558, 565.
84
Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
85
Philippine Judges Association case, supra., note 29.
86
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761, August 29,
1996, 261 SCRA 236, 249.
87
Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil 682, 688.
88
Section 7, R.A. No. 9337.
89
Ibid.
90
No. L-81311, June 30, 1988, 163 SCRA 371, 383.
91
Section 17, R.A. No. 9337, amending Section 148, NIRC.
92
Section 18, amending Section 151, NIRC.
93
94
95
Sections 1 and 2, amending Sections 27 and 28, NIRC.
96
97
Section 1, amending Section 27(C), NIRC.
98
Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
99
Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA
628, 659.
100
Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365.
101
Ibid.
The Lawphil Project - Arellano Law Foundation
EN BANC
G.R. No. 168056 - ABAKADA GURO PARTY LIST, ET AL. V. EXECUTIVE
SECRETARY EDUARDO R. ERMITA, ET AL.
G.R. No. 168207 - AQUILINO PIMENTEL, JR., ET AL. V. EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.
G.R. No. 168461 - ASSOCIATION OF PILIPINAS SHELL DEALERS, INC, ET AL. V.
CESAR V. PURISIMA, ET AL.
G.R. No. 168463 - FRANCIS JOSEPH G. ESCUDERO, ET AL. V. CESAR V.
PURISIMA, ET AL.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X
SEPARATE CONCURRING
AND DISSENTING OPINION
DAVIDE, JR., C.J.:
While I still hold on to my position expressed in my dissenting opinion in the first VAT cases,1 I
partly yield to the application to the cases at bar of the rule on "germaneness" therein enunciated.
Thus, I concur with the ponenciaof my highly-esteemed colleague Mme. Justice Ma. Alicia
Austria-Martinez except as regards its ruling on the issue of whether Republic Act No. 9337
violates Section 24, Article VI of the Constitution.
R.A. No. 9337 primarily aims to restructure the value-added tax (VAT) system by broadening its
base and raising the rate so as to generate more revenues for the government that can assuage the
economic predicament that our country is now facing. This recently enacted law stemmed from
three legislative bills: House Bill (HB) No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The
first (HB No. 3555) called for the amendment of Sections 106, 107, 108, 109, 110, and 111 of the
National Internal Revenue Code (NIRC) as amended; while the second (HB No. 3705) proposed
amendments to Sections 106, 107, 108, 110, and 114 of the NIRC, as amended. It is significant to
note that all these Sections specifically deal with VAT. And indubitably, these bills are revenue
bills in that they are intended to levy taxes and raise funds for the government.2
On the other hand, SB No. 1950 introduced amendments to "Sections 27, 28, 34, 106, 108, 109,
110, 111, 112, 113, 114, 116, 117, 118, 119, 125, 148, 236, 237, and 288" of the NIRC, as
amended. Among the provisions sought to be amended, only Sections 106, 108, 109, 110, 111,
112, 113, 114, and 116 pertain to VAT. And while Sections 236, 237, and 288 are administrative
provisions pertaining to registration requirements and issuance of receipts commercial invoices,
the proposed amendments thereto are related to VAT. Hence, the proposed amendments to these
Sections were validly taken cognizance of and properly considered by the Bicameral Conference
Committee (BCC).
However, I am of the opinion that the inclusion into the law of the amendments proposed in SB
No. 1950 to the following provisions (with modifications on the rates of taxes) is invalid.
Provision Subject matter
Section 27 Rate of income tax on domestic corporations
Section 28(A)(1) Rate of income tax on resident foreign corporation
Section 28(B)(1) Rate of income tax on non-resident foreign corporation
Section 28(B)(5-b) Rate of income tax on intra-corporate dividends received by non-resident
foreign corporation
Section 34(B)(1) Deductions from gross income
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,
Representatives but the Senate may propose or concur with amendments.
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Financial Intermediaries) and
151 (Excise Tax on Mineral Products) of the NIRC, as amended, have been included by the BCC
in R.A. N0. 9337 even though they were not found in the Senate and House Bills.
In Philippine Judges Association v. Prado,3 the Court described the function of a conference
committee in this wise: "A conference committee may deal generally with the subject matter or it
may be limited to resolving the precise differences between the two houses. Even where the
conference committee is not by rule limited in its jurisdiction, legislative custom severely limits
the freedom with which new subject matter can be inserted into the conference bill."
The limitation on the power of a conference committee to insert new provisions was laid down
in Tolentino v. Secretary of Finance.4 There, the Court, while recognizing the power of a
conference committee to include in its report an entirely new provision that is not found either in
the House bill or in the Senate bill, held that the exercise of that power is subject to the condition
that the said provision is "germane to the subject of the House andSenate bills."
As pointed out by the petitioners, Tolentino differs from the present cases in the sense that in that
case the amendments introduced in the Senate bill were on the same subject matter treated in
the House bill, which was VAT, and the new provision inserted by the conference committee had
relation to that subject matter. Specifically, HB No. 11197 called for the (1) amendment of
Sections 99,100,102,103,104,105,106,107, 108, 110, 112,115, 116, 236,237, and 238 of the
NIRC, as amended; and (2) repeal of Sections 113 and 114 of the NIRC, as amended. SB No.
1630, on the other hand, proposed the (1) amendment of Sections 99,100,102,103,104,105,107,
108, 110, 112, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of Sections 113, 114,
and 116 of the NIRC, as amended. In short, all the provisions sought to be changed in the Senate
bill were covered in the House bill. Although the new provisions inserted by the conference
committee were not found in either the House or Senate bills, they were germane to the general
subject of the bills.
In the present cases, the provisions inserted by the BCC, namely, Sections 121 (Percentage Tax
on Banks and Non-Bank Financial Intermediaries) and 151 (Excise Tax on Mineral Products) of
the NIRC, as amended, are undoubtedly germane to SB No. 1950, which introduced amendments
to the provisions on percentage and excise taxes -- but foreign to HB Nos. 3555 and 3705, which
dealt with VAT only. Since the proposed amendments in the Senate bill relating to percentage and
excise taxes cannot themselves be sustained because they did not take their root from, or are not
related to the subject of, HB Nos. 3705 and 3555, in violation of Section 24, Article VI of the
Constitution, the new provisions inserted by the BCC on percentage and excise taxes would have
no leg to stand on.
I understand very well that the amendments of the Senate and the BCC relating to corporate
income, percentage, franchise, and excise taxes were designed to "soften the impact of VAT
measure on the consumer, i.e., by distributing the burden across all sectors instead of putting it
entirely on the shoulders of the consumers" and to alleviate the countrys financial problems by
bringing more revenues for the government. However, these commendable intentions do not
justify a deviation from the Constitution, which mandates that the initiative for filing revenue
bills should come from the House of Representatives, not from the Senate. After all, these aims
may still be realized by means of another bill that may later be initiated by the House of
Representatives.
Therefore, I vote to declare R.A. No. 9337 as constitutional insofar as it amends provisions
pertaining to VAT. However, I vote to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16,
17, and 18 thereof which, respectively, amend Sections 27, 28, 34, 117, 119, 121, 148, and 151 of
the NIRC, as amended because these amendments deal with subject matters which were not
touched or covered by the bills emanating from the House of Representatives, thereby violating
Section 24 of Article VI of the Constitution.
Footnotes
1
Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 630,
and companion cases.
2
ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91 U.S.
566.
G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies, Legislative
Law and Process: In a Nutshell 81 (1986 ed.)
4
Supra note 1.
G.R. No. 168056 ABAKADA GURO PARTY LIST, ET AL. VS. EXECUTIVE
SECRETARY EDUARDO ERMITA,ET AL.
G.R. No. 168207 AQUILINO PIMENTEL, JR., ET AL. VS. EXECUTIVE SECRETARY
EDUARDO ERMITA, ET AL.
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. VS.
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. VS. CESAR V.
PURISIMA, ET AL.
Promulgated: September 1, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
CONCURRING AND
DISSENTING OPINION
PUNO, J.:
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:
The power of judicial review under Article VIII, section 5(2) of the 1987 Constitution is limited
to the review of "actual cases and controversies."1 As rightly stressed by retired Justice Vicente
V. Mendoza, this requirement gives the judiciary "the opportunity, denied to the legislature, of
seeing the actual operation of the statute as it is applied to actual facts and thus enables it to
reach sounder judgment" and "enhances public acceptance of its role in our system of
government."2 It also assures that the judiciary does not intrude on areas committed to the other
branches of government and is confined to its role as defined by the Constitution.3 Apposite
thereto is the doctrine of ripeness whose basic rationale is "to prevent the courts,
through premature adjudication, from entangling themselves in abstract
disagreements."4 Central to the doctrine is the determination of "whether the case
involves uncertain or contingent future events that may not occur as anticipated, or indeed
may not occur at all."5 The ripeness requirement must be satisfied for each challenged legal
provision and parts of a statute so that those which are "not immediately involved are not
thereby thrown open for a judicial determination of constitutionality."6
It is manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot hurdle
the requirement of ripeness. These sections give the President the power to raise the VAT rate
to 12% on January 1, 2006 upon satisfaction of certain fact-based conditions. We are not
endowed with the infallible gift of prophesy to know whether these conditions are certain to
happen. The power to adjust the tax rate given to the President is futuristic and may or may not
be exercised. The Court is therefore beseeched to render a conjectural judgment based on
hypothetical facts. Such a supplication has to be rejected.
Second. With due respect, I submit that the most important constitutional issue posed by the
petitions at bar relates to the parameters of power of a Bicameral Conference
Committee. Most of the issues in the petitions at bar arose because the Bicameral Conference
Committee concerned exercised powers that went beyond reconciling the differences between
Senate Bill No. 1950 and House Bill Nos. 3705 and 3555. In Tolentino v. Secretary of
Finance,7 I ventured the view that a Bicameral Conference Committee has limited powers and
cannot be allowed to act as if it were a "third house" of Congress. I further warned that unless
its roving powersare reigned in, a Bicameral Conference Committee can wreck the lawmaking
process which is a cornerstone of the democratic, republican regime established in our
Constitution. The passage of time fortifies my faith that there ought to be no legal u-turn on this
preeminent principle. I wish, therefore, to reiterate my reasons for this unbending view, viz:8
Section 209, Rule XII of the Rules of the Senate provides:
In the event that the Senate does not agree with the House of Representatives on the provision of
any bill or joint resolution, the differences shall be settled by a conference committee of both
Houses which shall meet within ten days after their composition.
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.
x x x. Each report shall contain a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure. (Emphasis supplied)
The Jeffersons Manual has been adopted as a supplement to our parliamentary rules and
practice. Section 456 of Jeffersons Manual similarly confines the powers of a conference
committee, viz:
The managers of a conference must confine themselves to the differences committed to them
and may not include subjects not within the disagreements, even though germane to a question in
issue.
This rule of antiquity has been honed and honored in practice by the Congress of the United
States. Thus, it is chronicled by Floyd Biddick, Parliamentarian Emeritus of the United States
Senate, viz:
Committees of conference are appointed for the sole purpose of compromising and adjusting the
differing and conflicting opinions of the two Houses and the committees of conference alone can
grant compromises and modify propositions of either Houses within the limits of the
disagreement. Conferees are limited to the consideration of differences between the two Houses.
Congress shall not insert in their report matters not committed to them by either House, nor
shall they strike from the bill matters agreed to by both Houses. No matter on which there is
nothing in either the Senate or House passed versions of a bill may be included in the conference
report and actions to the contrary would subject the report to a point of order. (Emphasis ours)
In fine, there is neither a sound nor a syllable in the Rules of the Senate and the House of
Representatives to support the thesis of the respondents that a bicameral conference committee is
clothed with an ex post veto power.
But the thesis that a Bicameral Conference Committee can wield ex post veto power does not
only contravene the rules of both the Senate and the House. It wages war against our settled
ideals of representative democracy. For the inevitable, catastrophic effect of the thesis is to install
a Bicameral Conference Committee as the Third Chamber of our Congress, similarly vested with
the power to make laws but with the dissimilarity that its laws are not the subject of a free and
full discussion of both Houses of Congress. With such a vagrant power, a Bicameral Conference
Committee acting as a Third Chamber will be a constitutional monstrosity.
It needs no omniscience to perceive that our Constitution did not provide for a Congress
composed of three chambers. On the contrary, section 1, Article VI of the Constitution provides
in clear and certain language: "The legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives " Note that in
vesting legislative power exclusively to the Senate and the House, the Constitution used the word
"shall." Its command for a Congress of two houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the Senate " composed of
twenty-four Senators xxx 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 xxx who shall be elected from
legislative districts xxx and those who xxx shall be elected through a party-list system of
registered national, regional, and sectoral parties or organizations." The Constitution thus, did not
vest on a Bicameral Conference Committee with an ad hoc membership the power to legislate
for it exclusively vested legislative power to the Senate and the House as co-equal bodies. To be
sure, the Constitution does not mention the Bicameral Conference Committees of Congress. No
constitutional status is accorded to them. They are not even statutory creations. They owe their
existence from the internal rules of the two Houses of Congress. Yet, respondents peddle the
disconcerting idea that they should be recognized as a Third Chamber of Congress and with ex
post veto power at that.
The thesis that a Bicameral Conference Committee can exercise law making power with ex
post veto power is freighted with mischief. Law making is a power that can be used for good or
for ill, hence, our Constitution carefully laid out a plan and a procedure for its exercise. Firstly, it
vouchsafed that the power to make laws should be exercised by no other body except the Senate
and the House. It ought to be indubitable that what is contemplated is the Senate acting as a full
Senate and the House acting as a full House. It is only when the Senate and the House act as
whole bodies that they truly represent the people. And it is only when they represent the people
that they can legitimately pass laws. Laws that are not enacted by the peoples rightful
representatives subvert the peoples sovereignty. Bicameral Conference Committees, with
their ad hoc character and limited membership, cannot pass laws for they do not represent the
people. The Constitution does not allow the tyranny of the majority. Yet, the respondents will
impose the worst kind of tyranny the tyranny of the minority over the majority. Secondly, the
Constitution delineated in deft strokes the steps to be followed in making laws. The overriding
purpose of these procedural rules is to assure that only bills that successfully survive the
searching scrutiny of the proper committees of Congress and the full and unfettered deliberations
of both Houses can become laws. For this reason, a bill has to undergo three (3) mandatory
separate readings in each House. In the case at bench, the additions and deletions made by the
Bicameral Conference Committee did not enjoy the enlightened studies of appropriate
committees. It is meet to note that the complexities of modern day legislations have made our
committee system a significant part of the legislative process. Thomas Reed called the committee
system as "the eye, the ear, the hand, and very often the brain of the house." President Woodrow
Wilson of the United States once referred to the government of the United States as "a
government by the Chairmen of the Standing Committees of Congress " Neither did these
additions and deletions of the Bicameral Conference Committee pass through the coils of
collective deliberation of the members of the two Houses acting separately. Due to this
shortcircuiting of the constitutional procedure of making laws, confusion shrouds the enactment
of R.A. No. 7716. Who inserted the additions and deletions remains a mystery. Why they were
inserted is a riddle. To use a Churchillian phrase, lawmaking should not be a riddle wrapped in
an enigma. It cannot be, for Article II, section 28 of the Constitution mandates the State to adopt
and implement a "policy of full public disclosure of all its transactions involving public interest."
The Constitution could not have contemplated a Congress of invisible and unaccountable John
and Mary Does. A law whose rationale is a riddle and whose authorship is obscure cannot bind
the people.
All these notwithstanding, respondents resort to the legal cosmetology that these additions and
deletions should govern the people as laws because the Bicameral Conference Committee Report
was anyway submitted to and approved by the Senate and the House of Representatives. The
submission may have some merit with respect to provisions agreed upon by the Committee in the
process of reconciling conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances,
the conflicting provisions had been previously screened by the proper committees, deliberated
upon by both Houses and approved by them. It is, however, a different matter with respect to
additions and deletions which were entirely new and which were made not to reconcile
inconsistencies between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral
Conference Committee did not have any authority to add new provisions or delete provisions
already approved by both Houses as it was not necessary to discharge their limited task of
reconciling differences in bills. At that late stage of law making, the Conference Committee
cannot add/delete provisions which can become laws without undergoing the study and
deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. Even the Senate and
the House cannot enact a law which will not undergo these mandatory three (3) readings required
by the Constitution. If the Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee.
Moreover, the so-called choice given to the members of both Houses to either approve or
disapprove the said additions and deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are tucked to the entire bill. The vote is
on the bill as a package, i.e., together with the insertions and deletions. And the vote is either
"aye" or "nay," without any further debate and deliberation. Quite often, legislators vote "yes"
because they approve of the bill as a whole although they may object to its amendments by the
Conference Committee. This lack of real choice is well observed by Robert Luce:
Their power lies chiefly in the fact that reports of conference committees must be accepted
without amendment or else rejected in toto. The impulse is to get done with the matter and so the
motion to accept has undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is the more likely if the report
comes in the rush of business toward the end of a session, when to seek further conference might
result in the loss of the measure altogether. At any time in the session there is some risk of such a
result following the rejection of a conference report, for it may not be possible to secure a second
conference, or delay may give opposition to the main proposal chance to develop more strength.
In a similar vein, Prof. Jack Davies commented that "conference reports are returned to assembly
and Senate on a take-it or leave-it-basis, and the bodies are generally placed in the position that
to leave-it is a practical impossibility." Thus, he concludes that "conference committee action is

the most undemocratic procedure in the legislative process."
The respondents also contend that the additions and deletions made by the Bicameral Conference
Committee were in accord with legislative customs and usages. The argument does not persuade
for it misappreciates the value of customs and usages in the hierarchy of sources of legislative
rules of procedure. To be sure, every legislative assembly has the inherent right to promulgate its
own internal rules. In our jurisdiction, Article VI, section 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings 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. Rules of Procedure are derived from several sources. The principal sources are as follows:
a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.
2. The rules from the different sources take precedence in the order listed above except that
judicial decisions, since they are interpretations of rules from one of the other sources, take the
same precedence as the source interpreted. Thus, for example, an interpretation of a
constitutional provision takes precedence over a statute.
3. Whenever there is conflict between rules from these sources the rule from the source listed
earlier prevails over the rule from the source listed later. Thus, where the Constitution requires
three readings of bills, this provision controls over any provision of statute, adopted rules,
adopted manual, or of parliamentary law, and a rule of parliamentary law controls over a local
usage but must give way to any rule from a higher source of authority. (Emphasis ours)
As discussed above, the unauthorized additions and deletions made by the Bicameral Conference
Committee violated the procedure fixed by the Constitution in the making of laws. It is
reasonless for respondents therefore to justify these insertions as sanctioned by customs and
usages.
Finally, respondents seek sanctuary in the conclusiveness of an enrolled bill to bar any judicial
inquiry on whether Congress observed our constitutional procedure in the passage of R.A. No.
7716. The enrolled bill theory is a historical relic that should not continuously rule us from the
fossilized past. It should be immediately emphasized that the enrolled bill theory originated in
England where there is no written constitution and where Parliament is supreme. In this
jurisdiction, we have a written constitution and the legislature is a body of limited powers.
Likewise, it must be pointed out that starting from the decade of the 40s, even American courts
have veered away from the rigidity and unrealism of the conclusiveness of an enrolled bill. Prof.
Sutherland observed:
xxx
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 sheriffs return cannot be attacked; (2) that the enrolled bill isprima
facie correct and only in case the legislative journal shows affirmative contradiction of the
constitutional requirement will the bill be held invalid; (3) that although the enrolled bill
is prima facie correct, evidence from the journals, or other extrinsic sources is admissible to
strike the bill down; (4) that the legislative journal is conclusive and the enrolled bills is valid
only if it accords with the recital in the journal and the constitutional procedure.
Various jurisdictions have adopted these alternative approaches in view of strong dissent and
dissatisfaction against the philosophical underpinnings of the conclusiveness of an enrolled bill.
Prof. Sutherland further observed:
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 sheriffs 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 kings 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 sheriffs return or
sworn official rule did not in civil litigation deprive the injured party of an action, for always
he could sue the sheriff upon his official bond. Likewise, although collateral attack was not
permitted, direct attack permitted raising the issue of fraud, and at a later date attack in equity
was also available; and that the evidence of the sheriff was not of unusual weight was
demonstrated by the fact that in an action against the sheriff no presumption of its authenticity
prevailed.
The argument that the enrolled bill is a "record" and therefore unimpeachable is likewise
misleading, for the correction of records is a matter of established judicial procedure. Apparently,
the justification is either the historical one that the kings 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 faciepresumption of validity which may be attacked by any authoritative
source of information.
Third. I respectfully submit that it is only by strictly following the contours of powers of a
Bicameral Conference Committee, as delineated by the rules of the House and the Senate,
that we can prevent said Committee from acting as a "third" chamber of Congress. Under the
clear rules of both the Senate and House, its power can go no further than
settling differences in their bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules
of the House of Representatives provide as follows:
the amendment to any bill or joint resolution, the differences may be settled by the conference
appropriate action.
Sec. 89. Conference Committee Reports. - . . . Each report shall contain a detailed, sufficiently
...
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:

The House rule brightlines the following: (1) the power of the Conference Committee
is limited . . . it is only to settle differences with the Senate; (2) if the differences
are substantial, the Committee must report to the House for the latters appropriate action; and
(3) the Committee report has to be voted upon in the same manner and procedure as a bill on
third and final reading. Similarly, the Senate rule underscores in crimson that (1) the power of
the Committee is limited - - - to settle differences with the House; (2) it can make changes or
amendments only in the discharge of this limited power to settle differences with the House; and
(3) the changes or amendments are merely recommendatory for they still have to be approved
by the Senate.
Under both rules, it is obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the Committee cannot, on
its own, settle differences which are substantial in character. If it is confronted with
substantial differences, it has to go back to the chamber that created it "for the latters
appropriate action." In other words, it must take the proper instructions from the chambers that
created it. It cannot exercise its unbridled discretion. Where there is no differencebetween the
bills, it cannot make any change. Where the difference is substantial, it has to return to the
chamber of its origin and ask for appropriate instructions. It ought to be indubitable that it
cannot create a new law, i.e., that which has never been discussed in either chamber of
Congress. Its parameters of power are not porous, for they are hedged by the clear limitation
that its only power is to settle differences in bills and joint resolutions of the two chambers of
Congress.
Fourth. Prescinding from these premises, I respectfully submit that the following acts of the
Bicameral Conference Committee constitute grave abuse of discretion amounting to lack or
excess of jurisdiction and should be struck down as unconstitutional nullities, viz:
a. Its deletion of the pro poor "no pass on provision" which is common in both Senate Bill No.
1950 and House Bill No. 3705.
Sec. 1 of House Bill No. 37059 provides:
Section 106 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
SEC. 106. Value-added Tax on Sale of Goods or Properties.

xxx
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of
this Code, the Value-added Tax herein levied on the sale of petroleum products under
Subparagraph (1) hereof shall be paid and absorbed by the sellers of petroleum products who
shall be prohibited from passing on the cost of such tax payments, either directly or
indirectly[,] to any consumer in whatever form or manner, it being the express intent of this
act that the Value-added Tax shall be borne and absorbed exclusively by the sellers of petroleum
products x x x.
Sec. 3 of the same House bill provides:
Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby further
amended to read as follows:
Sec. 108. Value-added Tax on Sale of Goods or Properties.
Provided, further, that notwithstanding the provision of the second paragraph of Section 105 of
this Code, the Value-added Tax imposed under this paragraph shall be paid and absorbed by the
subject generation companies who shall be prohibited from passing on the cost of such tax
payments, either directly or indirectly[,] to any consumer in whatever form or manner, it
being the express intent of this act that the Value-added Tax shall be borne and absorbed
exclusively [by] the power-generating companies.
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides:
Value-added Tax on sale of Services and Use or Lease of Properties.
x x x Provided, that the VAT on sales of electricity by generation companies, and services of
transmission companies and distribution companies, as well as those of franchise grantees of
electrical utilities shall not apply to residential end-users: Provided, that the Value-added Tax
herein levied shall be absorbed and paid by the generation, transmission and distribution
companies concerned. The said companies shall not pass on such tax payments to
NAPOCOR or ultimately to the consumers, including but not limited to residential end users,
either as costs or in any other form whatsoever, directly or indirectly. x x x.
Even the faintest eye contact with the above provisions will reveal that: (a) both the House bill
and the Senate bill prohibited the passing on to consumers of the VAT on sales of electricity and
(b) the House bill prohibited the passing on to consumers of the VAT on sales
of petroleum products while the Senate bill is silent on the prohibition.
In the guise of reconciling disagreeing provisions of the House and the Senate bills on the
matter, the Bicameral Conference Committee deleted the "no pass on provision" on both
the sales of electricity and petroleum products. This action by the Committee is not warranted
by the rules of either the Senate or the House. As aforediscussed, the only power of a Bicameral
Conference Committee is to reconcile disagreeing provisions in the bills or joint resolutions of
the two houses of Congress. The House and the Senate bills both prohibited the passing on to
consumers of the VAT on sales of electricity. The Bicameral Conference Committee cannot
override this unequivocal decision of the Senate and the House. Nor is it clear that there is a
conflict between the House and Senate versions on the "no pass on provisions" of the VAT
on sales of petroleum products. The House version contained a "no pass on provision" but the
Senate had none. Elementary logic will tell us that while there may be a difference in the two
versions, it does not necessarily mean that there is a disagreement or conflict between the
Senate and the House. The silence of the Senate on the issue cannot be interpreted as
an outright opposition to the House decision prohibiting the passing on of the VAT to the
consumers on sales of petroleum products. Silence can even be conformity, albeit implicit in
nature. But granting for the nonce that there is conflict between the two versions, the conflict
cannot escape the characterization as a substantial difference. The seismic consequence of the
deletion of the "no pass on provision" of the VAT on sales of petroleum products on the ability
of our consumers, especially on the roofless and the shirtless of our society, to survive the
onslaught of spiraling prices ought to be beyond quibble. The rules require that the Bicameral
Conference Committee should not, on its own, act on this substantial conflict. It has to seek
guidance from the chamber that created it. It must receive proper instructions from its principal,
for it is the law of nature that no spring can rise higher than its source. The records of both the
Senate and the House do not reveal that this step was taken by the members of the Bicameral
Conference Committee. They bypassed their principal and ran riot with the exercise of powers
that the rules never bestowed on them.
b. Even more constitutionally obnoxious are the added restrictions on local governments 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 units share from VAT shall be allocated and used
exclusively for the following purposes:
1. Fifteen percent (15%) for public elementary and secondary education to finance the
construction of buildings, purchases of school furniture and in-service teacher trainings;
2. Ten percent (10%) for health insurance premiums of enrolled indigents as a counterpart
contribution of the local government to sustain the universal coverage of the national health
insurance program;
3. Fifteen percent (15%) for environmental conservation to fully implement a comprehensive
national reforestation program; and
4. Ten percent (10%) for agricultural modernization to finance the construction of farm-tomarket 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 Committees authority and must
be struck down.
I cannot therefore subscribe to the thesis of the majority that "the changes introduced by the
Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly
foreign to the subject embraced by the original provisions."
Fifth. The majority further defends the constitutionality of the above provisions by holding that
"all the changes or modifications were germane to subjects of the provisions referred to it for
reconciliation."
With due respect, it is high time to re-examine the test of germaneness proffered in Tolentino.
The test of germaneness is overly broad and is the fountainhead of mischief for it allows the
Bicameral Conference Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the Committee to introduce
amendments which are entirely new and have not previously passed through the coils of scrutiny
of the members of both houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a "third house" of Congress with super veto power over bills passed
by the Senate and the House. We cannot concede that super veto power without wrecking the
delicate architecture of legislative power so carefully laid down in our Constitution. The clear
intent of our fundamental law is to install a lawmaking structure composed only of two houses
whose members wouldthoroughly debate proposed legislations in representation of the will of
their respective constituents. The institution of this lawmaking structure is unmistakable from
the following provisions: (1) requiring that legislative power shall be vested in a bicameral
legislature;10 (2) providing for quorum requirements;11 (3) requiring that appropriation, revenue
or tariff bills, bills authorizing increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives;12 (4) requiring
that bills embrace one subject expressed in the title thereof;13 and (5) mandating that bills
undergo three readings on separate days in each House prior to passage into law and prohibiting
amendments on the last reading thereof.14 A Bicameral Conference Committee with untrammeled
powers will destroy this lawmaking structure. At the very least, it will diminish the free and open
debate of proposed legislations and facilitate the smuggling of what purports to be laws.
On this point, Mr. Robert Luces disconcerting observations are apropos:
"Their power lies chiefly in the fact that reports of conference committees must be accepted
without amendment or else rejected in toto. The impulse is to get done with the matters and so
the motion to accept has undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is more likely if the report
comes in the rush of business toward the end of the session, when to seek further conference
might result in the loss of the measure altogether. At any time in the session there is some risk of
such a result following the rejection of a conference report, for it may not be possible to secure a
second conference, or delay may give opposition to the main proposal chance to develop more
strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative who resents and would resist this
theft of his rights, finds himself helpless. Rarely can be vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record himself as protesting against
some one feature while accepting the measure as whole. Worst of all, he cannot by argument or
suggested change, try to improve what the other branch has done.
This means more than the subversion of individual rights. It means to a degree the
abandonment of whatever advantage the bicameral system may have. By so much it in
effect transfers the lawmaking power to small group of members who work out in private a
decision that almost always prevails. What is worse, these men are not chosen in a way to
ensure the wisest choice. It has become the practice to name as conferees the ranking members
of the committee, so that the accident of seniority determines. Exceptions are made, but in
general it is not a question of who are most competent to serve. Chance governs, sometimes
giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference committee is unscientific and therefore
defective.Usually it forfeits the benefit of scrutiny and judgment by all the wisdom
available. Uncontrolled, it is inferior to that process by which every amendment is secured
independent discussion and vote. . . ."15
It cannot be overemphasized that in a republican form of government, laws can only be enacted
by all the duly elected representatives of the people. It cuts against conventional wisdom in
democracy to lodge this power in the hands of a few or in the claws of a committee. It is for
these reasons that the argument that we should overlook the excesses of the Bicameral
Conference Committee because its report is anyway approved by both houses is a futile attempt
to square the circle for an unconstitutional act is void and cannot be redeemed by any subsequent
ratification.
Neither can we shut our eyes to the unconstitutional acts of the Bicameral Conference
Committee by holding that the Court cannot interpose its checking powers over mere violations
of the internal rules of Congress. In Arroyo, et al. v. de Venecia, et al.,16 we ruled that when the
violations affect private rights or impair the Constitution,the Court has all the power, nay,
the duty to strike them down.
In conclusion, I wish to stress that this is not the first time nor will it be last that arguments will
be foisted for the Court to merely wink at assaults
on the Constitution on the ground of some national interest, sometimes clear and at other times
inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of a financial crisis.
The broadsheets scream the disconcerting news that our debt payments for the year 2006 will
exceed 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.17 But no doomsday scenario will ever justify the thrashing of the
Constitution. The Constitution is meant to be our rule both in good times as in bad times. It is the
Courts uncompromising obligation to defend the Constitution at all times lest it be condemned
as an irrelevant relic.
WHEREFORE, I concur with the majority but dissent on the following points:
a) I vote to withhold judgment on the constitutionality of the "standby authority" in Sections 4 to
6 of Republic Act No. 9337 as this issue is not ripe for adjudication.;
b) I vote to declare unconstitutional the deletion by the Bicameral Conference Committee of
the pro poor "no pass on provision" on electricity to residential consumers as it contravened the
unequivocal intent of both Houses of Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as unconstitutional as it contains
extraneous provisions not found in its constituent bills.
REYNATO S. PUNO
Associate Justice
Footnotes
1
Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
Constitutional Law, pp. 311-314 (3rd ed.).
2
Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p. 86

(2004).
3
Id. at 87.
Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American Constitutional
Law, p. 334 (3rd ed.).
5
Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide Agricultural
Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional Law, pp. 335-336
(3rd ed.).
6
Communist Party of the United States v. Subversive Activities Control Bd., 367 U.S. 1,
71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also concurring
opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority, 297 U.S. 288
(1936).
7
235 SCRA 630 (1994).
See Opinion in 235 SCRA 630, 805-825.
H.B. No. 3555 has no "no pass on provision." House Bill No. 3705 expresses the latest
intent of the House on the matter.
10
1 Sutherland Statutory Construction 6:2 (6th ed.): The provision requiring that
legislative power shall be vested in a bicameral legislature seeks to "assure sound
judgment that comes from separate deliberations and actions in the respective bodies that
check and balance each other."
11
Const., Article VI, Section 16(2) (1987): "(2) A majority of each House shall constitute
a quorum to do business, but a smaller number may adjourn from day to day and may
compel the attendance of absent Members in such manner, and under such penalties, as
such House may provide."
12
Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction 9:6 (6th
ed.): The provision helps guarantee that the exercise of the taxing power is well studied
as the lower house is "presumably more representative in character."
13
Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional

Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): "In the construction
and application of this constitutional restriction the courts have kept steadily in view the
correction of the mischief against which it was aimed. The object is to prevent the
practice, which was common in all legislative bodies where no such restrictions existed
of embracing in the same bill incongruous matters having no relation to each other or to
the subject specified in the title, by which measures were often adopted without attracting
attention. Such distinct subjects represented diverse interests, and were combined in order
to unite the members of the legislature who favor either in support of all. These
combinations were corruptive of the legislature and dangerous to the State. Such omnibus
bills sometimes included more than a hundred sections on as many different subjects,
with a title appropriate to the first section, and for other purposes."
"The failure to indicate in the title of the bill the object intended to be accomplished by
the legislation often resulted in members voting ignorantly for measures which they
would not knowingly have approved; and not only were legislators thus misled, but the
public also; so that legislative provisions were steadily pushed through in the closing
hours of a session, which, having no merit to commend them, would have been made
odious by popular discussion and remonstrance if their pendency had been seasonably
announced. The constitutional clause under discussion is intended to correct these evils;
to prevent such corrupting aggregations of incongruous measures, by confining each act
to one subject or object; to prevent surprise and inadvertence by requiring that subject or
object to be expressed in the title."
14
Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction 10:4
(6th ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436437, 440-441 where the 1934 Constitutional Convention noted the anomalous legislative
practice of railroading bills on the last day of the legislative year when members of
Congress were eager to go home. By this irregular procedure, legislators were able to
successfully insert matters into bills which would not otherwise stand scrutiny in leisurely
debate; I Cooley, A Treatise on the Constitutional Limitations, pp. 286-287(8th ed.);
Smith v. Mitchell, 69 W.Va 481, 72 S.E. 755 (1911): "The purpose of this provision of the
Constitution is to inform legislators and people of legislation proposed by a bill, and to
prevent hasty legislation."
15
235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407
(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.): "conference
reports are returned to assembly and Senate on a take-it or leave-it-basis, and the bodies
are generally placed in the position that to leave-it is a practical impossibility." Thus, he
concludes that "conference committee action is the most undemocratic procedure in the
legislative process."
16
268 SCRA 269, 289 (1997).
17
The Manila Standard Today, August 26, 2005, p. 1.
EN BANC
GR No. 168056 -- ABAKADA GURO PARTY LIST, etc. et al. v. HON. EXECUTIVE
SECRETARY EDUARDO R. ERMITA et al.
GR No. 168207 -- AQUILINO Q. PIMENTEL JR. et al. v. EXECUTIVE SECRETARY
EDUARDO R. ERMITA et al.
GR No. 168461 -- ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., etc. et al. v.
CESAR V. PURISIMA, etc. et al.
GR No. 168463 -- FRANCIS JOSEPH G. ESCUDERO et al. v. CESAR V. PURISIMA etc.,
et al.
GR No. 168730 -- BATAAN GOVERNOR ENRIQUE T. GARCIA JR. v. HON. EDUARDO

R. ERMITA, etc. et al.
Promulgated: September 1, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
SEPARATE OPINION
PANGANIBAN, J.:
The ponencia written by the esteemed Madame Justice Ma. Alicia Austria-Martinez declares that
the enrolled bill doctrine has been historically and uniformly upheld in our country. Cited as
recent reiterations of this doctrine are the two Tolentino v. Secretary of
Finance judgments1 and Farias v. Executive Secretary.2
Precedence of Mandatory
Constitutional Provisions
Over the Enrolled Bill Doctrine
I believe, however, that the enrolled bill doctrine3 is not absolute. It may be all-encompassing in
some countries like Great Britain,4 but as applied to our jurisdiction, it must yield to mandatory
provisions of our 1987 Constitution. The Court can take judicial notice of the form of
government5 in Great Britain.6 It is unlike that in our country and, therefore, the doctrine from
which it originated7 could be modified accordingly by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal rules and processes followed by
Congress in its principal duty of lawmaking. However, when the Constitution imposes certain
conditions, restrictions or limitations on the exercise of congressional prerogatives, the judiciary
has both the power and the duty to strike down congressional actions that are done in plain
contravention of such conditions, restrictions or limitations.8 Insofar as the present case is
concerned, the three most important restrictions or limitations to the enrolled bill doctrine are the
"origination," "no-amendment" and "three-reading" rules which I will discuss later.
Verily, these restrictions or limitations to the enrolled bill doctrine are safeguarded by the
expanded9 constitutional mandate of the judiciary "to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government."10 Even the ponenteof Tolentino,11 the learned Mr. Justice
Vicente V. Mendoza, concedes in another decision that each house "may not by its rules ignore
constitutional restraints or violate fundamental rights, and there should be a reasonable relation
between the mode or method of proceeding established by the rule and the result which is sought
to be attained."12
The Bicameral Conference Committee (BCC) created by Congress to iron out differences
between the Senate and the House of Representatives versions of the E-VAT bills13 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 lawmaking 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-conflictingprovisions, 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 Sections 1, 2 and 3
of Republic Act (RA) No. 9337. Let me explain.
Adopting the House
Version in Part or in Toto
First, the BCC had the option of adopting the House bills either in part or in toto, endorsing them
without changes. Since these bills had passed the three-reading requirement14 under the
Constitution,15 it readily becomes apparent that no procedural impediment would arise. There
would also be no question as to their origination,16because the bills originated exclusively from
the House of Representatives itself.
In the present case, the BCC did not ignore the Senate and adopt any of the House bills in part
or in toto. Therefore, this option was not taken by the BCC.
Adopting the Senate
Version in Part or in Toto
Second, the BCC may choose to adopt the Senate version either
in part 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
If the revenue bill originates exclusively from the Senate, then obviously the origination
provision18 of the Constitution would be violated. If, however, it originates exclusively from the
House and presumably passes the three-reading requirement there, then the question to contend
with is whether the Senate amendments complied with the "germane" principle.
While in the Senate, the House version may, per Tolentino, undergo extensive changes, such that
the Senate may rewrite not only portions of it but even all of it.19 I believe that such rewriting is
limited by the "germane" principle: although "relevant"20 or "related"21 to the general subject of
taxation, the Senate version is not necessarily "germane" all the time. The "germane" principle
requires a legal -- not necessarily an economic22 or political -- interpretation. There must be an
"inherent logical connection."23 What may be germane in an economic or political sense is not
necessarily germane in the legal sense. Otherwise, any provision in the Senate version that is
entirely new and extraneous, or that is remotely or even slightly connected, to the vast and
perplexing subject of taxation, would always be germane. Under this interpretation, the
origination principle would surely be rendered inutile.
To repeat, in Tolentino, the Court said that the Senate may even write its own version, which in
effect would be an amendment by substitution.24 The Court went further by saying that "the
Constitution does not prohibit the filing in the Senate of a substitute bill in anticipation of its
receipt of the bill from the House, so long as action by the Senate as a body is withheld pending
receipt of the House bill."25 After all, the initiative for filing a revenue bill must come from the
House26 on the theory that, elected as its members are from their respective districts, the House is
more sensitive to local needs and problems. By contrast, the Senate whose members are elected
at large approaches the matter from a national perspective,27 with a broader and more
circumspect outlook.28
Even if I have some reservations on the foregoing sweeping pronouncements in Tolentino, I shall
not comment any further, because the BCC, in reconciling conflicting provisions, also did not
take the second option of ignoring the House bills completely and of adopting only the Senate
version in part or in toto. Instead, the BCC used or applied the third option as will be discussed
below.
Compromising
by Consolidating
As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt some parts and reject other
parts of both bills, and craft new provisions or even a substitute bill. I believe this option is
viable, provided that there is no violation of the origination and germane principles, as well as
the three-reading rule. After all, the report generated by the BCC will not become a final valid
act of the Legislative Department until the BCC obtains the approval of both houses of
Congress.29
Standby Authority. I believe that the BCC did not exceed its authority when it crafted the socalled "standby authority" of the President. The originating bills from the House imposed a 12
percent VAT rate,30 while the bill from the Senate retained the
original 10 percent.31 The BCC opted to initially use the 10 percent Senate provision and to
increase this rate to the 12 percent House provision, effective January 1, 2006, upon the
occurrence of a predetermined factual scenario as follows:
"(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or
(ii) National Government Deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%)."32
In the computation of the percentage requirements in the alternative conditions under the law, the
amounts of the VAT collection, National Deficit,33 and GDP34 -- as well as the interrelationship
among them -- can easily be derived by the finance secretary from the proper government bodies
charged with their determination. The law is complete and standards have been fixed.35 Only the
fact-finding mathematical computation for its implementation on January 1, 2006, is necessary.
Once either of the factual and mathematical events provided in the law takes place, the President
has no choice but to implement the increase of the VAT rate to 12 percent.36 This eventuality has
been predetermined by Congress.37
The taxing power has not been delegated by Congress to either or both the President and the
finance secretary. What was delegated
was only the power to ascertain the facts in order to bring the law into operation. In fact, there
was really no "delegation to speak of;
__________________
Culled from the same record, the following excerpts show the position of public respondents:
"Justice Panganiban: It will be based on actual figures?
"Usec. Bonoan: It will be based on actual figures.
"Justice Panganiban: That creates a problem[,] because where do you get the actual figures[?]
"Usec. Bonoan: I understand that[,] traditionally[,] we can come in March, but there is no
impediment to speeding up the gathering.
"Justice Panganiban: Speed it up. February 15?
"Usec. Bonoan: Even within January, Your Honor, I think this can be.
"Justice Panganiban: Alright at the end of January, its just estimate to get the figures in
January.
"Usec. Bonoan: Yes, Your Honor (pp. 661-662); and
xxx
"Justice Panganiban: My only point is, I raised this earlier and I promised counsel for the
petitioner whom I was questionin[g] that I will raise it with you, whether the date January 1,
2006 would present an impossibility of a condition happening.
"Usec. Bonoan: It will not, Your Honor.

"Justice Panganiban: So, your position [is] it will not present an impossibility. Elaborate on it in
your memorandum.
"Usec. Bonoan: Yes, Your Honor.
"Justice Panganiban: Because it is important. The administrative regulations are important[,]
because they clarify the law and it will guide taxpayers. So[,] by January 1[,] [taxpayers]
would not be wondering. Do we charge the end consumers 10 [percent] or 12 [percent]? The
regulations should be able to spell that out [i]n the same manner that even now the various
consumers of various products and services must be able to get from your
there was merely a declaration of an administrative, not a legislative, function.38
I concur with the ponencia in that there was no undue delegation of legislative power in the
increase from 10 percent to 12 percent of the VAT rate. I respectfully disagree, however, with the
statements therein that, first, the secretary of finance is "acting as the agent of the legislative
department" or an "agent of Congress" in determining and declaring the event upon which its
expressed will is to take effect; and, second, that the secretarys personality "is in reality but a
projection of that of Congress."
The secretary of finance is not an alter ego of Congress, but of the President. The mandate given
by RA 9337 to the secretary is not equipollent to an authority to make laws. In passing this law,
Congress did not restrict or curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be construed to be merely
asking the President, with a recommendation from the Presidents alter ego in finance matters, to
determine the factual bases for making the increase in VAT rate operative.39 Indeed, as I have
mentioned earlier, the fact-finding condition is a mere administrative, notlegislative, function.
The ponencia states that Congress merely delegates the implementation of the law to the
secretary of finance. How then can the latter be its agent? Making a law is different
from implementing it. While the first (the making of laws) may be delegated under certain
conditions and only in specific instances provided under the Constitution, the second (the
implementation of laws) may not be done by Congress. After all, the legislature does not have
the power to implement laws. Therefore, congressional agency arises only in the first, not in
the second. The first is a legislative function; the second, an executive one.
Petitioners argument is that because the GDP does not account for the economic effects of socalled underground businesses, it is an inaccurate indicator of either economic growth or
slowdown in transitional economies.40 Clearly, this matter is within the confines of lawmaking.
This Court is neither a substitute for the wisdom, or lack of it, in Congress,41 nor an arbiter of
flaws within the latters internal rules.42 Policy matters lie within the domain of the political
branches of government,43 outside the range of judicial cognizance.44 "[T]he right to select the
measure and objects of taxation devolves upon the Congress, and not upon the courts, and such
selections are valid unless constitutional limitations are overstepped."45 Moreover, each house of
Congress has the power and authority to determine the rules of its proceedings.46 The contention
that this case is not ripe for determination because there is no violation yet of the Constitution
regarding the exercise of the Presidents standby authority has no basis. The question raised is
whether the BCC, in passing the law, committed grave abuse of discretion, not whether the
provision in question had been violated. Hence, this case is not premature and is, in fact, subject
to judicial determination.
Amendments on Income Taxes. I respectfully submit that the amendments made by the BCC
(that were culled from the Senate version) regarding income taxes47 are not legally germane to
the subject matter of the House bills. Revising the income tax rates on domestic, resident foreign
and nonresident foreign corporations; increasing the tax credit against taxes due from
nonresident foreign corporations on intercorporate dividends; and reducing the allowable
deduction for interest expense are legally unrelated and not germane to the subject matter
contained in the House bills; they violate the origination principle.48 The reasons are as follows:
One, an income tax is a direct tax imposed on actual or presumed income -- gross or net -realized by a taxpayer during a given taxable year,49 while a VAT is an indirect tax not in the
context of who is directly and legally liable for its payment, but in terms of its nature as "a tax on
consumption."50 The former cannot be passed on to the consumer, but the latter can.51 It is too
wide a stretch of the imagination to even relate one concept with the other. In like manner, it is
inconceivable how the provisions that increase corporate income taxes can be considered
as mitigating measures for increasing the VAT and, as I will explain later, for effectively
imposing a maximum of 3 percent tax on gross sales or revenues because of the 70 percent cap.
Even the argument that the corporate income tax rates will be reduced to 30 percent does not
hold water. This reduction will take effect only in 2009, not 2006 when the 12 percent VAT rate
will have been implemented.
Two, taxes on intercorporate dividends are final, but the input VAT is generally creditable. Under
a 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.52 The liability for the tax primarily rests upon the payor as a withholding agent.53 Under
a creditable withholding tax system, taxes withheld on certain payments are meant to
approximate the tax that is due of the payee on said payments.54 The liability for the tax rests
upon the payee who is mandated by law to still file a tax return, report the tax base, and pay the
difference between the tax withheld and the tax due.55
From this observation alone, it can already be seen that not only are dividends alien to the tax
base upon which the VAT is imposed, but their respective methods of withholding are totally
different. VAT-registered persons may not always be nonresident foreign corporations that
declare and pay dividends, while intercorporate dividends are certainly not goods or properties
for sale, barter, exchange, lease or importation. Certainly, input VAT credits are different from
tax credits on dividends received by nonresident foreign corporations.
Three, itemized deductions from gross income partake of the nature of a tax exemption.56 Interest
-- which is among such deductions -- refers to the amount paid by a debtor to a creditor for the
use or forbearance of money.57 It is an expense item that is paid or incurred within a given
taxable year on indebtedness in connection with a taxpayers trade, business or exercise of
profession.58 In order to reduce revenue losses, Congress enacted RA 842459 which reduces the
amount of interest expense deductible by a taxpayer from gross income, equal to the applicable
percentage of interest income subject to final tax.60 To assert that reducing the allowable
deduction in interest expense is a matter that is legally related to the proposed VAT amendments
is too far-fetched. Interest expenses are not allowed as credits against output VAT. Neither are
VAT-registered persons always liable for interest.
Having argued on the unconstitutionality (non-germaneness) of the BCC insertions on income
taxes, let me now proceed to the other provisions that were attacked by petitioners.
No Pass-on Provisions. I agree with the ponencia that the BCC did not exceed its authority
when it deleted the no pass-on provisions found in the congressional bills. Its authority to make
amendments not only implies the power to make insertions, but also deletions, in order to
resolve conflicting provisions.
The no pass-on provision in House Bill (HB) No. 3705 referred to the petroleum products subject
to excise tax (and the raw materials used in the manufacture of such products), the sellers of
petroleum products, and the generation companies.61 The analogous provision in Senate Bill (SB)
No. 1950 dealt with electricity, businesses other than generation companies, and services of
franchise grantees of electric utilities.62 In contrast, there was a marked absence of the no pass-on
provision in HB 3555. Faced with such variances, the BCC had the option of retaining or
modifying the no pass-on provisions and determining their extent, or of deleting them altogether.
In opting for deletion to resolve the variances, it was merely acting within its discretion. No
grave abuse may be imputed to the BCC.
The 70 Percent Cap on Input Tax and the 5 Percent Final Withholding VAT. Deciding on the
70 percent cap and the 5 percent final withholding VAT in the consolidated bill is also within the
power of the BCC. While HB 3555 included limits of 5 percent and 11 percent on input tax,63 SB
1950 proposed an even spread over 60 months.64The decision to put a cap and fix its rate, so as to
harmonize or to find a compromise in settling the apparent differences in these versions,65 was
within the sound discretion of the BCC.
In like manner, HB 3555 contained provisions on the withholding of creditable VAT at the rates
of 5 percent, 8 percent, 10.5 percent, and 12 percent.66 HB 3705 had no such equivalent
amendment, and SB 1950 pegged the rates at only 5 percent and 10 percent.67 I believe that the
decision to impose a final (not creditable) VAT and to fix the rates at 5 percent and 10 percent, so
as to harmonize the apparent differences in all three versions, was also within the sound
discretion of the BCC.
Indeed, the tax credit method under our VAT system is not only practical, but also principally
used in almost all taxing jurisdictions. This does not mean, however, that in the eyes of Congress
through the BCC, our country can neither deviate from this method nor modify its application to
suit our fiscal requirements. The VAT is usuallycollected through the tax credit method (and in
the past, even through the cost deduction method or a mixture of these two methods),68 but there
is no hard and fast rule that 100 percent of the input taxes will always be allowed as a tax credit.
In fact, it was Maurice Laur, a French engineer,69 who invented the VAT. In 1954, he had the
idea of imposing an indirect tax on consumption, called taxe sur la valeur ajoute,70 which was
quickly adopted by the Direction Gnrale des Impost, the new French tax authority of which he
became joint director. Consequently, taxpayers at all levels in the production process, rather than
retailers or tax authorities, were forced to administer and account for the tax themselves.71
Since the unutilized input VAT can be carried over to succeeding quarters, there is no undue
deprivation of property. Alternatively, it can be passed on to the consumers;72 there is no law
prohibiting that. Merely speculative and unproven, therefore, is the contention that the law is
arbitrary and oppressive.73 Laws that impose taxes are necessarily burdensome, compulsory, and
involuntary.
The deferred input tax account -- which accumulates the unutilized input VAT -- remains an asset
in the accounting records of a business. It is not at all confiscated by the government. By deleting
Section 112(B) of the Tax Code,74 Congress no longer made available tax credit certificates for
such asset account until retirement from or cessation of business, or changes in or cessation of
VAT-registered status.75 This is a matter of policy, not legality. The Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law.
That the unutilized input VAT would be rendered useless is merely speculative.76 Although it is
recorded as a deferred asset in the books of a company, it remains to be a mere privilege. It may
be written off or expensed outright; it may also be denied as a tax credit.
There is no vested right in a deferred input tax account; it is a mere statutory privilege.77 The
State may modify or withdraw such privilege, which is merely an asset granted by operation of
law.78 Moreover, there is no vested right in generally accepted accounting principles.79 These
refer to accounting concepts, measurement techniques, and standards of presentation in a
companys financial statements, and are not rooted in laws of nature, as are the laws of physical
science, for these are merely developed and continually modified by local and international
regulatory accounting bodies.80 To state otherwise and recognize such asset account as a vested
right is to limit the taxing power of the State. Unlimited, plenary, comprehensive and supreme,
this power cannot be unduly restricted by mere creations of the State.
That the unutilized input VAT would also have an unequal effect on businesses -- some with low,
others with high, input-output ratio -- is not a legal ground for invalidating the law. Profit
margins are a variable of sound business judgment, not of legal doctrine. The law applies equally
to all businesses; it is up to each of them to determine the best formula for selling their goods or
services in the face of stiffer competition. There is, thus, no violation of the equal protection
clause. If the implementation of the 70 percent cap would cause an ad infinitum deferment of
input taxes or an unequal effect upon different types of businesses with varying profit margins
and capital requirements, then the remedy would be an amendment of the law -- not an
unwarranted and outright declaration of unconstitutionality.
The matter of business establishments shouldering 30 percent of output tax and remitting the
amount, as computed, to the government is in effect imposing a tax that is equivalent to a
maximum of 3 percent of gross sales or revenues.81 This imposition is arguably another tax on
gross -- not net -- income and thus a deviation from the concept of VAT as a tax on consumption;
it also assumes that sales or revenues are on cash basis or, if on credit, given credit terms shorter
than a quarter of a year. However, such additional imposition and assumption are also arguably
within the power of Congress to make. The State may in fact choose to impose an additional 3
percent tax on gross income, in lieu of the 70 percent cap, and thus subject the income of
businesses to two types of taxes -- one on gross, the other on net. These impositions may
constitute double taxation,82 which is not constitutionally proscribed.83
Besides, prior to the amendments introduced by the BCC, already extant in the Tax Code was a 3
percentpercentage tax on the gross quarterly sales or receipts of persons who were not VATregistered, and whose sales or receipts were exempt from VAT.84 This is another type of tax
imposed by the Tax Code, in addition to the tax on their respective incomes. No question as to its
validity was raised before; none is being brought now. More important, there is a presumption in
favor of constitutionality,85 "rooted in the doctrine of separation of powers which enjoins upon
the three coordinate departments of the Government a becoming courtesy for each others acts."86
As to the argument that Section 8 of RA 9337 contravenes Section 1 of Article III and Section 20
of Article II of the 1987 Constitution, I respectfully disagree.
One, petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes with the right
to property of persons, natural or artificial. Those similarly situated are affected in the same way
and treated alike, "both as to privileges conferred and liabilities enforced."87
RA 9337 was enacted precisely to achieve the objective of raising revenues to defray the
necessary expenses of government.88 The means that this law employs are reasonably related to
the accomplishment of such objective, and not unduly oppressive. The reduction of tax credits is
a question of economic policy, not of legal perlustration. Its determination is vested in Congress,
not in this Court. Since the purpose of the law is to raise revenues, it cannot be denied that the
means employed is reasonably related to the achievement of that purpose. Moreover, the proper
congressional procedure for its enactment was followed;89 neither public notice nor public
hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are never delightful, but with the
imposition of the 70 percent cap, there will be an assurance of a steady cash flow to the
government, which can be translated to the production of improved goods, rendition of better
services, and construction of better facilities for the people, including all private enterprises.
Perhaps, Congress deems it best to make our economy depend more on businesses that are easier
to monitor, so there will be a more efficient collection of taxes. Whatever is expected of the
outcome of the law, or its wisdom, should be the sole responsibility of the representatives chosen
by the electorate.
The profit margin rates of various industries generally do not change. However, the profit
margin figures do, because these are obviously monetary variables that affect business, along
with the level of competition, the quality of goods and services offered, and the cost of their
production. And there will inevitably be a conscious desire on the part of those who engage in
business and those who consume their output to adapt or adjust accordingly to any congressional
modification of the VAT system.
In addition, it is contended that the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable. Private enterprises are
subjected to a proportional VAT rate, but VAT credits need not be. The VAT is, after all, a human
concept that is neither immutable nor invariable. In fact, it has changed after it was adopted as a
system of indirect taxation by other countries. Again unlike the laws of physical science, the VAT
system can always be modified to suit modern fiscal demands. The State, through the Legislative
Department, may even choose to do away with it and revert to our previous system of turnover
taxes, sales taxes and compensating taxes, in which credits may be disallowed altogether.
Not expensed, but amortized over its useful life, is capital equipment, which is purchased or
treated as capital leases by private enterprises. Aimed at achieving the twin objectives of
profitability and solvency, such purchase or lease is a matter of prudence in business decisionmaking.
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.
"Justice Panganiban: Isnt the solution to increase the price then?
"Atty. Baniqued: If you increase the price which you can very well do, Your Honor, then that
[will] be deflationary and it [will] have a cascading effect on all other basic commodities[,
especially] because what is involved here is petroleum, Your Honor.
"Justice Panganiban: That may be true[,] but its 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]ts unjust and
its 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: Its 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 its oppressive, but you have a remedy, you just
pass it on to the customer. I am not sayin[g] its good[.] [N]either am I saying its wise[.] [A]ll
Im talking about is, whether its constitutional or not.
"Atty. Baniqued: Yes, in fact we acknowledge, Your Honor, that that is a remedy available to
the petroleum dealers, but considering the impact of that limitation[,] and were just talking of the
70 [percent cap] on [input VAT] in the level of the petroleum dealers. Were not even talking yet
of the limitation on the [input VAT] available to the manufacturers, so, what if they pass that on
as well?
"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 does not make the law
unconstitutional, isnt 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 its good. All I am saying is, is it constitutional or not[?] Were not here to
determine the wisdom of the law, thats 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 its [VAT]. If Congress
will just say all petroleum will pay 3 [percent] of their Gross Sales, but you dont bear that, you
pass that on, isnt 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.
"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 dont 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: Its 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. Its 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 sidesinterrupted
"Justice Panganiban: Thats why I say, that there is need to refine the implementing rules so that
everyone will know, the customers will know how much to pay for gasoline, not only gasoline,
gasoline, and so on, diesel and all kinds of products, so therell be no confusion and therell be
no undue taking advantage. There will be a smooth implementation[,] if the law were to be
upheld by the Court. In your case, as I said, it may be unwise to pass that on to the customers,
but definitely, the dealers will not bear that [--] to suffer the loss that you mentioned in your
consolidated balance sheets. Certainly, the dealers will not bear that [cost], isnt it?
"Atty. Baniqued: It will be a very hard decision to make, Your Honor.

"Justice Panganiban: Why, you will not pass it on?
"Atty. Baniqued: I cannot speak for the dealers. interrupted.
"Justice Panganiban: As a consumer, I will thank you if you dont pass it on[;] but you or your
clients as businessm[e]n, I know, will pass it on.
"Atty. Baniqued: As I have said, Your Honor, there are many constraints on their ability to do
that[,] and that is why the first step that we are seeking is to seek redress from this Honorable
Court[,] because we feel that the imposition is excessive and oppressive.. interrupted
"Justice Panganiban: You can find redress here, only if you can show that the law is
unconstitutional.
"Atty. Baniqued: We realized that, Your Honor.
"Justice Panganiban: Alright. Lets talk about the 5 [percent] [d]epreciation rate, but that
applies only to the capital equipment worth over a million?
"Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: And that doesnt apply at all times, isnt it?
"Atty. Baniqued: Well
"Justice Panganiban: That doesnt at all times?
"Atty. Baniqued: For capital goods costing less than 1 million, Your Honor, then.
"Justice Panganiban: That will not apply?
"Atty. Baniqued: That will not apply, but you will have the 70 [percent] cap on input [VAT],
Your Honor.
"Justice Panganiban: Yes, but we talked already about the 70 [percent].
"Justice Panganiban: When you made your presentation on the balance sheet, it is as if every
capital expenditure you made is subject to the 5 [percent,] rather the [five year] depreciation
schedule[.] [T]hats not so. So, the presentation you made is a little inaccurate and misleading.
"Atty. Baniqued: At the start of our presentation, Your Honor[,] we stated clearly that this applies
only to capital goods costing more than one [million].
"Justice Panganiban: Yes, but you combined it later on with the 70 [percent] cap to show that the
dealers are so disadvantaged. But you didnt tell us that that will apply only when capital
equipment or goods is one million or more. And in your case, what kind of capital goods will be
worth one million or more in your existing gas stations?
"Atty. Baniqued: Well, you would have petroleum dealers, Your Honor, who would have[,] aside
from sale of petroleum[,] they would have their service centers[,] like[] to service cars and
they would have those equipments, they are, Your Honor.
"Justice Panganiban: But thats a different profit center, thats not from the sale of
"Atty. Baniqued: No, they would form part of their [VATable] sale, Your Honor.
Justice Panganiban: Its a different profit center[;] its 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 thats an added
cost, isnt 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 wouldnt
want that to be done to me.
"Atty. Baniqued: We realiz[e] that, Your Honor, but the fact remain[s] that whether it is in the
hands of the petroleum dealers or in the hands of the consumers[,] if this imposition is
unreasonable and oppressive, it will remain so, even after it is passed on, Your Honor.
"Justice Panganiban: Alright. Lets go to the third. The 5 [percent] withholding tax, [f]inal
[w]ithholding [t]ax, but this applies to sales to government?
"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, lets see. You sell, lets 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?
"Justice Panganiban: You will charge that[.] [T]herefore[,] the sales to the Supreme Court by that
gas station will effectively be higher?
"Justice Panganiban: So, the Supreme Court will pay more, you will not [be] going to [absorb]
that 5 [percent], will you?
"Atty. Baniqued; If it is passed on, Your Honor, thats of course we agree. Interrupted.
"Justice Panganiban: Not if, you can pass it on.
"Atty. Baniqued: Yes, we can. interrupted
"Justice Panganiban: There is no prohibition to passing it on[.] [P]robably the gas station will
simply pass it on to the Supreme Court and say[,] well[,] there is this 5 [percent] final VAT on
you so[,] therefore, for every tank full you buy[,] well just have to [charge] you 5 [percent]
more. Well, the Supreme Court will probably say, well, anyway, that 5 [percent] that we will pay
the gas dealer, will be paid back to the government, isnt it[?] So, how [will] you be affected?
"Atty. Baniqued: I hope the passing on of the burden, Your Honor, doesnt come back to party
litigants by way of increase in docket fees, Your Honor.
"Justice Panganiban: But thats quite another m[a]tter, though(laughs) [W]hat I am saying, Mr.
[C]ounsel is, you still have to show to us that your remedy is to declare the law
unconstitutional[,] and its not business in character.
"Atty. Baniqued: Yes, Your Honor, it is our submission that this limitation in the input [VAT]
credit as well as the amortization.
"Justice Panganiban: All you talk about is equal protection clause, about due process,
depreciation of property without observance of due process[,] could really be a remedy than a
business way.
"Atty. Baniqued: Business in the level of the petroleum dealers, Your Honor, or in the level of
Congress, Your Honor.
"Justice Panganiban: Yes, you can pass them on to customers[,] in other words. Its the customers
who should [complain].
"Atty. Baniqued: Yes, Your Honor interrupted
"Justice Panganiban: And perhaps will not elect their representatives anymore[.]
"Atty. Baniqued: Yes, Your Honor..
"Justice Panganiban: For agreeing to it, because the wisdom of a law is not for the Supreme
Court to pass upon.
"Atty. Baniqued: It just so happens, Your Honor, that what is [involved] here is a commodity that
when it goes up, it affects everybody.
"Justice Panganiban: Yes, inflationary and inflammatory.
"Atty. Baniqued: just like what Justice Puno says it shakes the entire economic foundation,
Your Honor.
"Justice Panganiban: Yes, its 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 youre 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]hats something we
probably have to take up with the Department of Energy, lest [we may] be accused of ..
"Justice Panganiban: In other words, thats 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, [were] 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 dont have to pay it. But as a magistrate of this Court, I will have to pass
upon judgment on the basis of [--] whether the law is unconstitutional or not. And I hope you can
in your memorandum show that.
"Atty. Baniqued: We recognized that, Your Honor." (boldface supplied, pp. 386-410).
Amendments on Other Taxes and Administrative Matters. Finally, the BCCs amendments
regarding other taxes90 are both germane in a legal sense and reasonably necessary in an
economic sense. This fact is evident, considering that the proposed changes in the VAT law will
have inevitable implications and repercussions on such taxes, as well as on the procedural
requirements and the disposition of incremental revenues, in the Tax Code. Either mitigating
measures91 have to be put in place or increased rates imposed, in order to achieve the purpose of
the law, cushion the impact of increased taxation, and still maintain the equitability desired of
any other revenue law.92 Directly related to the proposed VAT changes, these amendments are
expected also to have a salutary effect on the national economy.
The no-amendment rule93 in the Constitution was not violated by the BCC, because no
completely new provision was inserted in the approved bill. The amendments may be unpopular
or even work hardship upon everyone (this writer included). If so, the remedy cannot be
prescribed by this Court, but by Congress.
Rejecting Non-Conflicting
Provisions
Fourth, the BCC may choose neither to adopt nor to consolidate the versions presented to it by
both houses of Congress, but instead to reject non-conflicting provisions in those versions. In
other words, despite the lack of conflict in them, such provisions are still eliminated entirely
from the consolidated bill. There may be a constitutional problem here.
The no pass-on provisions in the congressional bills are the only item raised by petitioners
concerning deletion.94As I have already mentioned earlier, these provisions were in conflict.
Thus, the BCC exercised its prerogative to remove them. In fact, congressional rules give the
BCC the power to reconcile disagreeing provisions, and in the process of reconciliation, to delete
them. No other non-conflicting provision was deleted.
At this point, and after the extensive discussion above, it can readily be seen no nonconflicting provisions of the E-VAT bills were rejected indiscriminately by the BCC.
Approving and Inserting
Completely New Provisions
Fifth, the BCC had the option of inserting completely new provisions not found in any of the
provisions of the bills of either house of Congress, or make and endorse an entirely new bill as a
substitute. Taking this option may be a blatant violation of the Constitution, for not only will the
surreptitious insertion or unwarranted creation contravene the "origination" principle; it may
likewise desecrate the three-reading requirement and the no-amendment rule.95
Fortunately, however, the BCC did not approve or insert completely new provisions. Thus, no
violation of the Constitution was committed in this regard.
Summary
The enrolled bill doctrine is said to be conclusive not only as to the provisions of a law, but also
to its due enactment. It is not absolute, however, and must yield to mandatory provisions of the
1987 Constitution. Specifically, this Court has the duty of striking down provisions of a law that
in their enactment violate conditions, restrictions or limitations imposed by the
Constitution.96 The Bicameral Conference Committee (BCC) is a mere creation of Congress.
Hence, the BCC may resolve differences only in conflicting provisions of congressional bills that
are referred to it; and it may do so only on the condition that such resolution does not violate the
origination, the three-reading, and the no-amendment rules of the Constitution.
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 ponencias 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 Executives alter ego, not an agent of Congress.
The BCC exercised its prerogative to delete the no pass-on provisions, because these were in
conflict. I believe, however, that it blatantly violated the origination and the germaneness
principles when it inserted provisions not found in the House versions of the E-VAT Law: (1)
increasing the tax rates on domestic, resident foreign and nonresident foreign corporations; (2)
increasing the tax credit against taxes due from nonresident foreign corporations on
intercorporate dividends; and (3) reducing the allowable deduction for interest expense. Hence, I
find these insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already suffering people. On the other
hand, respondents have justified it by comparing it to bitter medicine that patients must endure to
be healed eventually of their maladies. The advantages and disadvantages of the E-VAT Law, as
well as its long-term effects on the economy, are beyond the reach of judicial review. The
economic repercussions of the statute are policy in nature and are beyond the power of the courts
to pass upon.
I have combed through the specific points raised in the Petitions. Other than the three items on
income taxes that I respectfully submit are unconstitutional, I cannot otherwise attribute grave
abuse of discretion to the BCC, or Congress for that matter, for passing the law.
"[T]he Court -- as a rule -- is deferential to the actions taken by the other branches of government
that have primary responsibility for the economic development of our country."97 Thus, in
upholding the Philippine ratification of the treaty establishing the World Trade Organization
(WTO), Taada v. Angara held that "this Court never forgets that the Senate, whose act is under
review, is one of two sovereign houses of Congress and is thus entitled to great respect in its
actions. It is itself a constitutional body, independent and coordinate, and thus its actions are
presumed regular and done in good faith. Unless convincing proof and persuasive arguments are
presented to overthrow such presumption, this Court will resolve every doubt in its favor."98 As
pointed our inCawaling Jr. v. Comelec, the grounds for nullity of the law "must be beyond
reasonable doubt, for to doubt is to sustain."99 Indeed, "there must be clear and unequivocal
showing that what the Constitutions prohibits, the statute permits."100
WHEREFORE, I vote to GRANT the Petitions in part and to declare Sections 1, 2, and 3 of
Republic Act No. 9337 unconstitutional, insofar as these sections (a) amend the rates of income
tax on domestic, resident foreign, and nonresident foreign corporations; (b) amend the tax
credit against taxes due from nonresident foreign corporations on intercorporate dividends; and
(c) reduce the allowable deduction for interest expense. The other provisions are constitutional,
and as to these I vote to DISMISS the Petitions.
ARTEMIO V. PANGANIBAN
Associate Justice
Footnotes
1
235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The second
case is an en banc Resolution on the Motions for Reconsideration of the first case.
2
417 SCRA 503, December 10, 2003.
"[I]t is well settled that the enrolled bill doctrine is conclusive upon the courts as regards
the tenor of the measure passed by Congress and approved by the President." Resins Inc.
v. Auditor General, 134 Phil. 697, 700, October 29, 1968, per Fernando, J., later CJ.;
(citing Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, 366, February 28,
1963, per Concepcin, J., later CJ.). It is a doctrine that flows as a corollary to the
separation of powers, and by which due respect is given by one branch of government to
the actions of the others. See Morales v. Subido, 136 Phil. 405, 412, February 27, 1969.
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such
conclusiveness refers not only to the provisions of the law, but also to its due
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947.
"[T]he signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both [h]ouses of Congress that it was passed are
conclusive of its due enactment." Farias v. Executive Secretary, supra, p. 529, per
Callejo Sr., J.
4
Mabanag v. Lopez Vito, supra, p. 12.
1 of Rule 129 of the Rules of Court.
The United Kingdom has an uncodified Constitution, consisting of both written and
unwritten sources, capable of evolving to be responsive to political and social change,
and found partly in conventions and customs and partly in statute. Its Parliament has the
power to change or abolish any written or unwritten element of the Constitution. There is
neither separation of powers nor formal checks and balances. Every bill drafted has to be
approved by both the House of Commons and the House of Lords, before it receives the
Royal Assent and becomes an Act of Parliament. The House of Lords is the second
chamber that complements the work of the Commons, whose members are elected to
represent their constituents. The first is the House of Commons that alone may start bills
to raise taxes or authorize expenditures. Each bill goes through several stages in each
House. The first stage, called the first reading, is a mere formality. The second -- the
second reading -- is when general principles of the bill are debated upon. At the second
reading, the House may vote to reject the bill. Once the House considers the bill, the third
reading follows. In the House of Commons, no further amendments may be made, and
the passage of the motion amounts to passage of the whole bill. The House of Lords,
however, may not amend a bill so as to insert a provision relating to taxation.
http://en.wikipedia.org/wiki/Constitution_of_the_United_Kingdom; http://
www.oefre.unibe.ch/law/icl/uk00000_.html; www.parliament.uk; and
http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited August 4,
2005, 11:30am PST).
7
See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance, supra, p. 818.
Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10, 2003.
Tolentino v. Secretary of Finance, supra.
10
2nd paragraph, 1 of Article VIII of the 1987 Constitution.
11
Tolentino v. Secretary of Finance, supra.
12
Arroyo v. De Venecia, 343 Phil. 42, 61-62, August 14, 1997, per Mendoza, J.
13
These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950.
14
26(2) of Article VI of the 1987 Constitution.
15
"The purpose for which three readings on separate days is required is said to be twofold: (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.
17
The power of the Senate to propose or concur with amendments is, apparently, without
restriction. By virtue of this power, the Senate can practically rewrite a bill that is
required to come from the House and leave only a trace of the original bill. See Flint v.
Stone Tracy Co., 220 US 107, 31 S.Ct. 342, March 13, 1911.
18
19
Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20
Garner (ed. in chief), Blacks Law Dictionary (8th ed., 2004), p. 708.
21
Statsky, Wests Legal Thesaurus/Dictionary (1986), p. 348.
22
To argue that the raising of revenues makes the non-VAT provisions of a VAT bill
automatically germane is to bring legal analysis within the penumbra of economic
scrutiny. The burden or impact of any tax depends on the relative elasticities of supply
and demand and is chiefly a matter of policy confined within the august halls of
Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 2003), pp. 314-317.
23
Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S.Ct. 2611, 2622, June 23, 2005,
per Kennedy, J.
24
Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz, Philippine
Political Law(2002), p. 154.
25
Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
26
Cruz, Philippine Political Law (2002), p. 155.
27
Tolentino v. Secretary of Finance, supra, August 25, 1994.
28
Cruz, Philippine Political Law (2002), p. 111.
29
Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted separately and
majority of each house approved it.
30
On the one hand, 1-3 of House Bill (HB) No. 3555 seek to amend 106, 107 & 108
the Tax Code by increasing the VAT rate to 12% on every sale, barter or exchange of
goods or properties; importation of goods; and sale or exchange of services, including the
use or lease of properties.
1-3 of HB 3705, on the other, seek to amend 106, 107 & 108 the Tax Code by
also increasing the VAT rate to 12% on every sale, barter or exchange of goods or
properties; importation of goods; and sale or exchange of services, including the use or
lease of properties, but decreasing such rate to 8% on every importation of certain goods;
6% on the sale, barter or exchange of certain locally manufactured goods; and 4% on the
sale, barter or exchange, as well as importation, of petroleum products subject to excise
tax and raw materials to be used in their manufacture (subject to subsequent increases of
such reduced rates), and on the gross receipts derived from services rendered on the sale
of generated power.
The Tax Code referred to in this case is RA 8424, otherwise known as the "Tax Reform
Act of 1997."
31
4-5 of Senate Bill (SB) No. 1950 seek to amend 106 & 108 of the Tax Code by
retaining the VAT rate of 10% on every sale, barter or exchange of goods or properties;
and on the sale or exchange of services, including the use or lease of properties, and the
sale of electricity by generation, transmission, and distribution companies.
32
4-6 of the consolidated bill amending 106-108 of the Tax Code,

respectively. Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7.
The predetermined factual scenario in the above-cited sections of the consolidated bill
also appears in 4-6 of Republic Act (RA) No. 9337, amending the same provisions of
the Tax Code. Mathematically, it is expressed as follows:
VAT Collection > 2.8%
GDP
or
National Government Deficit > 1.5%
GDP
33
A negative budget surplus, or an excess of expenditure over revenues, is a budget

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

obviously, determination could not be made on January 1, 2006. Yes, they were under
the impression that at the earliest it would take 30 days.
"Justice Panganiban: Historically, when [will] these figures [be] available[:] the GDP,
[VAT] collection?" (p. 192);
xxx
"Justice Panganiban: But certainly not on January 1. Therefore, by January 1, people
would not know whether the rate would be increased or not, even if there is no
discretion?
"Atty. Gana: Thats true, Your Honor, even if there is no discretion.
"Justice Panganiban: It will take weeks, or months to be able to determine that?
"Atty. Gana: Well, they anticipated it, would take at most by March." (p. 193); and
xxx
"Justice Panganiban: March, I will ask the government later on when they argue.
"Atty. Gana: As early as January but not later than 60 to 90 days." (boldface supplied;
p. 194).
37
38
regulations how much they [would] be charged, how much should gasoline stations
charge in addition to their correct prices, how much carriers should charge[,] so there
[would] be no confusion.
"Usec. Bonoan: Yes, Your Honor." (boldface supplied; pp. 665-666).
37 Using available statistics, it is approximated that the 24/5 percent has been reached.
VAT collection (in million pesos) for the first quarter alone of 2004 is 83,542.83, or 83
percent of revenue collections amounting to 100,654.01. Divided into GDP of 13,053, the
quotient is already 6.4 percent.
http://www.nscb.gov.ph/sna/2005/1stQ2005/2005per1.asp; and the 2003 Bureau of
Internal Revenue (BIR) Annual Report found on www.bir.gov.ph (Last visited July 14,
2005, 10:45am PST).
[38] Besides, the use of the word "shall" in 106(A), 107(A) & 108(A) of the Tax Code,
as amended respectively by 4, 5 & 6 of RA 9337, is mandatory, imperative and
compulsory. See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
39
See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in Southern

Cross Cement Corp. v. Philippine Cement Manufacturers Corp., GR No. 158540, August
3, 2005, p. 31.
40
Escudero Memorandum, pp. 38-39.
GDP data are far from perfect measures of either economic output or welfare. There are
three major problems: (1) some outputs are poorly measured because they are not traded
in the market, and government services are not directly priced by such market; (2) some
activities measured as additions to GDP in fact only represent the use of resources in
order to avoid crime or risks to national security; and (3) it is difficult to account
correctly for improvements in the quality of goods. Dornbusch, Fischer, and
Startz,Macroeconomics (9th ed., 2005), pp. 35-36.
41
Farias v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
42
"Any meaningful change in the method and procedures of Congress or its committees
must x x x be sought in that body itself." Tolentino v. Secretary of Finance, supra, p. 650,
October 30, 1995, per Mendoza, J.
43
The necessity, desirability or expediency of a law must be addressed to Congress as the

body that is responsible to the electorate, for "legislators are the ultimate guardians of the
liberties and welfare of the people in quite as great a degree [as the] courts." Tolentino v.
Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J.; (citing Missouri,
K. & T. Ry. Co. v. May, 194 US 267, 270, 24 S.Ct. 638, 639, May 2, 1904, per Holmes, J.)
44
Farias v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45
Flint v. Stone Tracy Co., 220 US 107, 167, 31 S.Ct. 342, 355, March 13, 1911, per
Day, J.
46
"Parliamentary rules are merely procedural, and with their observance, the courts have no
concern. They may be waived or disregarded by the legislative body." Arroyo v. De
Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.; (citing Osmea Jr. v. Pendatun,
109 Phil 863, 870-871, October 28, 1960, per Bengzon, J.).
47
HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT provisions
of the Tax Code, but SB 1950 has 1-3 that seek to amend the rates of income tax on
domestic, resident foreign and nonresident foreign corporations at 35% (30% in 2009),
with a tax credit on intercorporate dividends at 20% (15% in 2009); and to reduce the
allowable deductions for interest expense by 42% (33% in 2009) of the interest income
subject to final tax.
48
The amendments to income taxes also partake of the nature of taxation without
representation. As I will discuss in the succeeding paragraphs of this Opinion, they did
not emanate from the House of Representatives that, under 24 of Article VI of the 1987
Constitution, is the only body from which revenue bills should exclusively originate.
49
Mamalateo, Philippine Income Tax (2004), p. 1.
50
Commissioner of Internal Revenue v. American Express International, Inc. (Philippine

Branch), GR No. 152609, p. 20, June 29, 2005, per Panganiban, J. See Deoferio Jr. &
Mamalateo, The Value Added Tax in the Philippines (2000), p. 36.
51
De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
52
53
Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
54
55
De Leon, The Law on Transfer and Business Taxation with Illustrations, Problems, and
Solutions (1998), pp. 195-196 & 222-224.
56
57
See 78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, then

Collector of Internal Revenue, and promulgated by Manuel Roxas, then Secretary of
Finance, later President of the Republic of the Philippines, on February 11, 1941, XXXIX
OG 18, 325.
58
59
RA 8424 refers to the Tax Reform Act of 1997.
60
The 42 percent reduction rate under 3 of RA 9337, amending 34(B)(1) of the Tax
Code, is derived by first subtracting the 20 percent tax on interest income from the
increased tax rate of 35 percent imposed on domestic, resident foreign, and nonresident
foreign corporations, and then dividing the difference obtained by the increased rate.
Hence, it is computed as follows:
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
61
1-3 of HB 3705.
62
5 of SB 1950. There seems to be a discrepancy between the Conference Committee

Report and the various pleadings before this Court. While such report, attaching a copy of
the bill as reconciled and approved by its conferees, as well as the report submitted by the
Senates Committee on Ways & Means to the Senate President on March 7, 2005, show
that SB 1950 does not contain a no-pass on provision, the petitioners and respondents
show that it does (Pimentel Memorandum, Annex A showing a "Matrix on the
Disagreeing Provisions of the [VAT] Bills," pp. 9-11; Escudero Memorandum, p. 42; and
Respondents Memorandum, pp. 109-110). Notably, the qualified dissent of Senator Joker
Arroyo to the Bicameral Conference Report states that the Senate version prohibits the
power companies from passing on the VAT that they will pay.
63
4 of HB 3555 seeks to amend 110(A) of the Tax Code by limiting to 5% and 11% of
their respective total amounts the claim for input tax credit of capital goods, through
equal distribution of the amount of such claim over their depreciable lives; and of goods
and services other than capital goods, and goods purchased by persons engaged in retail
trade.
64
7 of SB 1950 seeks to amend 110 of the Tax Code by also limiting the claim for
input tax credit of goods purchased or imported for use in trade or business, through an
even depreciation or amortization over the month of acquisition and the 59 succeeding
months, if the aggregate acquisition cost of such goods exceeds P 660,000.
The depreciation or amortization in the amendments is referred to as a "spread-out" in an
unnumbered Revenue Memorandum Circular dated July 12, 2005, submitted to this Court
by public respondents in their Compliance dated August 16, 2005. Such spread-out
recognizes industries where capital assets are constructed or assembled.
65
No cap is found in HB 3705.
66
5 of HB 3555 seeks to amend 114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned-and-controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from
sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and 8% of the gross
receipts for services rendered by contractors on every sale or installment payment. The
VAT that is deducted and withheld shall be creditable against their respective VAT
liabilities -- 10.5%, in case of government public works contractors; and 12% of the
payments for the lease or use of properties or property rights to nonresident owners.
67
11 of SB 1950 seeks to amend 114 of the Tax Code by requiring that the VAT be
deducted and withheld by the government or by any of its political subdivisions,
instrumentalities or agencies -- including government-owned or -controlled corporations
(GOCCs) -- before making any payment on account of each purchase of goods from
sellers and services rendered by contractors. The VAT deducted and withheld shall be at
the rates of 5% of the gross payment for the purchase of goods and on the gross receipts
for services rendered by contractors, including public works contractors. The VAT that is
deducted and withheld shall be creditable against the VAT liability of the seller; and 10%
of the gross payment for the lease or use of properties or property rights to nonresident
owners.
68
Deoferio Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp. 34-35 &
44.
69
http://explanation-guide.info/meaning/Maurice-Laur.html (Last visited August 23,

2005, 3:25pm PST).
70
This refers to a "tax on value added" -- TVA in French and VAT in English.
71
http://en.wikipedia.org/wiki/ Maurice-Laur (Last visited August 23, 2005, 3:20pm

PST).
72
The Transcript of the Oral Arguments in GR Nos. 168461, 168463, 168056, and
168207, held on July 14, 2005 at the Supreme Court Session Hall, show that the act of
passing on to consumers is a mere cash flow problem, as agreed to by counsel for
petitioners in GR No. 168461:
"Justice Panganiban: So, the final consumer pays the tax?
"Justice Panganiban: The trade people in between the middlemen just take it as an input
and then [collect] it as output, isnt it?
Atty. Baniqued: Yes, Your Honor.
"Justice Panganiban: Its just a cash flow problem for them, essentially?
"Atty. Baniqued: Yes x x x." (p. 375).
73
The 5 percent final withholding tax may also be charged as part of a suppliers Cost of
Sales.
74
75
This refers to RA 8424, as amended.
In fact, 112(B) of the Tax Code, prior to and after its amendment by 10 of RA 9337,
does not at all prohibit the application of unused input taxes against other internal
revenue taxes. The manner of application is determined though by the BIR through
4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known as the "Consolidated
VAT Regulations of 2005," dated June 22, 2005.
76
That the unutilized input VAT can be considered an ordinary and necessary expense for
which a corresponding deduction will be allowed against gross income under 34(A)(1)
of the Tax Code -- instead of a deferred asset -- is another matter to be adjudicated upon
in proper cases.
77
See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7, 1993.
78
The law referred to is not only the Tax Code, but also RA 9298, otherwise known as the
"Philippine Accountancy Act of 2004."
79
These are based on pronouncements of recognized bodies involved in setting

accounting principles. Greatest weight shall be given to their pronouncements in the
order listed below:
1. Securities and Exchange Commission (SEC);
2. Accounting Standards Council;
3. Standards issued by the International Accounting Standards Board (now Committee);
and
4. Accounting principles and practices for which there has been a long history of
acceptance and usage.
If there appears to be a conflict between any of the bodies listed above, the
pronouncements of the first listed body shall be applied. SEC Securities Regulation Code
Rule 68(1)(b)(iv) as amended, cited in Appendix C of Morales, The Philippine Securities
Regulation Code (Annotated), [2005], p. 578.
Recommended by the World Bank and the Asian Development Bank, and increasingly
recognized worldwide, international accounting standards (IAS) have been merely
adopted by Philippine regulatory bodies and accredited professional organizations. The
SEC, for instance, complies with the agreement among co-members of the International
Organization of Securities Commissions to adopt IAS in order to ensure high-quality and
transparent financial reporting, with full disclosure as a means to promote credibility and
efficiency in the capital markets. In implementing the General Agreement on Trade in
Services, the Professional Regulatory Board of Accountancy (PRBOA) of the
Professional Regulatory Commission supports the adoption of IAS. The Philippine
Institute of Certified Public Accountants, a member of the International Accounting
Standards Committee (IASC), also has the commitment to support the work of the IASC
and uses best endeavors to foster compliance with IAS.
http://www.picpa.com.ph/adb/index.htm (Last visited August 23, 2005, 3:15pm PST).
80
Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 515.
Under 9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of accountancy in
the Philippines and adopt measures -- such as the promulgation of accounting and
auditing standards, rules and regulations, and best practices -- that may be deemed proper
for the enhancement and maintenance of high professional, ethical, accounting, and
auditing standards that include international accounting and auditing standards and
generally accepted best practices.
81
The VAT is collected on each sale of goods or properties or upon the actual or
constructive receipt of consideration for services, starting from the production stage,
followed by the intermediate stages in the distribution process, and culminating with the
sale to the final consumer. This is the essence of a VAT; it is a tax on the value added, that
is, on the excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added
Tax in the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that is
allowable as an input tax credit, the remaining 30 percent becomes an outright expense
that is, however, immediately payable and remitted by the business establishment to the
government. This amount can never be recovered or passed on to the consumer, but it can
be an allowable deduction from gross income under 34(A)(1) of the Tax Code. In effect,
it is a tax computed by multiplying 30 percent to the 10 percent VAT that is imposed on
gross sales, receipts or revenues. It is not a tax on tax and, mathematically, it is derived as
follows:
30% x 10% = 3% of gross sales, receipts or revenues.
82
"Double taxation means taxing the same property [or subject matter] twice when it
should be taxed only once; that is, taxing the same person twice by the same jurisdiction
for the same thing." Commissioner of Internal Revenue v. Solidbank Corp., 416 SCRA
436, November 25, 2003, per Panganiban, J.; (citing Afisco Insurance Corp. v. CA, 361
Phil. 671, 687, January 25, 1999, per Panganiban, J.). See Commissioner of Internal
Revenue v. Bank of Commerce, GR No. 149636, pp. 17-18, June 8, 2005.
83
"The rule x x x is well settled that there is no constitutional prohibition against double
taxation." China Banking Corp. v. CA, 403 SCRA 634, 664, June 10, 2003, per Carpio, J.
Cruz, Constitutional Law (1998), p. 89.
84
116 of the Tax Code as amended.
85
"[C]ourts accord the presumption of constitutionality to legislative enactments, not only

because the legislature is presumed to abide by the Constitution[,] but also because the
judiciary[,] in the determination of actual cases and controversies[,] must reflect the
wisdom and justice of the people as expressed through their representatives in the
executive and legislative departments of the government." Angara v. Electoral
Commission, 63 Phil. 139, 158-159, July 15, 1936, per Laurel, J.; (cited in Francisco Jr.
v. House of Representatives, supra, pp. 121-122.)
86
Cawaling Jr. v. COMELEC, 420 Phil. 524, 530, October 26, 2001, per SandovalGutierrez, J.
87
Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
88
De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
89
Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
90
13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on

domestic carriers and keepers of garages in 117, and on international carriers in 118;
franchise taxes in 119; amusement taxes in 125; excise taxes on manufactured oils and
other fuels in 148; registration requirements in 236; issuance of receipts or sales or
commercial invoices in 237; and disposition of incremental revenues in 288.
91
"[T]he removal of the excise tax on diesel 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 GR Nos. 168461, 168463, 168056, and
168207 on July 14, 2005 also reveals the effect of mitigating measures upon petitioners
in GR No. 168461:
"Justice Panganiban: As a matter of fact[,] a part of the mitigating measures would be the
elimination of the [e]xcise [t]ax and the import duties. That is [why] it is not correct to
say that the [VAT] as to petroleum dealers increase to 10 [percent].
"Justice Panganiban: And[,] therefore, there is no justification for increasing the retail
price by 10 [percent] to cover the E-[VAT.] [I]f you consider the excise tax and the import
duties, the [n]et [t]ax would probably be in the neighborhood of 7 [percent]? We are not
going into exact figures[.] I am just trying to deliver a point that different industries,
different products, different services are hit differently. So its not correct to say that all
prices must go up by 10 [percent].
"Atty. Baniqued: Youre right, Your Honor.
"Justice Panganiban: Now. For instance, [d]omestic [a]irline companies, Mr. Counsel, are
at present imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT] law took effect[,] the
[s]ales [t]ax was also removed as a mitigating measure. So, therefore, there is no
justification to increase the fares by 10 [percent;] at best 7 [percent], correct?
"Atty. Baniqued: I guess so, Your Honor, yes." (pp. 367-368).
92
93
94
These bills refer to HB 3705 and SB 1950.
95
26(2), supra.
96
"Each house may not by its rules ignore constitutional restraints or violate fundamental
rights, and there should be a reasonable relation between the mode or method of
proceeding established by the rule and the result which is sought to be attained." US v.
Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per Brewer, J.
97
Panganiban, Leveling the Playing Field (2004), PRINTTOWN Group of Companies,

pp. 46-47.
98
338 Phil. 546, 604-605, May 2, 1997, per Panganiban, J.
99
420 Phil. 525, 531, October 26, 2001, per Sandoval-Gutierrez, J.; (citing The
Philippine Judges Association v. Prado, 227 SCRA 703, 706, November 11, 1993, per
Cruz, J.).
100
Veterans Federation Party v. COMELEC, 396 Phil. 419, 452-453, October 6, 2000, per
Panganiban, J.; (citing Garcia v. COMELEC, 227 SCRA 100, 107-108, October 5, 1993).
EN BANC
G.R. No. 168056 --- ABAKADA Guro Party List (Formerly AASJAS) Officers Samson S.
Alcantara and Ed Vincent S. Albano, Petitioners, versus The Honorable Executive Secretary
Eduardo Ermita, et al.,Respondents.
G.R. No. 168207 --- Aquilino Q. Pimentel, Jr., et al., Petitioners, versus Executive Secretary
Eduardo R. Ermita, et al., Respondents.
G.R. No. 168461 --- Association of Pilipinas Shell Dealers, Inc., et al.,
Petitioners, versus Cesar V. Purisima, et al., Respondents.
G.R. No. 168463 --- Francis Joseph G. Escudero, et al., Petitioners, versus Cesar V. Purisima,
et al.,Respondents.
G.R. No. 168730 --- Bataan Governor Enrique T. Garcia, Jr., et al., Petitioners, versus Hon.
Eduardo R. Ermita, et al., Respondents.
Promulgated:
September 1, 2005
x ---------------------------------------------------------------------------------------- x
CONCURRING AND DISSENTING OPINION
YNARES-SANTIAGO, J.:
The ponencia states that under the provisions of the Rules of the House of Representatives and
the Senate Rules, the Bicameral Conference Committee is mandated to settle differences between
the disagreeing provisions in the House bill and Senate bill. However, the ponencia construed the
term "settle" as synonymous to "reconcile" and "harmonize," and as such, the Bicameral
Conference Committee may either (a) adopt the specific provisions of either the House bill or
Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill
would be carried into the final form of the bill, and/or (c) try to arrive at a compromise
between the disagreeing provisions.
I beg to differ on the third proposition.
Indeed, Section 16(3), Article VI of the 1987 Constitution explicitly allows each House to
determine the rules of its proceedings. However, the rules must not contravene constitutional
provisions. The rule-making power of Congress should take its bearings from the Constitution. If
in the exercise of this rule-making power, Congress failed to set parameters in the functions of
the committee and allowed the latter unbridled authority to perform acts which Congress itself is
prohibited, like the passage of a law without undergoing the requisite three-reading and the socalled no-amendment rule, then the same amount to grave abuse of discretion which this Court is
empowered to correct under its expanded certiorari jurisdiction. Notwithstanding the doctrine of
separation of powers, therefore, it is the duty of the Court to declare as void a legislative
enactment, either from want of constitutional power to enact or because the constitutional
forms or conditions have not been observed.1 When the Court declares as unconstitutional a
law or a specific provision thereof because procedural requirements for its passage were not
complied, the Court is by no means asserting its ascendancy over the Legislature, but simply
affirming the supremacy of the Constitution as repository of the sovereign will.2 The judicial
branch must ensure that constitutional norms for the exercise of powers vested upon the two
other branches are properly observed. This is the very essence of judicial authority conferred
upon the Court under Section 1, Article VII of the 1987 Constitution.
The Rules of the House of Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate bills, the differences shall
be settled by a bicameral conference committee.
By this, I fully subscribe to the theory advanced in the Dissenting Opinion of Chief Justice
Hilario G. Davide, Jr. inTolentino v. Secretary of Finance3 that the authority of the bicameral
conference committee was limited to the reconciliation of disagreeing provisions or the
resolution of differences or inconsistencies. Thus, it could only either (a) restore, wholly or
partly, the specific provisions of the House bill amended by the Senate bill, (b) sustain,
wholly or partly, the Senates amendments, or (c) by way of a compromise, to agree that
neither provisions in the House bill amended by the Senate nor the latters amendments
thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt either the
version of the House bill or the Senate bill, or adopt neither. It cannot, as the ponencia proposed,
"try to arrive at a compromise", such as introducing provisions not included in either the House
or Senate bill, as it would allow a mere ad hoc committee to substitute the will of the entire
Congress and without undergoing the requisite three-reading, which are both constitutionally
proscribed. To allow the committee unbridled discretion to overturn the collective will of the
whole Congress defies logic considering that the bills are passed presumably after study,
deliberation and debate in both houses. A lesser body like the Bicameral Conference Committee
should not be allowed to substitute its judgment for that of the entire Congress, whose will is
expressed collectively through the passed bills.
When the Bicameral Conference Committee goes beyond its limited function by substituting its
own judgment for that of either of the two houses, it violates the internal rules of Congress and
contravenes material restrictions imposed by the Constitution, particularly on the passage of law.
While concededly, the internal rules of both Houses do not explicitly limit the Bicameral
Conference Committee to a consideration only of conflicting provisions, it is understood that the
provisions of the Constitution should be read into these rules as imposing limits on what the
committee can or cannot do. As such, it cannot perform its delegated function in violation of the
three-reading requirement and the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment hereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.
Thus, before a bill becomes a law, it must pass three readings. Hence, the ponencias submission
that despite its limited authority, the Bicameral Conference Committee could "compromise the
disagreeing provisions" by substituting it with its own version clearly violate the three-reading
requirement, as the committees version would no longer undergo the same since it would be
immediately put into vote by the respective houses. In effect, it is not a bill that was passed by
the entire Congress but by the members of the ad hoc committee only, which of course is
constitutionally infirm.
I disagree that the no-amendment rule referred only to "the procedure to be followed by each
house of Congress with regard to bills initiated in each of said respective houses" because it
would relegate the no-amendment rule to a mere rule of procedure. To my mind, the no-
amendment rule should be construed as prohibiting the Bicameral Conference Committee from
introducing amendments and modifications to non-disagreeing provisions of the House and
Senate bills. In sum, the committee could only either adopt the version of the House bill or the
Senate bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting Opinion
in Tolentino v. Secretary of Finance,4 there is absolutely no legal warrant for the bold submission
that a Bicameral Conference Committee possesses the power to add/delete provisions in bills
already approved on third reading by both Houses or an ex post veto power.
In view thereof, it is my submission that the amendments introduced by the Bicameral
Conference Committee which are not found either in the House or Senate versions of the VAT
reform bills, but are inserted merely by the Bicameral Conference Committee and thereafter
included in Republic Act No. 9337, should be declared unconstitutional. The insertions and
deletions made do not merely settle conflicting provisions but materially altered the bill, thus
giving rise to the instant petitions.
I, therefore, join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno.
CONSUELO YNARES-SANTIAGO
Associate Justice
Footnotes
1
Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332.
Angara v. Electoral Commission, 63 Phil. 139, 158 [1936].
G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873, 115931,
25 August 1994, 235 SCRA 630, 750.
4
Supra, p. 811.
G.R. NO. 168056 ABAKADA GURO PARTY LIST (FORMERLY AASJAS) OFFICERS
SAMSON S. ALCANTARA AND ED VINCENT S. ALBANO, petitioners versus THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168207 AQUILINO Q. PIMENTEL, JR., ET AL., petitioners versus THE
HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL., respondents.
G.R. NO. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET
AL., petitioners versus CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL., petitioners versus
CESAR V. PURISIMA, ET AL., respondents.
G.R. NO. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL., petitioners
versus HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA, ET
AL., respondents.
Promulgated:
September 1, 2005
x----------------------------------------------------------------------------------------------x
SANDOVAL GUTIERREZ, J.:
Adam Smith, the great 18th century political economist, enunciated the dictum that "the
subjects of every state ought to contribute to the support of government, as nearly as possible, in
proportion to their respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state."1 At no other time this dictum becomes more
urgent and obligatory as in the present time, when the Philippines is in its most precarious fiscal
position.
At this juncture, may I state that I join Mr. Senior Justice Reynato S. Puno in his Opinion,
specifically on the following points:
1. It is "high time to re-examine the test of germaneness proffered in Tolentino;"
2. The Bicameral Conference Committee "cannot exercise its unbridled discretion," "it cannot
create a new law," and its deletion of the "no pass on provision" common in both Senate Bill No.
1950 and House Bill No. 3705 is "unconstitutional."
In addition to the above points raised by Mr. Senior Justice Puno, may I expound on the issues
specified hereunder:
There is no reason to rush and stamp the imprimatur of validity to a tax law, R.A. 9337, that
contains patently unconstitutional provisions. I refer to Sections 4 to 6 which violate the
principle of non-delegation of legislative power. These Sections authorize the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate from

10% to 12% effective January 1, 2006, if the conditions specified therein are met, thus:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
This proviso on the authority of the President is uniformly appended to Sections 4, 5 and 6 of
R.A. No. 9337, provisions amending Sections 106, 107 and 108 of the NIRC, respectively.
Section 4 imposes a 10% VAT on sales of goods and properties, Section 5 imposes a 10% VAT
on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease
of properties.
Petitioners in G.R. Nos. 168056,2 1682073 and 1684634 assail the constitutionality of the above
provisions on the ground that such stand-by authority granted to the President
constitutes: (1) undue delegation of legislative power; (2) violation of due
process; and (3) violation of the principle of "exclusive origination." They cited as their basis
Article VI, Section 28 (2); Article III, Section 1; and Article VI, Section 24 of the Constitution.
I
Undue Delegation of Legislative Power
Taxation is an inherent attribute of sovereignty.5 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers.6 The rationale of this
doctrine may be traced from the democratic principle of "no taxation without representation."
The power of taxation being so pervasive, it is in the best interest of the people that such power
be lodged only in the Legislature. Composed of the peoples representatives, it is "closer to the
pulse of the people and are therefore in a better position to determine both the extent of the
legal burden the people are capable of bearing and the benefits they need."7 Also, this set-up
provides security against the abuse of power. As Chief Justice Marshall said: "In imposing a tax,
the legislature acts upon its constituents. The power may be abused; but the interest, wisdom, and
justice of the representative body, and its relations with its constituents, furnish a sufficient
security."
Consequently, Section 24, Article VI of our Constitution enshrined the principle of "no taxation
without representation" by providing that "all revenue bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments." This
provision generally confines the power of taxation to the Legislature.
R.A. No. 9337, in granting to the President the stand-by authority to increase the VAT rate from
10% to 12%, the Legislature abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties and responsibilities by
delegating its power to any other body or authority. Any attempt to abdicate the power is
unconstitutional and void, on the principle that potestas delegata non delegare potest.8 As Judge
Cooley enunciated:
"One of the settled maxims in constitutional law is, that the power conferred upon the legislature
to make laws cannot be delegated by that department to any other body or authority. Where the
sovereign power of the state has located the authority, there it must remain; and by the
constitutional agency alone the laws must be made until the Constitution itself is
changed. The power to whose judgment, wisdom, and patriotism this high prerogative has been
entrusted cannot relieve itself of the responsibility by choosing other agencies upon which the
power shall be devolved, nor can it substitute the judgment, wisdom, and patriotism of any other
body for those to which alone the people have seen fit to confide this sovereign trust."9
Of course, the rule which forbids the delegation of the power of taxation is not absolute and
inflexible. It admits of exceptions. Retired Justice Jose C. Vitug enumerated such exceptions, to
wit: (1) delegations to local governments (to be exercised by the local legislative bodies thereof)
or political subdivisions; (2) delegations allowed by the Constitution; and (3) delegations relating
merely to administrative implementation that may call for some degree of discretionary powers
under a set of sufficient standards expressed by law.10
Patently, the act of the Legislature in delegating its power to tax does not fall under any of the
exceptions.
First, it does not involve a delegation of taxing power to the local government. It is a delegation
to the President.
Second, it is not allowed by the Constitution. Section 28 (2), Article VI of the Constitution
enumerates the charges or duties, the rates of which may be fixed by the President pursuant to a
law passed by Congress, thus:
The Congress may, by law, authorize the President to fix within specified limits, and subject
to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.
Noteworthy is the absence of tax rates or VAT rates in the enumeration. If the intention of the
Framers of the Constitution is to permit the delegation of the power to fix tax rates or VAT
rates to the President, such could have been easily achieved by the mere inclusion of the term
"tax rates" or "VAT rates" in the enumeration. It is a dictum in statutory construction that what
is expressed puts an end to what is implied. Expressium facit cessare tacitum.11 This is a
derivative of the more familiar maxim express mention is implied exclusion orexpressio unius
est exclusio alterius. Considering that Section 28 (2), Article VI expressly speaks only of "tariff
rates,12 import13 and export
quotas,14 tonnage15 and wharfage dues16 and other duties and imposts,17" by no stretch of
imagination can this 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 percent (1 %).
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 herauthority 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 % 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 Presidents exercise of an authority is practically within her control is tantamount to
giving no conditions at all. I believe this amounts to a virtual surrender of legislative power to
her. It must be stressed that the validity of a law is not tested by what has been done but by what
may be done under its provisions.19
II
Violation of Due Process
The constitutional safeguard of due process is briefly worded in Section 1, Article III of the
Constitution which states that, "no person shall be deprived of life, liberty or property without
due process of law."20
Substantive due process requires the intrinsic validity of the law in interfering with the rights of
the person to his property. The inquiry in this regard is not whether or not the law is being
enforced in accordance with the prescribed manner but whether or not, to begin with, it is a
proper exercise of legislative power.
To be so, the law must have a valid governmental objective, i.e., the interest of the public as
distinguished from those of a particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words, the means employed must be
reasonably related to the accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a valid governmental objective,
i.e. to raise revenues for the government. However, with respect to the means employed to
accomplish such objective, I am convinced that R.A. No. 9337, particularly Sections 4, 5 and 6
thereof, are arbitrary and unduly oppressive.
A reading of the Senate deliberation reveals that the first condition constitutes a reward to the
President for her effective collection of VAT. Thus, the President may increase the VAT rate from
10% to 12% if her VAT collection during the previous year exceeds 2 4/5% of the Gross
Domestic Product. I quote the deliberation:
Senator Lacson. Thank you, Mr. President. Now, I will go back to my original question, my first
question. Who are we threatening to punish on the imposed condition No. 1 the public or the
President?
Senator Recto. That is not a punishment, that is supposed to be a reward system.
Senator Lacson. Yes, an incentive. So we are offering an incentive to the Chief Executive.
Senator Recto. That is right.
Senator Lacson. in order for her to be able to raise the VAT to 12 %.
Senator Recto. That is right. That is the intention, yes.
xxxxxx
Senator Osmena. All right. Therefore, with the lifting of exemptions it stands to reason that
Value-added tax collections as a percentage of GDP will be much higher than Now, if it is
higher than 2.5%, in other words, because they collected more, we will allow them to even
tax more. Is that the meaning of this particular phrase?
Senator Recto. Yes, Mr. President, that is why it is as low as 2.8%. It is like if a person has a
son and his son asks him for an allowance, I do not think that he would immediately give
his son an increase in allowance unless he tells his son, You better improve your grades and
I will give you an allowance. That is the analogy of this.
xxxxxx
Senator Osmena. So the gentleman is telling the President, If you collect more than 138
billion, I will give you additional powers to tax the people.
Senator Recto. x x x We are saying, kung mataas and grade mo, dadagdagan ko an
allowance mo. Katulad ng sinabi natin ditto. What we are saying here is you prove to me
that you can collect it, then we will increase your rate, you can raise your rate. It is an
incentive.21
Why authorize the President to increase the VAT rate on the premise alone that she deserves an
"incentive" or "reward"? Indeed, why should she be rewarded for performing a duty reposed
upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of sound taxation is fiscal
adequacy. The proceeds of tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of revenue vis--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 ones 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,
Representatives, but the Senate may propose or concur with amendments.
In Tolentino vs. Secretary of Finance,23 this Court expounded on the foregoing 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
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 Senates power not only to concur with amendments: but also to propose amendments. It
would be to violate the co-equality of the legislative power of the two houses of Congress and in
fact, make the House superior to the Senate."
The case at bar gives us an opportunity to take a second hard look at the efficacy of the foregoing
jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935
Constitution. The latter provision was modeled from Section 7 (1), Article I of the United States
Constitution, which states:
"All bills for raising revenue shall originate in the House of Representatives, but the Senate
may propose or concur with amendments, as on other bills."
The American people, in entrusting what James Madison termed "the power of the purse" to their
elected representatives, drew inspiration from the British practice and experience with the House
of Commons. As one commentator puts it:
"They knew the inestimable value of the House of Commons, as a component branch of the
British parliament; and they believed that it had at all times furnished the best security against
the oppression of the crown and the aristocracy. While the power of taxation, of revenue, and
of supplies remained in the hands of a popular branch, it was difficult for usurpation to
exist for any length of time without check, and prerogative must yield of that necessity
which controlled at once the sword and the purse."
But while the fundamental principle underlying the vesting of the power to propose revenue bills
solely in the House of Representatives is present in both the Philippines and US Constitutions,
stress must be laid on the differences between the two quoted provisions. For one, the word
"exclusively" appearing in Section 24, Article VI of our Constitution is nowhere to be found in
Section 7 (1), Article I of the US Constitution. For another, the phrase "as on other bills,"
present in the same provision of the US Constitution, is not written in our Constitution.
The adverb "exclusively" means "in an exclusive manner."24 The term "exclusive" is defined as
"excluding or having power to exclude; limiting to or limited to; single, sole, undivided,
whole."25 In one case, this Court define the term "exclusive" as "possessed to the exclusion of
others; appertaining to the subject alone, not including, admitting, or pertaining to another or
others."26
As for the term "originate," its meaning are "to cause the beginning of; to give rise to; to
initiate; to start on a course or journey; to take or have origin; to be deprived; arise; begin
or start."27
With the foregoing definitions in mind, it can be reasonably concluded that when Section 24,
Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin or start
solely and only in the House. Not the Senate. Not both Chambers of Congress. But there is more
to it than that. It also means that "an act for taxation must pass the House first." It is no
consequence what amendments the Senate adds.28
A perusal of the legislative history of R.A. No. 9337 shows that it did not "exclusively
originate" from the House of Representatives.
The House of Representatives approved House Bill Nos. 355529 and 370530. These Bills intended
to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC. For its part, the Senate
approved Senate Bill No.1950,31 taking into consideration House Bill Nos. 3555 and 3705. It
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121,
125, 148, 151, 236, 237 and 288 of the NIRC.
Thereafter, on April 13, 2005, a Committee Conference was created to thresh out the disagreeing
provisions of the three proposed bills.
In less than a month, the Conference Committee "after having met and discussed in full free and
conference," came up with a report and recommended the approval of the consolidated version of
the bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of the bills was transmitted to
President Arroyo, who signed it into law. Thus, the enactment of R.A. No. 9337, entitled "An Act
Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121,
148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended and
For Other Purposes."
Clearly, Senate Bill No. 1950 is not based on any bill passed by the House of Representatives. It
has a legislative identity and existence separate and apart from House Bills No. 3555 and 3705.
Instead of concurring or proposing amendments, Senate Bill No. 1950 merely "takes into
consideration" the two House Bills. To take into consideration means "to take into account."
Consideration, in this sense, means "deliberation, attention, observation or
contemplation.32 Simply put, the Senate in passing Senate Bill No. 1950, a tax measure, merely
took into account House Bills No. 3555 and 3705, but did not concur with or amend either or
both bills. As a matter of fact, it did not even take these two House Bills as a frame of reference.
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."33 This is the source of the "germaneness" rule which states that the Senate
bill must be germane to the bill originally passed by the House of Representatives. In Tolentino,
this was not really an issue as both the House and Senate Bills in question had one subject the
VAT.
The facts obtaining here is very much different from Tolentino. It is very apparent that House
Bills No. 3555 and 3705 merely intended to amend Sections 106, 107, 108, 109, 110, 111 and
114 of the NIRC of 1997, pertaining to the VAT provisions. On the other hand, Senate Bill No.
1950 intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117, 119,
121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters outside of VAT, such as
income tax, percentage tax, franchise tax, taxes on banks and other financial intermediaries,
excise taxes, etc.
Thus, I am of the position that the Senate could not, without violating the germaneness rule and
the principle of "exclusive origination," propose tax matters not included in the House Bills.
WHEREFORE, I vote to CONCUR with the majority opinion except with respect to the points
above-mentioned.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
Footnotes
1
Book V of The Wealth of Nations.
ABAKADA GURO Party List (Formerly AASJAS), Officers Samson S. Alcantara and
Ed Vincent S. Albano.
3
Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo M.

Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmena III.
4
Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, Rodolfo

G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C. Agarao, Jr., Juan
Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, Mujiv S. Hataman,
Renato B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona III, Ruy Elias C. Lopez,
Rodolfo Q. Agbayani and Teodoro A. Casino.
5
Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 SCRA
647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 7.
6
Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan,

Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power
Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
7
Bernas, SJ, The 1987 Constitution of the Republic of the Philippines, A Commentary,
1996 Edition, at 687.
8
People vs. Vera, 65 Phil. 56 (1937).
Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224.
10
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 8-9.
11
Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538,
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12
A tariff is a list or schedule of articles on which a duty is imposed upon their

importation, with the rates at which they are severally taxed, it is also the custom or duty
payable on such articles. (Blacks Law Dictionary [6th Edition], 1990, at 1456).
13
An import quota is a quantitative restriction on the importation of an article into a

country, and is a remedy available to the executive department upon its determination that
an imported article threatens serious injury to a domestic industry. (Id. at 755).
14
An export quota is an amount of specific goods which may be exported and are set by
the government for purposes of national defense, economic stability and price support.
(Id. at 579).
15
Tonnage dues are duties laid upon vessels according to their tonnage or cubical
capacity. (Id. at 1488).
16
Wharfage dues are generally understood to be the fees paid for landing goods upon or
loading them from a wharf. It is a charge for the use of the wharf and may be treated
either as rent or compensation. (Marine Lighterage Corp. vs. Luckenbach S.S. Co., 119
Misc. 612, 248 NYS 71).
17
A duty is generally understood to be a tax on the importation or exportation of goods,

merchandise and other commodities, while imposts are duties or impositions levied for
various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 245 US 292, 62
L. Ed. 295, 38 S. Ct. 126).
18
People vs. Vera, supra.
19
Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C. J., p. 786.
20
Cruz, Constitutional Law, 1987 Edition, at 101.
21
TSN, May 10, 2005, Annex E" of the Petition in G.R. No. 168056.
22
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at 3.
23
G.R. No. 115455, August 25, 1994, 235 SCRA 630.
24
Merriam-Websters Third New International Dictionary (1993 Ed.), at 793.
25
Id.
26
City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 31,
1967, 21 SCRA 665, 673.
27
28
Davies, Legislative Law and Process, (2d. Ed. 1986), at 89.
29
Entitled "An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, As
amended, and For Other Purposes." Approved on January 27, 2005.
30
Entitled "An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the National
Internal Revenue Code of 1997, As Amended, and For Other Purposes." Approved on
February 28, 2005.
31
Entitled "An Act Amending Sections 27, 28, 34, 106,108, 109,110, 112, 113, 114, 116,
117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of
1997, As Amended, and For Other Purposes." Approved on April1 3, 2005.
32
33
Supra.
G.R. No. 168056 (Abakada Guro Party List [Formerly AASJAS] Officers Samson S.
Alcantara and Ed Vincent S. Albano v. The Hon. Executive Secretary Eduardo Ermita, et al.)
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R. Ermita,
et al.)
G.R. No. 168461 (Association of Filipinas Shell Dealers, Inc., et al. v. Cesar V. Purisima, et
al.)
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, et al.)
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, et
al.)
Promulgated:
September 1, 2005
X--------------------------------------------------X
CALLEJO, SR., J.:
I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno as I concur with the
majority opinion but vote to declare as unconstitutional the deletion of the "no-pass on
provision" contained in Senate Bill No. 1950 and House Bill No. 3705 (the constituent bills of
Republic Act No. 9337).
The present petitions provide an opportune
occasion for the Court to re-examine
Tolentino v. Secretary of Finance
In ruling that Congress, in enacting R.A. No. 9337, complied with the formal requirements of the
Constitution, theponencia relies mainly on the Courts rulings in Tolentino v. Secretary of
Finance.1 To recall, Tolentino involved Republic Act No. 7716, which similarly amended the
NIRC by widening the tax base of the VAT system. The procedural attacks against R.A. No. 9337
are substantially the same as those leveled against R.A. No. 7716, e.g., violation of the
"Origination Clause" (Article VI, Section 24) and the "Three-Reading Rule" and the "NoAmendment Rule" (Article VI, Section 26[2]) of the Constitution.
The present petitions provide an opportune occasion for the Court to re-examine its rulings
in Tolentinoparticularly with respect to the scope of the powers of the Bicameral Conference
Committee vis--vis Article VI, Section 26(2) of the Constitution.
The crucial issue posed by the present petitions is whether the Bicameral Conference Committee
may validly introduce amendments that were not contained in the respective bills of the Senate
and the House of Representatives. As a corollary, whether it may validly delete provisions
uniformly contained in the respective bills of the Senate and the House of Representatives.
In Tolentino, the Court declared as valid amendments introduced by the Bicameral Conference
Committee even if these were not contained in the Senate and House bills. The majority opinion
therein held:
As to the possibility of an entirely new bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedures, conference committees are not expected to make any
material change in the measure at issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a difficult provision to enforce. Note
the problem when one house amends a proposal originating in either house by striking out
everything following the enacting clause and substituting provisions which make it an entirely
new bill. The versions are now altogether different, permitting a conference committee to draft
essentially a new bill
The result is a third version, which is considered an "amendment in the nature of a substitute,"
the only requirement for which being that the third version be germane to the subject of the
House and Senate bills.
Indeed, this Court recently held that it is within the power of a conference committee to include
in its report an entirely new provision that is not found either in the House bill or in the Senate
Bill. If the committee can propose an amendment consisting of one or two provisions,
collectively considered as an "amendment in the nature of a substitute," so long as such an
amendment is germane to the subject of the bills before the committee. After all, its report was
not final but needed the approval of both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the Conference Committee acted a third
legislative chamber is thus without any basis.2
The majority opinion in Tolentino relied mainly on the practice of the United States legislature in
making the foregoing disquisition. It was held, in effect, that following the US Congress practice
where a conference committee is permitted to draft a bill that is entirely different from the bills
of either the House of Representatives or Senate, the Bicameral Conference Committee is
similarly empowered to make amendments not found in either the House or Senate bills.
The ponencia upholds the acts of the Bicameral Conference Committee with respect to R.A. No.
9337, following the said ruling in Tolentino.
To my mind, this unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference committee system ought to
be re-examined. There are significant textual differences between the US Federal Constitutions
and our Constitutions prescribed congressional procedure for enacting laws. Accordingly, the
degree of freedom accorded by the US Federal Constitution to the US Congress markedly differ
from that accorded by our Constitution to the Philippine Congress.
Section 7, Article I of the US Federal Constitution reads:
[1] All Bills for raising Revenue shall originate in the House of Representatives; but the Senate
may propose or concur with Amendments as on other Bills.
[2] Every Bill which shall have passed the House of Representatives and the Senate, shall, before
it become a Law, be presented to the President of the United States; If he approve he shall it, but
if not he shall return it, with his Objections to the House in which it shall have originated, who
shall enter the Objections at large on their Journal, and proceed to reconsider it. If after such
Reconsideration two thirds of that House shall agree to pass the Bill, it shall be sent together with
the Objections, to the other House, by which it shall, likewise, be reconsidered, and if approved
by two thirds of that House, it shall become a Law. But in all such Cases the Votes of both
Houses shall be determined by yeas and Nays, and the Names of the Persons voting for and
against the Bill shall be entered on the Journal of each House respectively. If any Bill shall not be
returned by the President within ten Days (Sundays excepted) after it shall have been presented
to him, the Same shall be a Law, in like Manner as if he had signed it, unless the Congress by
their Adjournment prevent its return in which Case it shall not be a Law.
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Senate and House of
Representatives may be necessary (except on a question of Adjournment) shall be presented to
the President of the United States; and before the Same shall take Effect, shall be approved by
him, or being disapproved by him, shall be repassed by two thirds of the Senate and House of
Representatives, according to the Rules and Limitations prescribed in the Case of a Bill.
On the other hand, Article VI of our Constitution prescribes for the following procedure for
enacting a law:
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies to the necessity of its
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, be presented to the
President. If he approves the same, he shall sign it; otherwise, he shall veto it and return the same
with his objections to the House where it originated, which shall enter the objections at large in
its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the
Members of such House shall agree to pass the bill, it shall be sent, together with the objections,
to the other House by which it shall likewise be reconsidered, and if approved by two-thirds of
all the Members of that House, it shall become a law. In all such cases, the votes of each House
shall be determined by yeas and nays, and the names of the Members voting for or against shall
be entered in its Journal. The President shall communicate his veto of any bill to the House
where it originated within thirty days after the date of receipt thereof; otherwise, it shall become
a law as if he had signed it.
(2) The President shall have the power to veto any particular item or items in an appropriation,
revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.
Two distinctions are readily apparent between the two procedures:
1. Unlike the US Federal Constitution, our Constitution prescribes the "three-reading" rule or
that no bill shall become a law unless it shall have been read on three separate days in each house
except when its urgency is certified by the President; and
2. Unlike the US Federal Constitution, our Constitution prescribes the "no-amendment" rule or
that no amendments shall be allowed upon the last reading of the bill.
American constitutional experts have lamented that certain congressional procedures have not
been entrenched in the US Federal Constitution. According to a noted constitutional law
professor, the absence of the "three-reading" requirement as well as similar legislative-procedure
rules from the US Federal Constitution is a "cause for regret."3
In this connection, it is interesting to note that the conference committee system in the US
Congress has been described in this wise:
Conference Committees
Another main mechanism of joint House and Senate action is the conference committee.
Inherited from the English Constitution, the conference committee system is an evolutionary
product whose principal threads were woven on the loom of congressional practice into a unified
pattern by the middle of the nineteenth century. "By 1852," writes Ada McCown, historian of the
origin and development of the conference committee, "the customs of presenting identical
reports from the committees of conference in both houses, of granting high privilege to these
conference reports, of voting upon the conference report as a whole and permitting no
amendment of it, of keeping secret the discussions carried on in the meetings of the conference
committee, had become established in American parliamentary practice."
Conference committees are composed of Senators and Representatives, usually three each,
appointed by the presiding officers of both houses, for the purpose of adjusting differences
between bills they have passed. This device has been extensively used by every Congress since
1789. Of the 1157 laws enacted by the 78th Congress, for example, 107 went through conference
and, of these, 36 were appropriation bills on which the House had disagreed to Senate
amendments. In practice, most important legislation goes through the conference closet and is
there revised, sometimes beyond recognition, by the all-powerful conferees or managers, as they
are styled. A large body of law and practice has been built up over the years governing
conference procedure and reports.
Suffice it to say here that serious evils have marked the development of the conference
committee system. In the first place, it is highly prodigal of members time. McConachie
calculated that the average time consumed in conference was 33 days per bill. Bills are sent to
conference without reading the amendments of the other chamber. Despite rules to the contrary,
conferees do not confine themselves to matters in dispute, but often initiate entirely new
legislation and even strike out identical provisions previously approved by both houses. This
happened during the 78th Congress, for instance, when an important amendment to the surplus
property bill, which had been approved by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from the seniority rule. The
senior members of the committees concerned, who are customarily appointed as managers on the
part of the House and Senate, are not always the best informed on the questions at issue, nor do
they always reflect the majority sentiment of their houses. Furthermore, conference reports must
be accepted or rejected in toto without amendment and they are often so complex and obscure
that they are voted upon without knowledge of their contents. What happens in practice is that
Congress surrenders its legislative function to irresponsible committees of conference. The
standing rules against including new and extraneous matter in conference reports have been
gradually whittled away in recent years by the decisions of presiding officers. Senate riders
attached to appropriation bills enable conference committees to legislate and the House usually
accepts them rather than withhold supply, thus putting it, as Senator Hoar once declared, under a
degrading duress.
It is also alleged that under this secret system lobbyist are able to kill legislation they dislike and
that "jokers" designed to defeat the will of Congress can be inserted without detection. Senator
George W. Norris once characterized the conference committee as a third house of Congress.
"The members of this house, he said, "are not elected by the people. The people have no voice
as to who these members shall be ... This conference committee is many times, in very important
matters of legislation, the most important branch of our legislature.There is no record kept of the
workings of the conference committee. Its work is performed, in the main, in secret.No
constituent has any definite knowledge as to how members of this conference committee vote,
and there is no record to prove the attitude of any member of the conference committee ... As a
practical proposition we have legislation, then, not by the voice of the members of the Senate,
not by the members of the House of Representatives, but we have legislation by the voice of five
or six men. And for practical purposes, in most cases, it is impossible to defeat the legislation
proposed by this conference committee. Every experienced legislator knows that it is the hardest
thing in the world to defeat a conference report."
Despite these admitted evils, impartial students of the conference committee system defend it on
net balance as an essential part of the legislative process. Some mechanism for reconciling
differences under bicameral system is obviously indispensable. The remedy for the defects of the
device is not to abolish it, but to keep it under congressional control. This can be done by
enforcing the rules which prohibit the inclusion in conference reports of matter not committed to
them by either house and forbid the deletion of items approved by both bodies; by permitting
conference managers to report necessary new matter separately and the houses to consider it
apart from the conference report; by fixing a deadline toward the close of a session after which
no bills could be sent to conference, so as to eliminate congestion at the end of the session a
suggestion made by the elder Senator La Follete in 1919; by holding conferences in sessions
open to the public, letting conference reports lie over longer, and printing them in bill form (with
conference changes in italics) so as to allow members more time to examine them and discover
"jokers."4
The "three-reading" and "no-amendment" rules, absent in the US Federal Constitution, but
expressly mandated by Article VI, Section 26(2) of our Constitution are mechanisms instituted to
remedy the "evils" inherent in a bicameral system of legislature, including the conference
committee system.
Sadly, the ponencias refusal to apply Article VI, Section 26(2) of the Constitution on the
Bicameral Conference Committee and the amendments it introduced to R.A. No. 9337 has
"effectively dismantled" the "three-reading rule" and "no-amendment rule." As posited by Fr.
Joaquin Bernas, a member of the Constitutional Commission:
In a bicameral system, bills are independently processed by both House of Congress. It is not
unusual that the final version approved by one House differs from what has been approved by the
other. The "conference committee," consisting of members nominated from both Houses, is an
extra-constitutional creation of Congress whose function is to propose to Congress ways of
reconciling conflicting provisions found in the Senate version and in the House version of a bill.
It performs a necessary function in a bicameral system. However, since conference committees
have merely delegated authority from Congress, they should not perform functions that Congress
itself may not do. Moreover, their proposals need confirmation by both Houses of Congress.
In Tolentino v. Secretary of Finance, the Court had the opportunity to delve into the limits of
what conference committees may do. The petitioners contended that the consolidation of the
House and Senate bills made by the conference committee contained provisions which neither
the Senate bill nor the House bill had. In her dissenting opinion, Justice Romero laid out in great
detail the provisions that had been inserted by the conference committee. These provisions,
according to the petitioners had been introduced "surreptitiously" during a closed door meeting
of the committee.
The Courts answer to this was that in United States practice conference committees could be
held in executive sessions and amendments germane to the purpose of the bill could be
introduced even if these were not in either original bill. But the Court did not bother to check
whether perhaps the American practice was based on a constitutional text different from that of
the Philippine Constitution.
There are as a matter of fact significant differences in the degree of freedom American and
Philippine legislators have. The only rule that binds the Federal Congress is that it may formulate
its own rules of procedure. For this reason, the Federal Congress is master of its own procedures.
It is different with the Philippine Congress. Our Congress indeed is also authorized to formulate
its own rules of procedure but within limits not found in American law. For instance, there is
the "three readings on separate days" rule. Another important rule is that no amendments may be
introduced by either house during third reading. These limitations were introduced by the 1935
and 1973 Constitutions and confirmed by the 1987 Constitution as a defense against the
inventiveness of the stealthy and surreptitious. These, however, were disregarded by the Court
in Tolentino in favor of contrary American practice.
This is not to say that conference committees should not be allowed. But an effort should be
made to lay out the scope of what conference committees may do according to the requirements
and the reasons of the Philippine Constitution and not according to the practice of the American
Congress. For instance, if the two Houses are not allowed to introduce and debate amendments
on third reading, can they circumvent this rule by coursing new provisions through the
instrumentality of a conference committee created by Congress and meeting in secret? The effect
of the Courts uncritical embrace of the practice of the American Congress and its conference
committees is to dismantle the no-amendment rule.5
The task at hand for the Court, but which the ponencia eschews, is to circumscribe the powers of
the Bicameral Conference Committee in light of the "three-reading" and "no-amendment" rules
in Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee, in

deleting the "no pass on provision" contained in
Senate Bill No. 1950 and House Bill No. 3705,
violated Article VI , Section 26(2) of the Constitution
Pertinently, in his dissenting opinion in Tolentino, Justice Davide (now Chief Justice) opined that
the duty of the Bicameral Conference Committee was limited to the reconciliation of disagreeing
provisions or the resolution of differences or inconsistencies. This proposition still applies as can
be gleaned from the following text of Sections 88 and 89, Rule XIV of the Rules of the House of
Representatives:
the amendments to any bill or joint resolution, the differences may be settled by the conference
appropriate action.
Sec. 89. Conference Committee Reports. - Each report shall contain a detailed, sufficiently
prior to the voting thereon. The House shall vote on the Conference Committee report in the
same manner and procedure as it votes on a bill on third and final reading.
and Rule XII, Section 35 of the Rules of the Senate:
Justice Davide further explained that under its limited authority, the Bicameral Conference
Committee could only (a) restore, wholly or partly, the specific provisions of the House Bill
amended by the Senate Bill; (b) sustain, wholly or partly, the Senates amendments, or (c) by
way of compromise, to agree that neither provisions in the House Bill amended by the Senate nor
the latters amendments thereto be carried into the final form of the former. Justice Romero, who
also dissented in Tolentino, added that the conference committee is not authorized to initiate or
propose completely new matters although under certain legislative rules like the Jeffersons
Manual, a conference committee may introduce germane matters in a particular bill. However,
such matters should be circumscribed by the committees sole authority and function to reconcile
differences.
In the case of R.A. No. 9337, the Bicameral Conference Committee made an "amendment by
deletion" with respect to the "no pass on provision" contained in both House Bill (HB) No. 3705
and Senate Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and 108 of the NIRC
by expressly stating therein that sellers of petroleum products and power generation companies
selling electricity are prohibited from passing on the VAT to the consumers. SB 1950 proposed to
amend Section 108 by likewise prohibiting power generation companies from passing on the
VAT to the consumers. However, these "no pass on provisions" were altogether deleted by the
Bicameral Conference Committee. At the least, since there was no disagreement between HB
3705 and SB 1950 with respect to the "no pass on provision" on the sale of electricity, the
Bicameral Conference Committee acted beyond the scope of its authority in deleting the
pertinent proviso.
At this point, it is well to recall the rationale for the "no-amendment rule" and the "three-reading
rule" in Article VI, Section 26(2) of the Constitution. The proscription on amendments upon the
last reading is intended to subject all bills and their amendments to intensive deliberation by the
legislators and the ample ventilation of issues to afford the public an opportunity to express their
opinions or objections thereon.6 Analogously, it is said that the "three-reading rule" operates "as a
self-binding mechanism that allows the legislature to guard against the consequences of its own
future passions, myopia, or herd behavior. By requiring that bills be read and debated on
successive days, legislature may anticipate and forestall future occasions on which it will be
seized by deliberative pathologies."7 As Jeremy Bentham, a noted political analyst, put it: "[t]he
more susceptible a people are of excitement and being led astray, so much the more ought they to
place themselves under the protection of forms which impose the necessity of reflection, and
prevent surprises."8
Reports of the Bicameral Conference Committee, especially in cases where substantial
amendments, or in this case deletions, have been made to the respective bills of either house of
Congress, ought to undergo the "three-reading" requirement in order to give effect to the letter
and spirit of Article VI, Section 26(2) of the Constitution.
The Bicameral Conference Committee Report that eventually became R.A. No. 9337, in fact,
bolsters the argument for the strict compliance by Congress of the legislative procedure
prescribed by the Constitution. As can be gleaned from the said Report, of the 9 SenatorsConferees,9 only 5 Senators10 unqualifiedly approved it. Senator Joker P. Arroyo expressed his
qualified dissent while Senators Sergio R. Osmea III and Juan Ponce Enrile approved it with
reservations. On the other hand, of the twenty-eight (28) Members of the House of
Representatives-Conferees,11 fourteen (14)12 approved the same with reservations while
three13 voted no. All the reservations expressed by the conferees relate to the deletion of the "no
pass on provision." Only eleven (11) unqualifiedly approved it. In other words, even among
themselves, the conferees were not unanimous on their Report. Nonetheless, Congress approved
it without even thoroughly discussing the reservations or qualifications expressed by the
conferees therein.
This "take it or leave it" stance vis--vis conference committee reports opens the possibility of
amendments, which are substantial and not even germane to the original bills of either house,
being introduced by the conference committees and voted upon by the legislators without
knowledge of their contents. This practice cannot be countenanced as it patently runs afoul of the
essence of Article VI, Section 26(2) of the Constitution. Worse, it is tantamount to Congress
surrendering its legislative functions to the conference committees.
Ratification by Congress did not cure the
unconstitutional act of the Bicameral Conference
Committee of deleting the "no pass on provision"
That both the Senate and the House of Representatives approved the Bicameral Conference
Committee Report which deleted the "no pass on provision" did not cure the unconstitutional act
of the said committee. As succinctly put by Chief Justice Davide in his dissent in Tolentino,
"[t]his doctrine of ratification may apply to minor procedural flaws or tolerable breaches of the
parameters of the bicameral conference committees limited powers but never to violations of the
Constitution. Congress is not above the Constitution."14
Enrolled Bill Doctrine is not applicable where, as in
this case, there is grave violation of the Constitution
As expected, the ponencia invokes the enrolled bill doctrine to buttress its refusal to pass upon
the validity of the assailed acts of the Bicameral Conference Committee. Under the "enrolled bill
doctrine," the signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both houses of Congress that it was passed are conclusive of its
due enactment. In addition to Tolentino, the ponencia citesFarias v. Executive Secretary15 where
the Court declined to go behind the enrolled bill vis--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 Farias is quite misplaced. The Courts adherence to the enrolled
bill doctrine in the said case was justified for the following reasons:
The Court finds no reason to deviate from the salutary in this case where the irregularities
alleged by the petitioners mostly involved the internal rules of Congress, whether House or
Senate. Parliamentary rules are merely procedural and with their observance the courts have no
concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be
resolved in its favor. The Court reiterates its ruling in Arroyo v. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the
power to inquire into the allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was held:
"At any rate, courts have declared that the rules adopted by deliberative bodies are subject to
revocation, modification or waiver at the pleasure of the body adopting them. And it has been
said that Parliamentary rules are merely procedural, and with their observance, the courts have
no concern. They may be waived or disregarded by the legislative body. Consequently, mere
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative
body) when the requisite number of members have agreed to a particular measure.16
Thus, in Farias, the Courts refusal to go behind the enrolled bill was based on the fact that the
alleged irregularities that attended the passage of R.A. No. 9006 merely involved the internal
rules of both houses of Congress. The procedural irregularities allegedly committed by the
conference committee therein did not amount to a violation of a provision of the Constitution.17
In contrast, the act of the Bicameral Conference Committee of deleting the "no pass on
provision" of SB 1950 and HB 3705 infringe Article VI, Section 26(2) of the Constitution. The
violation of this constitutional provision warrants the exercise by the Court of its
constitutionally-ordained power to strike down any act of a branch or instrumentality of
government or any of its officials done with grave abuse of discretion amounting to lack or
excess of jurisdiction.18
ACCORDINGLY, I join the concurring and dissenting opinion of Mr. Justice Reynato S. Puno
and vote to dismiss the petitions with respect to Sections 4, 5 and 6 of Republic Act No. 9337 for
being premature. Further, I vote to declare as unconstitutional Section 21 thereof and the deletion
of the "no pass on provision" contained in the constituent bills of Republic Act No. 9337.
ROMEO J. CALLEJO, SR.
Associate Justice
Footnotes
1
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
Tolentino v. Secretary of Finance, supra, at 667-668.
See, for example, Vermuele, A., The Constitutional Law of Congressional Procedure, 71
U. Chi. L. Rev. 361 (Spring 2004).
Galloway, G., Congress at the Crossroads, pp. 98-100.
Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary,
pp. 702-703 (1996 Ed.).
6
Dissenting Opinion of Justice Romero in Tolentino, supra.
Vermuele, supra.
Id. citing Bentham, J., Political Tactics.
Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon, Rodolfo
G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III, Juan Ponce Enrile.
10
Senators Recto, Villar, Gordon, Biazon.
11
Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric D.

Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C. Lagman, Luis
R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte Salceda, Prospero C.
Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr., Guillermo P. Cua, Arthur D.
Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex P. Suplico, Jacinto V. Paras,
Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph Santiago, Oscar G. Malapitan,
Catalino Figueroa, Antonino P. Roman and Imee R. Marcos.
12
Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier, Cua,
Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
13
Representatives Del Mar, Suplico and Paras.
14
Dissenting Opinion in Tolentino, supra.
15
G.R. No. 147387, 10 December 2003, 417 SCRA 503.
16
Id., pp. 529-530. (Emphases mine.)
17
By way of explanation, the constitutional issues raised in Farias were (1) whether
Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section 26(1) of the
Constitution requiring that "[e]very bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof;" and (2) whether Section 14 of R.A.
No. 9006 violated the equal protection clause of the Constitution. On both issues the
Court ruled in the negative. To reiterate, unlike in the present cases, the acts of the
conference committee with respect to R.A. No. 9006 in Farias allegedly violated the
internal rules of either house of Congress, but it was not alleged therein that they
amounted to a violation of any constitutional provision on legislative procedure.
18
Article VIII, Section 1, CONSTITUTION.
EN BANC
G.R. No. 168056 (ABAKADA Guro Party List [formerly ASSJS] Officers Samson S.
Alcantara, et al. v. Hon. Executive Secretary Eduardo Ermita, et al.);
G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. v. Executive Secretary Eduardo R.
Ermita, et al.);
G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., etc., et al. v. Cesar V.
Purisima, etc., et al.);
G.R. No. 168463 (Francis Joseph G. Escudero, et al. v. Cesar V. Purisima, etc., et al.); and
G.R. No. 168730 (Bataan Governor Enrique T. Garcia, Jr. v. Hon. Eduardo R. Ermita, etc.,
et al.)
Promulgated:
September 1, 2005
X----------------------------------------------------------------------------------------X
AZCUNA, J.:
Republic Act No. 9337, the E-VAT law, is assailed as an unconstitutional abdication of Congress
of its power to tax through its delegation to the President of the decision to increase the rate of
the tax from 10% to 12%, effective January 1, 2006, after any of two conditions has been
satisfied.1
The two conditions are:
one-half percent (1 %).2
A scrutiny of these "conditions" shows that one of them is certain to happen on January 1, 2006.
The first condition is that the collection from the E-VAT exceeds 2 4/5% of the Gross Domestic
Product (GDP) of the previous year, a ratio that is known as the tax effort.
The second condition is that the national government deficit exceeds 1 % of the GDP of the
previous year.
Note that the law says that the rate shall be increased if any of the two conditions happens, i.e., if
condition (i) orcondition (ii) occurs.
Now, in realistic terms, considering the short time-frame given, the only practicable way that the
present deficit of the national government can be reduced to 1 % or lower, thus preventing
condition (ii) from happening, is to increase the tax effort, which mainly has to come from the EVAT. But increasing the tax effort through the E-VAT, to the extent needed to reduce the national
deficit to 1 % or less, will trigger the happening of condition (i) under the law. Thus, the
happening of condition (i) or condition (ii) is in reality certain and unavoidable, as of January 1,
2006.
This becomes all the more clear when we consider the figures provided during the oral
arguments.
The Gross Domestic Product for 2005 is estimated at P5.3 Trillion pesos.
The tax effort of the present VAT is now at 1.5%.
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the tax effort from VAT, now at
1.5%, to at least 3%, thereby exceeding the 2 4/5 percent ceiling in condition (i), making
condition (i) happen.
If, on the other hand, this is not done, then condition (ii) happens the budget deficit remains
over 1.5%.
What is the result of this? The result is that in reality, the law does not impose any condition,
or the rate increase thereunder, from 10% to 12%, effective January 1, 2006, is unconditional.
For a condition is an event that may or may not happen, or one whose occurrence is
uncertain.3 Now while condition (i) is indeed uncertain and condition (ii) is likewise
uncertain, the combination of both makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power to fix the rate of the tax since
the rate increase provided under the law, from 10% to 12%, is definite and certain to occur,
effective January 1, 2006. All that the President will do is state which of the two conditions
occurred and thereupon implement the rate increase.
At first glance, therefore, it would appear that the decision to increase the rate is to be made by
the President, or that the increase is still uncertain, as it is subject to the happening of any of two
conditions.
Nevertheless, the contrary is true and thus it would be best in these difficult and critical times to
let our people know precisely what burdens they are being asked to bear as the necessary means
to recover from a crisis that calls for a heroic sacrifice by all.
It is for this reason that the Court required respondents to submit a copy of the rules to
implement the E-VAT, particularly as to the impact of the tax on prices of affected commodities,
specially oil and electricity. For the onset of the law last July 1, 2005 was confusing, resulting in
across-the-board increases of 10% in the prices of commodities. This is not supposed to be the
effect of the law, as was made clear during the oral arguments, because the law also contains
provisions that mitigate the impact of the E-VAT through reduction of other kinds of taxes and
duties, and other similar measures, specially as to goods that go into the supply chain of the
affected products. A proper implementation of the E-VAT, therefore, should cause only the
appropriate incremental increase in prices, reflecting the net incremental effect of the tax, which
is not necessarily 10%, but possibly less, depending on the products involved.
The introduction of the mitigating or cushioning measures through the Senate or through the
Bicameral Conference Committee, is also being questioned by petitioners as unconstitutional for
violating the rule against amendments after third reading and the rule that tax measures must
originate exclusively in the House of Representatives (Art. VI, Secs. 24 and 26 [2], Constitution).
For my part, I would rather give the necessary leeway to Congress, as long as the changes are
germane to the bill being changed, the bill which
originated from the House of Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are, therefore, essential -- and
hopefully sufficient -- means to enable our people to bear the sacrifices they are being asked to
make. Such an approach is in accordance with the Enrolled Bill Doctrine that is the prevailing
rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249 SCRA 628 [1994]). The
exceptions I find are the provisions on corporate income taxes, which are not germane to the EVAT law, and are not found in the Senate and House bills.
I thus agree with Chief Justice Hilario G. Davide, Jr. in his separate opinion that the following
are not germane to the E-VAT legislation:
Amended TAX
CODE Provision Subject Matter
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 nonresident foreign corporations;
(b) amend the tax credit against taxes due from nonresident foreign corporations on the
intercorporate dividends; and (c) reduce the allowable deduction from interest expense."
Respondents should, in any case, now be able to implement the E-VAT law without confusion
and thereby achieve its purpose.4
I vote to GRANT the petitions to the extent of declaring unconstitutional the provisions in
Republic Act. No. 9337 that are not germane to the subject matter and DENY said petitions as to
the rest of the law, which are constitutional.
ADOLFO S. AZCUNA
Associate Justice
Footnotes
1
The Constitution states that "Congress may, by law, allow the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties as
imposts within the framework of the national development program of the Government."
(Art. VI, Sec. 28 [2], emphasis supplied.)
Petitioners claim that the power does not extend to fixing the rates of taxes, since taxes
are not tariffs, import and export quotas, tonnage and wharfage dues, or other duties or
imposts.
2
Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
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
"(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
"(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %)."
3
Condition has been defined by Escriche as "every future and uncertain event upon
which an obligation or provision is made to depend." It is a future and uncertain event
upon which the acquisition or resolution of rights is made to depend by those who
execute the juridical act. Futurity and uncertainty must concur as characteristics of the
event.
...
An event which is not uncertain but must necessarily happen cannot be a condition; the
obligation will be considered as one with a term. (IV TOLENTINO, COMMENTARIES
AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, 144).
4
I voted for the issuance of the temporary restraining order to prevent the disorderly
implementation of the law that would have defeated its very purpose and disrupted the
entire VAT system, resulting in less revenues. The rationale, therefore, of the rule against
enjoining the collection of taxes, that taxes are the lifeblood of Government, leaned in
favor of the temporary restraining order.
GR No. 168056 - (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS

SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.)
GR No. 168207 (AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA,

JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S.
MADRIGAL, and SERGIO R. OSMEA III v. EXECUTIVE SECRETARY EDUARDO R.
ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE)
GR No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by
its President, ROSARIO ANTONIO; PETRON DEALERS ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS OF THE
PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name and style of "ANB NORTH SHELL SERVICE
STATION"; LOURDES MARTINEZ doing business under the name and style of "SHELL
GATE N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of
"ADVANCED SHELL STATION"; REYNALDO P. MONTOYA doing business under the
name and style of "NEW LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing
business under the name and style of "REDFIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of "R&R PETRO STATION"; PETER M. UNGSON
doing business under the name and style of "CLASSIC STAR GASOLINE SERVICE
STATION"; MARIAN SHEILA A. LEE doing business under the name and style "NTE
GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under
the name and style of "STARCARGA ENTERPRISES"; ADORACION MAEBO doing
business under the name and style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA
doing business under the name and style of "LEONAS GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the name and style of
"FIRST CHOICE SERVICE CENTER: RHEAMAR A. RAMOS doing business under the
name and style of "RJAM PTT GAS STATION"; MA. ISABEL VIOLAGO doing business
under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS HEART
CORPORATON represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS HARVARD CORPORATION represented by its Vice-President
for Operations, JOSELITO F. FLORDELIZA; MOTORISTS HERITAGE CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;
PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the
name and style of "ROMMAN GASOLINE STATION"; ANTHONY ALBERT CRUZ III
doing business under the name and style of "TRUE SERVICE STATION" v. CESAR V.
PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of Internal Revenue.
GR No. 168463 FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,
EMMANUEL JOSEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINOCUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR., JUAN EDGARDO M.
ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIOI G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY
ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A. CASIO, v. 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.
GR. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. v. 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 Customs.
x-------------------------------------------------------------------x
DISSENTING OPINION
Tinga, J.:
The E-VAT Law,1 as it stands, will exterminate our countrys small to medium enterprises.
This will be the net effect of affirming Section 8 of the law, which amends Sections 110 of the
National Internal Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the
creditable input tax a VAT-registered person may apply every quarter and a mandatory sixty (60)
-month amortization period on the input tax on goods purchased or imported in a calendar month
if the acquisition cost of such goods exceeds One Million Pesos (P1,000,000.00).
Taxes may be inherently punitive, but when the fine line between damage and destruction
is crossed, the courts must step forth and cut the hangmans noose. Justice Holmes once
confidently asserted that "the power to tax is not the power to destroy while this Court sits", and
we should very well live up to this expectation not only of the revered Holmes, but of the
Filipino people who rely on this Court as the guardian of their rights. At stake is the right to
exist and subsist despite taxes, which is encompassed in the due process clause.
I respectfully submit these views while maintaining the deepest respect for the prerogative of the
legislature to impose taxes, and of the national government to chart economic policy. Such
respect impels me to vote to deny the petitions in G.R. Nos. 168056, 168207, 168463,2 and
168730, even as I acknowledge certain merit in the challenges against the E-VAT law that are
asserted in those petitions. In the final analysis, petitioners therein are unable to convincingly
demonstrate the constitutional infirmity of the provisions they seek to assail. The only exception
is Section 21 of the law, which I consider unconstitutional, for reasons I shall later elaborate.
However, I see the petition in G.R. No. 168461 as meritorious and would vote to grant it.
Accordingly, I dissent and hold as unconstitutional Section 8 of Republic Act No. 9337, insofar
as it amends Section 110(A) and (B) of the National Internal Revenue Code (NIRC) as well as
Section 12 of the same law, with respect to its amendment of Section 114(C) of the NIRC.
The first part of my discussion pertains to the petitions in G.R. Nos. 168056, 168207, 168463,
and 168730, while the second part is devoted to what I deem the most crucial issue before the
Court, the petition in G.R. No. 168461.
I.
Undue Delegation and the Increase

Of the VAT Rate
My first point pertains to whether or not Sections 4, 5 and 6 of the E-VAT Law constitutes an
undue delegation of legislative power. In appreciating the aspect of undue delegation as regards
taxation statutes, the fundamental point remains that the power of taxation is inherently
legislative,3 and may be imposed or revoked only by the legislature.4 In tandem with Section 1,
Article VI of the Constitution which institutionalizes the law-making power of Congress, Section
24 under the same Article crystallizes this principle, as it provides that "[a]ll appropriation,
revenue or tariff bills shall originate exclusively in the House of Representatives."5
Consequently, neither the executive nor judicial branches of government may originate tax
measures. Even if the President desires to levy new taxes, the imposition cannot be done by mere
executive fiat. In such an instance, the President would have to rely on Congress to enact tax
laws.
Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of
government or private persons, unless its delegation is authorized by the Constitution itself.6 In
this regard, the situation stands different from that in the recent case Southern Cross v.
PHILCEMCOR,7 wherein I noted in my ponencia that the Tariff Commission and the DTI
Secretary may be regarded as agents of Congress for the purpose of imposing safeguard
measures. That pronouncement was made in light of Section 28(2) Article VI, which allows
Congress to delegate to the President through law the power to impose tariffs and imposts,
subject to limitations and restrictions as may be ordained by Congress. In the case of taxes, no
such constitutional authorization exists, and the discretion to ascertain the rates, subjects, and
conditions of taxation may not be delegated away by Congress.
However, as the majority correctly points out, the power to ascertain the facts or conditions as
the basis of the taking into effect of a law may be delegated by Congress,8 and that the details as
to the enforcement and administration of an exercise of taxing power may be delegated to
executive agencies, including the power to determine the existence of facts on which its
operation depends.9
Proceeding from these principles, Sections 4, 5, and 6 of the E-VAT Law warrant examination.
The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby 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.
and one-half percent 1 %).
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
(12%) after any of the following conditions has been satisfied.
(i) national value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %).
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.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceed same and
on-half percent (1 %).
The petitioners deem as noxious the proviso common to these provisions that "the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%)," after the satisfaction of the twin conditions that
value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or that the national government deficit as a
percentage of GDP of the previous year exceed same and on-half percent (1 %).
At first blush, it does seem that the assailed provisions are constitutionally deficient. It is
Congress, and not the President, which is authorized to raise the rate of VAT from 10% to 12%,
no matter the circumstance. Yet a closer analysis of the proviso reveals that this is not exactly the
operative effect of the law. The qualifier "shall" denotes a mandatory, rather than discretionary
function on the part of the President to raise the rate of VAT to 12% upon the existence of any of
the two listed conditions.
Since the President is not given any discretion in refusing to raise the VAT rate to 12%, there is
clearly no delegation of the legislative power to tax by Congress to the executive branch. The use
of the word "shall" obviates any logical construction that would allow the President leeway in
not raising the tax rate. More so, it is accepted that the principle of constitutional construction
that every presumption should be indulged in favor of constitutionality and the court in
considering the validity of the 'statute in question should give it such reasonable construction as
can be reached to bring it within the fundamental law.10 While all reasonable doubts should be
resolved in favor, of the constitutionality of a statute,11 it should necessarily follow that the
construction upheld should be one that is not itself noxious to the Constitution.
Congress should be taken to task for imperfect draftsmanship at least. Much trouble would have
been avoided had the provisos instead read: "that effective January 1, 2006, the rate of valueadded tax shall be raised to twelve percent (12%), after any of the following conditions has been
satisfied xxx." This, after all is the operative effect of the provision as it stands. In relation to the
operation of the tax increase, the denominated role of the President and the Secretary of Finance
may be regarded as a superfluity, as their imprimatur as a precondition to the increase of the VAT
rate must have no bearing.
Nonetheless, I cannot ignore the fact that both the President and the Secretary of Finance have
designated roles in the implementation of the tax increase. Considering that it is Congress, and
not these officials, which properly have imposed the increase in the VAT rate, how should these
roles be construed?
The enactment of a law should be distinguished from its implementation. Even if it is Congress
which exercises the plenary power of taxation, it is not the body that administers the
implementation of the tax. Under Section 2 of the National Internal Revenue Code (NIRC), the
assessment and collection of all national internal revenue taxes, and the enforcement of all
forefeitures, penalties and fines connected therewith had been previously delegated to the Bureau
of Internal Revenue, under the supervision and control of the Department of Finance.12
Moreover, as intimated earlier, Congress may delegate to other components of the government
the power to ascertain the facts or conditions as the basis of the taking into effect of a law. It
follows that ascertainment of the existence of the two conditions precedent for the increase as
stated in the law could very well be delegated to the President or the Secretary of Finance.13
Nonetheless, the apprehensions arise that the process of ascertainment of the listed conditions
delegated to the Secretary of Finance and the President effectively vest discretionary authority to
raise the VAT rate on the President, through the subterfuges that may be employed to delay the
determination, or even to manipulate the factual premises. Assuming arguendo that these feared
abuses may arise, I think it possible to seek judicial enforcement of the increased VAT rate, even
without the participation or consent of the President or Secretary of Finance, upon indubitable
showing that any of the two listed conditions do exist. After all, the Court is ruling that the
increase in the VAT rate is mandatory and beyond the discretion of the President to impose or
delay.
The majority states that in making the recommendation to the President on the existence of either
of the two conditions, the Secretary of Finance is acting as the agent of the legislative branch, to
determine and declare the event upon which its expressed will is to take effect.14 This recognition
of agency must be qualified. I do not doubt the ability of Congress to delegate to the Secretary of
Finance administrative functions in the implementation of tax laws, as it does under Section 2 of
the NIRC. Yet it would be impermissible for Congress to delegate to the Secretary of Finance the
plenary function of enacting a tax law. As stated earlier, the situation stands different from that
in Southern Cross wherein the Constitution itself authorizes the delegation by Congress through
a law to the President of the discretion to impose tariff measures, subject to restrictions and
limitations provided in the law.15 Herein, Congress cannot delegate to either the President or the
Secretary of Finance the discretion to raise the tax, as such power belongs exclusively to the
legislative branch.
Perhaps the term "agency" is not most suitable in describing the delegation exercised by
Congress in this case, for agency implies that the agent takes on attributes of the principal by
reason of representative capacity. In this case, whatever "agency" that can be appreciated would
be of severely limited capacity, encompassing as it only could the administration, not enactment,
of the tax measure.
I do not doubt the impression left by the provisions that it is the President, and not Congress,
which is authorized to raise the VAT rate. On paper at least, these imperfect provisions could be
multiple sources of mischief. On the political front, whatever blame or scorn that may be
attended with the increase of the VAT rate would fall on the President, and not on Congress
which actually increased the tax rate. On the legal front, a President averse to increasing the VAT
rate despite the existence of the two listed conditions may take refuge in the infelicities of the
provision, and refuse to do so on the ground that the law, as written, implies some form of
discretion on the part of the President who was, after all, "authorized" to increase the tax rate. It
is critical for the Court to disabuse this notion right now.
The Continued Viability of
Tolentino v. Secretary of Finance
One of the more crucial issues now before us, one that has seriously divided the Court, pertains
to the ability of the Bicameral Conference Committee to introduce amendments to the final bill
which were not contained in the House bill from which the E-VAT Law originated. Most of the
points addressed by the petitioners have been settled in our ruling in Tolentino v. Secretary of
Finance,16 yet a revisit of that precedent is urged upon this Court. On this score, I offer my
qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play: Sections 24 and 26(2), Article VI of the
Constitution. They read:
Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
Representatives, but the Senate may propose or concur with amendments.
Section 26(2): No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter,
Section 24 is also known as the origination clause, which derives origin from British practice.
From the assertion that the power to tax the public at large must reside in the representatives of
the people, the principle evolved that money bills must originate in the House of Commons and
may not be amended by the House of Lords.17 The principle was adopted across the shores in the
United States, and was famously described by James Madison inThe Federalist Papers as
follows:
This power over the purse, may in fact be regarded as the most compleat and effectual weapon
with which any constitution can arm the immediate representatives of the people, for obtaining a
redress of every grievance, and for carrying into effect every just and salutary measure.18
There is an eminent difference from the British system from which the principle emerged, and
from our own polity. To this day, only members of the British House of Commons are directly
elected by the people, with the members of the House of Lords deriving their seats from
hereditary peerage. Even in the United States, members of the Senate were not directly elected
by the people, but chosen by state legislatures, until the adoption of the Seventeenth Amendment
in 1913. Hence, the rule assured the British and American people that tax legislation arises with
the consent of the sovereign people, through their directly elected representatives. In our country
though, both members of the House and Senate are directly elected by the people, hence the
vitality of the original conception of the rule has somewhat lost luster.
Still, the origination clause deserves obeisance in this jurisdiction, simply because it is provided
in the Constitution. At the same time, its proper interpretation is settled precedent, as enunciated
in Tolentino:
To begin with, it is not the law but the revenue bill which is required by the Constitution to
"originate exclusively" in the House of Representatives. It is important to emphasize this,
because a bill originating in the House may undergo such extensive changes in the Senate that
the result may be a rewriting of the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is important to note is that, as a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the
bill which initiated the legislative process culminating in the enactment of the law must
substantially be the same as the House bill would be to deny the Senate's power not only to
"concur with amendments" but also to " propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House
superior to the Senate.19
The vested power of the Senate to " 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 inTolentino 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, 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".20 Evidently, "Congress" means both Houses, such that a bill
approved by the Senate but not by the House is not presented to the President for approval. There
is obviously a need for joint concurrence by the House and Senate of a bill before it is
transmitted to the President, but the Constitution does not provide how such concurrence is
acquired. This lacuna has to be filled, otherwise no bill may be transmitted to the President.
Even if the Bicameral Conference Committee is not a constitutionally organized body, it has
existed as the necessary conclave for both chambers of Congress to reconcile their respective
versions of a prospective law. The members of the Bicameral Conference Committee may
possess in them the capacity to represent their particular chamber, yet the collective is neither the
House nor the Senate. Hence, the procedure contained in Section 26(2), Article VI cannot apply
to the Bicameral Conference Committee.
Tellingly, the version approved by the Bicameral Conference Committee still undergoes
deliberation and approval by both Houses. Only one vote is taken to approve the reconciled bill,
just as only one vote is taken in order to approve the original bill. Certainly, it could not be
contended that this final version surreptitiously evades approval of either the House or Senate.
The second front concerns the scope and limitations of the Bicameral Conference Committee to
amend, delete, or otherwise modify the bills as approved by the House and the Senate.
Tolentino adduced the principle, adopted from American practice, that the version as approved by
the Bicameral Conference Committee need only be germane to the subject of the House and
Senate bills in order to be valid.21The majority, in applying the test of germaneness, upholds the
contested provisions of the E-VAT Law. Even the members of the Court who prepared to strike
down provisions of the law applying germaneness nonetheless accept the basic premise that such
test is controlling.
I agree that any amendment made by the Bicameral Conference Committee that is not germane
to the subject matter of the House or Senate Bills is not valid. It is the only valid ground by
which an amendment introduced by the Bicameral Conference Committee may be judicially
stricken.
The germaneness standard which should guide Congress or the Bicameral Conference
Committee should be appreciated in its normal but total sense. In that regard, my views
contrast with that of Justice Panganiban, who asserts that provisions that are not "legally
germane" should be stricken down. The legal notion of germaneness is just but one
component, along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the enactment of
laws. After all, factors such as economics or politics are expected to cast a pervasive influence on
the legislative process in the first place, and it is essential as well to allow such "non-legal"
elements to be considered in ascertaining whether Congress has complied with the criteria of
germaneness.
Congress is a political body, and its rationale for legislating may be guided by factors other
than established legal standards. I deem it unduly restrictive on the plenary powers of
Congress to legislate, to coerce the body to adhere to judge-made standards, such as a
standard of "legal germaneness". The Constitution is the only legal standard that Congress
is required to abide by in its enactment of laws.
Following these views, I cannot agree with the position maintained by the Chief Justice, Justices
Panganiban and Azcuna that the provisions of the law that do not pertain to VAT should be
stricken as unconstitutional. These would include, for example, the provisions raising corporate
income taxes. The Bicameral Conference Committee, in evaluating the proposed amendments,
necessarily takes into account not just the provisions relating to the VAT, but the entire revenue
generating mechanism in place. If, for example, amendments to non-VAT related provisions of
the NIRC were intended to offset the expanded coverage for the VAT, then such amendments are
germane to the purpose of the House and Senate Bills.
Moreover, it would be myopic to consider that the subject matter of the House Bill is solely the
VAT system, rather than the generation of revenue. The majority 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 countrys dire fiscal situation.
The mere fact that the law is popularly known as the E-VAT Law, or that most of its provisions
pertain to the VAT, or indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the VAT system. As the
Court noted in Tatad v. Secretary of Energy:22
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential violates the provision 17
of the Constitution requiring every law to have only one subject which should be expressed in its
title. We do not concur with this contention. As a policy, this Court has adopted a liberal
construction of the one title - one subject rule. We have consistently ruled that the title need
not mirror, fully index or catalogue all contents and minute details of a law. A law having a
single general subject indicated in the title may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the
method and means of carrying out the general subject. We hold that section 5(b) providing
for tariff differential is germane to the subject of R.A. No. 8180 which is the deregulation of the
downstream oil industry. The section is supposed to sway prospective investors to put up
refineries in our country and make them rely less on imported petroleum.23
I submit that if the amendments are attuned to the goal of revenue generation, the stated purpose
of the original House Bills, then the test of germaneness is satisfied. It might seem that the goal
of revenue generation, which is stated in virtually all tax or tariff bills, is so encompassing in
scope as to justify the inclusion by the Bicameral Conference Committee of just about any
revenue generation measure. This may be so, but it does not mean that the test of germaneness
would be rendered inutile when it comes to revenue laws.
I do believe that the test of germaneness was violated by the E-VAT Law in one regard. Section
21 of the law, which was not contained in either the House or Senate Bills, imposes restrictions
on the use by local government units of their incremental revenue from the VAT. These
restrictions are alien to the principal purposes of revenue generation, or the purposes of
restructuring the VAT system. I could not see how the provision, which relates to budgetary
allocations, is germane to the E-VAT Law. Since it was introduced only in the Bicameral
Conference Committee, the test of germaneness is essential, and the provision does not pass
muster. I join Justice Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional.
I also offer this brief comment regarding the deletion of the so-called "no pass on" provisions,
which several of my colleagues deem unconstitutional. Both the House and Senate Bills
contained these provisions that would prohibit the seller/producer from passing on the cost of the
VAT payments to the consumers. However, an examination of the said bills reveal that the "no
pass on" provisions in the House Bill affects a different subject of taxation from that of the
Senate Bill. In the House Bill No. 3705, the taxpayers who are prohibited from passing on the
VAT payments are the sellers of petroleum products and electricity/power generation companies.
In Senate Bill No. 1950, no prohibition was adopted as to sellers of petroleum products, but
enjoined therein are electricity/power generation companies but also transmission and
distribution companies.
I consider such deletions as valid, for the same reason that I deem the amendments valid. The
deletion of the two disparate "no pass on" provisions which were approved by the House in one
instance, and only by the Senate in the other, remains in the sphere of compromise that
ultimately guides the approval of the final version. Again, I point out that even while the two
provisions may have been originally approved by the House and Senate respectively, their
subsequent deletion by the Bicameral Conference Committee is still subject to approval by both
chambers of Congress when the final version is submitted for deliberation and voting.
Moreover, the fact that the nature of the "no pass on" provisions adopted by the House
essentially differs from that of the Senate necessarily required the corrective relief from the
Bicameral Conference Committee. The Committee could have either insisted on the House
version, the Senate version, or both versions, and it is not difficult to divine that any of these
steps would have obtained easy approval. Hence, the deletion altogether of the "no pass on"
provisions existed as a tangible solution to the possible impasse, and the Committee should be
accorded leeway to implement such a compromise, especially considering that the deletion
would have remained germane to the law, and would not be constitutionally prohibited since the
prohibition on amendments under Section 26(2), Article VI does not apply to the Committee.
An outright declaration that the deletion of the two elementally different "no-pass on" provisions
is unconstitutional, is of dubious efficacy in this case. Had such pronouncement gained
endorsement of a majority of the Court, it could not result in the ipso facto restoration of the
provision, the omission of which was ultimately approved in both the House and Senate.
Moreover, since the House version of the "no pass on" is quite different from that of the Senate,
there would be a question as to whether the House version, the Senate version, or both versions
would be reinstated. And of course, if it were the Court which would be called upon to choose,
such would be way beyond the bounds of judicial power.
Indeed, to intimate that the Court may require Congress to reinstate a provision that failed to
meet legislative approval would result in a blatant violation of the principle of separation of
powers, with the Court effectively dictating to Congress the content of its legislation. The Court
cannot simply decree to Congress what laws or provisions to enact, but is limited to reviewing
those enactments which are actually ratified by the legislature.
II.
My earlier views, as are the submissions I am about to offer, are rooted in nothing more than
constitutional interpretation. Perhaps my preceding discussion may lead to an impression that I
whole-heartedly welcome the passage of the E-VAT Law. Yet whatever relief I may have over the
enactment of a law designed to relieve our countrys financial woes are sadly obviated with the
realization that a key amendment introduced in the law is not only unconstitutional, but of fatal
consequences. The clarion call of judicial review is most critical when it stands as the sole barrier
against the deprivation of life, liberty and property without due process of law. It becomes even
more impelling now as we are faced with provisions of the E-VAT Law which, though in bland
disguise, would operate as the most destructive of tax measures enacted in generations.
Tax Statutes and the Due Process Clause
It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of
Rights. This task is at the heart not only of judicial review, but of the democratic system, for the
fundamental guarantees in the Bill of Rights become merely hortatory if their judicial
enforcement is unavailing. Even if the void law in question is a tax statute, or one that
encompasses national economic policy, the courts should not shirk from striking it down
notwithstanding any notion of deference to the executive or legislative branch on questions of
policy. Neither Congress nor the President has the right to enact or enforce unconstitutional laws.
The Bill of Rights is by no means the only constitutional yardstick by which the validity of a tax
law can be measured. Nonetheless, it stands as the most unyielding of constitutional standards,
given its position of primacy in the fundamental law way above the articles on governmental
power.24 If the question lodged, for example, hinges on the proper exercise of legislative powers
in the enactment of the tax law, leeway can be appreciated in favor of affirming the legislatures
inherent power to levy taxes. On the other hand, no quarter can be ceded, no concession yielded,
on the peoples 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".25 The purpose of the guaranty is to
prevent governmental encroachment against the life, liberty and property of individuals; to
secure the individual from the arbitrary exercise of the powers of the government, unrestrained
by the established principles of private rights and distributive justice; to protect property from
confiscation by legislative enactments, from seizure, forfeiture, and destruction without a trial
and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law.26
In Magnano Co. v. Hamilton,27 the U.S. Supreme Court recognized that the due process clause
may be utilized to strike down a taxation statute, "if the act be so arbitrary as to compel the
conclusion that it does not involve an exertion of the taxing power, but constitutes, in substance
and effect, the direct exertion of a different and forbidden power, as, for example, the
confiscation of property."28 Locally, Sison v. Ancheta29 has long provided sanctuary for persons
assailing the constitutionality of taxing statutes. The oft-quoted pronouncement of Justice
Fernando follows:
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It
is the strongest of all the powers of government." It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as petitioner does, to invalidate in

appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803
dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." In a
separate opinion in Graves v. New York, Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of rhetoric [attributable to] the intellectual
fashion of the times [allowing] a free use of absolutes." This is merely to emphasize that it is not
and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of
Mr. Justice Holmes's pen: 'The power to tax is not the power to destroy while this Court sits.'" So
it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides
any legislative or executive act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to
abide by its command, then this Court must so declared and adjudge it null. The inquiry
thus is centered on the question of whether the imposition of a higher tax rate on taxable net
income derived from business or profession than on compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they are not fixed rules but
rather broad standards, there is a need for proof of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must prevail.
5. It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can
be shown to amount to the confiscation of property. That would be a clear abuse of power.
It then becomes the duty of this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for the application of the Holmes
dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction
of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds.30
Sison pronounces more concretely how a tax statute may contravene the due process clause.
Arbitrariness, confiscation, overstepping the states jurisdiction, and lack of a public purpose are
all grounds for nullity encompassed under the due process invocation.
Yet even these more particular standards as enunciated in Sison are quite exacting, and difficult
to reach. Even the constitutional challenge posed in Sison failed to pass muster. The majority
cites Sison in asserting that due process and equal protection are broad standards which need
proof of such persuasive character to lead to such a conclusion.
It is difficult though to put into quantifiable terms how onerous a taxation statute must be before
it contravenes the due process clause.31 After all, the inherent nature of taxation is to cause pain
and injury to the taxpayer, albeit for the greater good of society. Perhaps whatever collective
notion there may be of what constitutes an arbitrary, confiscatory, and unreasonable tax might
draw more from the fairy tale/legend traditions of absolute monarchs and the oppressed peasants
they tax. Indeed, it is easier to jump to the conclusion that a tax is oppressive and unfair if it is
imposed by a tyrant or an authoritarian state.
But could an arbitrary, confiscatory or unreasonable tax actually be enacted by a democratic state
such as ours? Of course it could, but these would exist in more palatable guises. In a democratic
society wherein statutes are enacted by a representative legislature only after debate and
deliberation, tax statutes will most likely, on their face, seem fair and even-handed. After all, if
Congress passes a tax law that on facial examination is obviously harsh and unfair, it faces the
wrath of the voting public, to say nothing of the media.
In testing the validity of a tax statute as against the due process clause, I think that the Court
should go beyond a facial examination of the statute, and seek to understand how exactly it
would operate. The express terms of a statute, especially tax laws, are usually inadequate in
spelling out the practical effects of its implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of tax laws has increased with the
growing complexities of business, economic and accounting practices. These are sciences which
laymen are not normally equipped by their general education to fully grasp, hence the possible
insecurity on their part when confronted with such questions on these fields.
However, we should not cede ground to those transgressions of the peoples fundamental rights
simply because the mechanism employed to violate constitutional guarantees is steeped in
disciplines not normally associated with the legal profession. Venality cannot be allowed to
triumph simply due to its sophistication. This petition imputes in the E-VAT Law
unconstitutional oppression of the fatal variety, but in order to comprehend exactly how and why
that is so, one has to delve into the complex milieu of the VAT system. The party alleging the
laws unconstitutionality of course has the burden to demonstrate the violations in
understandable terms, but if such proof is presented, the Courts duty is to engage accordingly.
The Viability of the Clear and Present
Danger Doctrine as Counterweight
To the Shibboleths of Speculation
and Wisdom
I do not see as an impediment to the annulment of a tax law the fact that it has yet to be
implemented, or the fear that doing so constitutes an undue attack on the wisdom, rather than the
legality of a statute. However, my position in this petition has been challenged on those grounds,
and I see it fit to refute these preemptive allegations before delving into the operative aspect of
the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is only because the E-VAT

Law has yet to be implemented. No person as of yet can claim to have sustained actual injury
by reason of the implementation of the assailed provisions in G.R. No. 168461. Yet this should
not mean that the Court is impotent from declaring a provision of law as violative of the due
process clause if it is clear that its implementation will cause the illegal deprivation of life,
liberty or property without due process of
law. This is especially so if, as in this case, the injury is of mathematical certainty, and the extent
of the loss quantifiable through easy reference to the most basic of business practices.
These arguments are conjectural for the same reason that the bare statement "firing a
gunshot into the head will cause a fatal wound" would be conjectural. Some people are
lucky enough to survive gunshot wounds to the head, while many others are not. Yet just because
the fear of mortality would be merely speculative, it does not mean that there should be less
compulsion to avoid a situation of getting shot in the head.
Indeed, the Court has long responded to strike down prospective actions, even if the injury has
not yet even occurred. One of the most significant legal principles of the last century, the
"clear and present danger" doctrine in free speech cases, in fact emanates from the
prospectivity, and not the actuality of danger. The Court has not been hesitant to nullify acts
which might cause injury, owing to the presence of a clear and present danger of a substantive
evil which the State has the right to prevent. It has even extended the "clear and present danger
rule" beyond the confines of freedom of expression to the
realm of freedom of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.32
Justice Teodoro Padilla goes further in his concurring opinion in Basco v. PAGCOR, and asserts
that the clear and present danger test squarely applies to the due process clause: "The courts, as
the decision states, cannot inquire into the wisdom, morality or expediency of policies
adopted by the political departments of government in areas which fall within their
authority, except only when such policies pose a clear and present danger to the life, liberty
or property of the individual."
I see no reason why the clear and present danger test cannot apply in this case, or any case
wherein a taxing statute poses a clear and present danger to the life, liberty or property of
the individual. The application of this standard frees the Court from inutility in the face of
patently unconstitutional tax laws that have been enacted but are yet to be fully
operational.
If for example, Congress deems it wise to impose the most draconian of tax measures such as
trebling the income taxes of all persons over 40, raising the gross sales tax rate to 50%, or
penalizing delinquent taxpayers with 50 lashes of the whip there certainly would be a massive
public outcry, and an expectation that the Court would immediately nullify the offensive
measures even before they are actually imposed. Applying the clear and present danger test, the
Court is empowered to strike down the noxious measures even before they are implemented. Yet
with this "bar on speculativeness" as argued by the majority, the Court could easily refuse to pay
heed to the prayers for injunctive relief, and instead demand that the taxing subjects must first
suffer before the Court can act.
In the same vein, the claim that my arguments strike at the wisdom, rather than the
constitutionality of the law are misplaced. Concededly, the assailed provisions of the E-VAT law
are basically unwise. But any provision of law that directly contradicts the Constitution,
especially the Bill of Rights, are similarly unwise, as they run inconsistent with the fundamental
law of the land, the enunciated state policies and the elemental guarantees assured by the State to
its people. Not every unwise law is unconstitutional, but every unconstitutional law is
unwise, for an unconstitutional law contravenes a primordial principle or guarantee on
which our polity is founded.
If it can be shown that the E-VAT Law violates these provisions of the Constitution, especially
the due process clause, then the Court should accordingly act and nullify. Such is the essence of
judicial review, which stands as the sole barrier to the implementation of an unconstitutional law.
The Separate Opinion of Justice Panganiban notes that "[t]he Court cannot step beyond the
confines of its constitutional power, if there is absolutely no clear showing of grave abuse of
discretion in the enactment of the law"33. This, I feel, is an unduly narrow view of judicial
review, implying that such merely encompasses the procedural aspect by which a law is enacted.
If the policy of the law, and/or the means by which such policy is implemented run counter to the
Constitution, then the Court is empowered to strike down the law, even if the legislative and
executive branches act within their discretion in legislating and signing the law.
It is also asserted that if the implementation of the 70% cap imposes an unequal effect on
different types of businesses with varying profit margins and capital requirements, then the
remedy would be an amendment of the law.34 Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can take cold comfort in the
ability of the legislature to amend its enactments as the defense against unconstitutional laws,
what remains then as the function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to strike down unconstitutional
laws. In fact, the long-standing tradition has been reliance on the judicial branch, and not the
legislative branch, for salvation from unconstitutional laws.
I do recognize that the Separate Opinion of Justice Panganiban ultimately proceeds from the
premise that the assailed provisions of the E-VAT Law may be merely unwise, but not
unconstitutional. Hence, its preference to rely on Congress to amend the offending provisions
rather than judicial nullification. But I maintain that the assailed provisions of the E-VAT Law
violate the due process clause of the Constitution and must be stricken down.
The Nature of VAT
To understand why Sections 8 and 12 of the E-VAT law contravenes the due process clause, it is
essential to understand the nature of the value-added tax itself. Filipino consumers may
comprehend VAT at its elemental form, having been accustomed for several years now in paying
an extra 10% of the listed selling price for a wide class of consumer goods. From the perspective
of the end consumer, such as the patron who purchases a meal from a fastfood restaurant, VAT is
simply a tax on transactions involving the sale of goods. The tax is shouldered by the buyer, and
is based on a percentage of the purchase price. Since an excise or percentage tax shares the same
characteristics, there could be some confusion as between such taxes and the VAT.
However, VAT is distinguishable from the standard excise or percentage taxes in that it is
imposable not only on the final transaction involving the end user, but on previous stages as well
so long as there was a sale involved. Thus, VAT does not simply pertain to the extra percentage
paid by the buyer of a fast-food meal, but also that paid by restaurant itself to its suppliers of raw
food products. This multi-stage system is more acclimated to the vagaries of the modern
industrial climate, which has long surpassed the stage when there was only one level of transfer
between the farmer who harvests the crop and the person who eats the crop. Indeed, from the
extraction or production of the raw material to its final consumption by a user, several
transactions or sales materialize. The VAT system assures that the government shall reap income
for every transaction that is had, and not just on the final sale or transfer.
The European Union, which has long required its member states to apply the VAT system,
provided the following definition of the tax which I deem clear and comprehensive:
The principle of the common system of value added tax involves the application to goods and
services of a general tax on consumption exactly proportional to the price of the goods and
services, whatever the number of transactions that take place in the production and
distribution process before the stage at which tax is charged.
On each transaction, value added tax, calculated on the price of the goods or services at the rate
applicable to such goods or services, shall be chargeable after deduction of the amount of
value added tax borne directly by the various cost components.35
The above definition alludes to a key characteristic of the VAT system, that the imposable tax
remains proportional to the price of goods and services no matter the number of transactions that
takes place.
There is another key characteristic of the VAT that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or the consumer, that
ultimately shoulders the tax. Despite its name, VAT is generally not intended to be a tax on value
added, but rather as a tax on consumption. Hence, there is a mechanism in the VAT system that
enables firms to offset the tax they have paid on their own purchases of goods and services
against the tax they charge on their sales of goods and services.36 Section 105 of the NIRC
assures that "the amount of tax may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services." The assailed provisions of the E-VAT law strike at the heart of
this accepted principle.
And there is one final basic element of the VAT system integral to this disquisition: the mode by
which the tax is remitted to the government. In simple theory, the VAT payable can be remitted to
the government immediately upon the occurrence of the transaction, but such a demand proves
excessively unwieldy. The number of VAT covered transactions a modern enterprise may
contract in a single day, plus the recognized principle that it is the final end user who ultimately
shoulders the tax; render the remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the government but to the seller, who
then collates the VAT received and remits it to the government every quarter. The process may
seem simple if cast in this manner, but there is a wrinkle, due to the offsetting mechanism
designed to ultimately make the end consumer bear the cost of the VAT.
The Concepts of Input and
Output VAT
This mechanism is employed through the introduction of two concepts, the input tax and the
output tax. Section 110(A) of the National Internal Revenue Code defines the input tax as the
VAT due from or paid by a VAT-registered person on the importation of goods or local purchase
of goods and services in the course of trade or business, from a VAT registered person.
Let us put this in operational terms. A VAT registered person, engaged in an enterprise,
necessarily purchases goods such as raw materials and machinery in order to produce consumer
goods. The purchase of such raw materials and machineries is subject to VAT, hence the
enterprise pays an additional 10% of the purchase price to the supplier as VAT. This extra amount
paid by the enterprise constitutes its input VAT. The enterprise likewise pays input VAT when it
purchases services covered by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately shouldered by the end consumer, the
VAT system allows for a mechanism by which the business is able to recover the input VAT that
it paid. This comes into play when the business, having transformed the raw materials into
consumer goods, sells these goods to the public. As widely known, the consumer pays to the
business an additional amount of 10% of the purchase price as VAT. As to the business, this VAT
payments it collects from the consumer represents output VAT, which is formally described under
Section 110(A) of the NIRC as "the value-added tax due on the sale or lease of taxable goods or
properties or services by" by any VAT-registered person.
The output VAT collected by the business from the consumers accumulates, until the end of
every quarter, when the enterprise is obliged to remit the collected output VAT to the
government. This is where the crediting mechanism comes into play. Since the business is
entitled to recover the prepaid input VAT, it does so in every quarter by applying the amount of
prepaid input VAT against the collected output VAT which is to be remitted. If the output VAT
collected exceeds the prepaid input VAT, then the amount of input VAT is deducted from the
output VAT, and it is entitled to remit only the remainder as output VAT to the government. To
illustrate, if Business X collects P1,000,000.00 as output VAT and incurs P500,000.00 as input
VAT, the P500,000.00 is deducted from theP1,000,000.00 output VAT, and X is required to remit
only P500,000.00 of the output VAT it collected from customers.
On the other hand, if the input VAT prepaid exceeds the output VAT collected, then the business
need not remit any amount as output VAT for the quarter. Moreover, the difference between the
input VAT and the output VAT may be credited as input VAT by the business in the succeeding
quarter. Thus, if in the First Quarter of a year, Business X prepays P1,000,000.00 as input VAT,
and collects only P500,000.00 as output VAT, it need not remit any amount of output VAT to the
government. Moreover, in the Second Quarter, Business X can credit the remaining P500,000.00
as part of its input VAT for that quarter. Hence, if in the Second Quarter, X actually
prepays P400,000.00 as input VAT, and collects P500,000.00 as output VAT, it may add
the P500,000.00 input VAT from the previous quarter to the P400,000.00 prepaid in the current
quarter, bringing the total input VAT it could claim to P900,000.00. Since the input VAT
of P900,000.00 now exceeds the output VAT collected ofP500,000, then X need not remit any
output VAT as well to the government for the Second Quarter.
However, reality is far bleaker than that befaced by Business X. The VAT collected and remitted
is not the most relevant statistic evaluated by the business. The figure of primary concern of the
enterprise would be the profit margin, which is simply the excess of revenue less expenditures.
Revenue is derived from the gross sales of the business. Expenditures encompass all expenses
incurred by the business including overhead expenses, wages and purchases of capital goods.
Crucially, expenditures would include the input VAT prepaid by the business on its capital
expenditures.
Since a significant amount of the capital outlay incurred by a business is subjected to the
prepayment of input taxes, the necessity of recovering these losses through the output VAT
collected becomes more impelling. These output taxes are obviously proportional to the volume
of gross sales the higher the gross sales, the higher the output VAT collected. The output
taxes collected on sales answer for not only those input taxes paid on the purchase of the
raw materials, but also for the input taxes paid on the multifarious overhead expenses
covered by VAT. The burden carried by the sales volume on the stability, if not survival of the
business thus just became more crucial. The maintenance of the proper equilibrium is not an easy
matter. Increasing the selling price of the goods sold does not necessarily increase the gross
sales, as it could have the counter-effect of repelling the consumer and diminishing the number
of goods sold. At the same time, keeping the selling price low may increase the volume of goods
sold, but not necessarily the amount of gross sales.
Profit is a chancy matter, and in cases of small to medium enterprises, usually small if any. It is
quite common for retail and distribution enterprises to incur profits of less than 1% of their gross
revenues. Low profitability is not an automatic badge of poor business skills, but a reality
dictated by the laws of the marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up with a higher input tax than
output tax in a given quarter. This would be especially true for small to medium enterprises who
do not reap sufficient profits from its business in the first place, and for those firms that opt to
also invest in capital expenses in addition to the overhead. Whatever miniscule profit margins
that can be obtained usually spell the difference between life and death of the business.
The possibility of profit is further diminished by the fact that businesses have to shoulder the
input VAT in the purchase of their capital expenses. Yet the erstwhile VAT system was not
tainted by the label of oppressiveness and neither did it bear the confiscatory mode. This
was because of the immediate relief afforded from the input taxes paid by the crediting
system. In theory, VAT is not supposed to affect the profit margin. If such margin is
affected, it is only because of the prepayment of the input taxes, and this should be
remedied by the immediate recovery through the crediting system of the settled input taxes.
The new E-VAT law changes all that, and puts in jeopardy the survival of small to medium
enterprises.
The Effects of the 70% Cap on Creditable Input VAT
The first radical shift introduced by the E-VAT law to the creditable input system the 70% cap
on the creditable input tax that may be carried over into the next quarter is provided in Section
8 of the law, which amends Section 110(A) of the NIRC, among others. Section 110(A) as
amended would now read:
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters. Provided, That
the input tax inclusive of input VAT carried over from the previous quarter that may be
credited in every quarter shall not exceed seventy percent (70%) of the output
VAT: Provided, however, That any input tax attributable to zero rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, subject to
the provisions of Section 112. (emphasis supplied)
All hope for entrepreneurial stability is dashed with the imposition of the 70% cap. Under the EVAT Law, the business, regardless of stability or financial capability, is obliged to remit to the
government every quarter at least 30% of the output VAT collected from customers, or roughly
3% of the amount of gross sales. Thus, if a quarterly gross sales of Y Business
totaled P1,000,000, and Y is prudent enough to keep its capital expenses down toP980,000, it
would then appear on paper that Y incurred a profit of P20,000. However, with the 70% cap, Y
would be obliged to remit to the government P30,000, thus wiping out the profit margin for the
quarter. Y would be entitled to credit the excess input VAT it prepaid for the next quarter, but the
continuous operation of the 70% cap obviates whatever benefits this may give, and cause the
accumulation of the unutilized creditable input VAT which should be returned to the business.
The difference is even more dramatic if seen how the unutilized creditable input VAT
accumulates over a one year period. To illustrate, Business Y prepays the following amounts of
input VAT over a one-year period: P100,000.00 - First Quarter; P100,000.00 2nd
Quarter; P34,000.00 3rd Quarter; and P50,000.00 4th Quarter. On the other hand, Y collects
the following amounts of output VAT from consumers: P60,000.00 - First Quarter;P60,000.00
2nd Quarter; P100,000.00 3rd Quarter; and P50,000.00 4th Quarter. Applying the 70% cap,
which would limit the amount of the declarable input VAT to 70% in a quarter, the following
results obtain, as presented in tabular form:
Particulars
Output VAT
Input VAT
(Actual) + Carry
Over
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
60,000
60,000
100,000
50,000
100,000
100,000 [input]
+58,000
34,000
50,000
[input]
[input]
+116,000
+80,000
[excess
creditable]
[excess
creditable]
150,000
130,000
[excess creditable]
158,000
DeclarableInput
VAT (70% of
output VAT)
(60,000x70%)
42,000
(60,000x70%) (100,000x70%) (50,000x70%)

42,000
70,000
35,000
Lower of actual (60,000 -42,000) (60,000 -42,000)

and 70% cap
allowable
18,000
18,000
(100,00070,000)
(50,00035,000)
30,000
15,000
(150,000-
(130,00035,000)
VAT
Payable
CreditableInput
VAT
(100,000
42,000)
(158,000
42,000)
70,000)
58,000
116,000
95,000
80,000
This stands in contrast to same business VAT accountability under the present system, using the
same variables of output VAT and input VAT. The need to distinguish a declarable input VAT is
obviated with the elimination of the 70% cap.
Particulars 1st Quarter
Output VAT
Input VAT
(Actual) +
Carry Over
2nd Quarter
60,000
3rd Quarter
4th Quarter
60,000
100,000
50,000
100,000 100,000 [input]
34,000
50,000
+40,000
[input]
[input]
[excess
creditable]
+80,000
+ 14,000
[excess
creditable]
(excess
140,000
creditable)
114,000
50,000
VAT Payable
Creditable
40,000
80,000
14,000
14,000
Input VAT
The difference is dramatic, as is the impact on the businesss profit margin and available cash on
hand. Under normal conditions, small to medium enterprises are already encumbered with the
likelihood of obtaining only a minimal profit margin. Without the 70% cap, those businesses
would nonetheless be able to expect an immediate return on its input taxes earlier advanced,
taxes which under the VAT system it is not supposed to shoulder in the first place. However, with
the 70% cap in place, the unutilized input taxes would continue to accumulate, and the enterprise
precluded from immediate recovery thereof. The inability to utilize these input taxes, which
could spell the difference between profit and loss, solvency and insolvency, will eventually
impair, if not kill off the enterprise.
The majority fails to consider one of the most important concepts in finance, time value for
money.37 Simply put, the value of one peso is worth more today than in 2006. Money that you
hold today is worth more because you can invest it and earn interest.38 By reason of the 70% cap,
the amount of input VAT credit that remains unutilized would continue accumulate for months
and years. The longer the amount remains unutilized, the higher the degree of its depreciation in
value, in accordance with the concept of time value of money. Even assuming that the business
eventually recovers the input VAT credit, the sum recovered would have decreased in practical
value.
It would be sad, but fair, if a business ceases because of its inability to compete with other
businesses. It would be utter malevolence to condemn an enterprise to death solely through
the employment of a deceptive accounting wizardry. For the raison detre of this 70% cap is
to make it appear on paper that the government is more solvent than it actually
is. Conceding for the nonce, there is a temporary advantage gained by the government by this
70% cap, as the steady remittance by businesses of the 30% output VAT would assure a cash
flow. Such collection may only momentarily resolve an endemic problem in our local tax system,
the problem of collection itself.
If the 70% cap was designed in order to enhance revenue collection, then I submit that the means
employed stand beyond reason. If sheer will proves insufficient in assuring that the State all
taxes due it, there should be allowable discretion for the government to formulate creative means
to enhance collection. But to do so by depriving low profit enterprises of whatever meager
income earned and consequently assuring the death of these industries goes beyond any valid
State purpose.
Only stable businesses with substantial cash flows, or extraordinarily successful enterprises will
be able to remain in operation should the 70% cap be retained. The effect of the 70% cap is to
effectively impose a tax amounting to 3% of gross revenue. The amount may seem insignificant
to those without working knowledge of the ways of business, but anybody who is actually
familiar with business would be well aware the profit margins of the retailing and distribution
sectors typically amount to less than 1% of the gross revenues. A taxpayer has to earn a margin
of at least 3% on gross revenue in order to recoup the losses sustained due to the 70% cap. But as
stated earlier, profits are chancy, and the entrepreneur does not have full control of the conditions
that lead to profit.
Even more galling is the fact that the 70% cap, oppressive as it already is to the business
establishment, even limits the options of the business to recover the unutilized input VAT credit.
During the deliberations, the argument was raised that the problem presented by the 70% cap
was a business problem, which can only be solved by business. Yet there is only one viable
option for the enterprise to resolve the problem, and that is to increase the selling price of
goods.39 It would be incorrect to assume that increase the volume of the goods sold could solve
the problem, since for items with the same purchasing cost, the effect of the 70% cap remains
constant regardless of an increase in volume.
But the additional burden is not limited to the increase of prices by the retailer to the end
consumer. Since VAT is a transaction tax, every level of distribution becomes subject not only to
the VAT, but also to the 70% cap. The problem increases due to a cascading effect as the number
of distribution levels increases since it will result in the collection of an effective 3% percentage
tax at every distribution level.
In analyzing the effects of the 70% cap, and appreciating how it violates the due process clause,
we should not focus solely on the end consumers. Undoubtedly, consumers will face hardships
due to the increased prices, but their threshold of physical survival, as individual people, is
significantly less than that of enterprises. Somehow, I do not think the new E-VAT would
generally deprive consumers of the bare necessities such as food, water, shelter and clothing.
There may be significant deprivation of comfort as a result, but not of life.
The same does not hold true for businesses. The standard of "deprivation of life" of juridical
persons employs different variables than that of natural persons. What food and water may be for
persons, profit is for an enterprise the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month amortization period, would
mean the deprivation of profit, which is the determinative necessity for the survival of a
business.
It is easy to admonish both the consumer and the enterprise to cut back on expenditures to
survive the new E-VAT Law. However, this can be realistically expected only of the consumer.
The small/medium enterprise cannot just cut back easily on expenditures in order to survive the
implementation of the E-VAT Law. For such businesses, expenditures do not normally
contemplate unnecessary expenses such as executive perks which can be dispensed with without
injury to the enterprises. These expenditures pertain to expenses necessary for the survival of the
enterprise, such as wages, overhead and purchase of raw materials. Those three basic items of
expenditure cannot simply be reduced, as to do so with impair the ability of the business to
operate on a daily basis.
And reduction of expenditures is not the exclusive antidote to these impositions under the E-VAT
Law, as there must also be a corresponding increase in the amount of gross sales. To do so
though, would require an increase in the selling price, dampening consumer enthusiasm, and
further impairing the ability of the enterprise to recover from the E-VAT Law. This is your basic
Catch-2240 situation no matter which means the enterprise employs to recover from the E-VAT
Law, it will still go down in flames.
Section 8 of the E-VAT law, while ostensibly even-handed in application, fails to appreciate valid
substantial distinctions between large scale enterprises and small and medium enterprises. The
latter group, owing to the limited capability for capital investment, subsists on modest profit
margins, whereas the former expects, by reason of its substantial capital investments, a high
margin. In essentially prohibiting the recovery of small profit margins, the E-VAT law
effectively sends the message that only high margin businesses are welcome to do business
in the Philippines. It stifles any entrepreneurial ambitions of Filipinos unfortunate enough
to have been born poor yet seek a better life by sacrificing all to start a small business.
Among the enunciated State policies in the Constitution, as stated in Section 20, Article II, is that
"the State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments."41 The provision, as with other
declared State policies in the Constitution, have sufficient import and consequence such that in
assessing the constitutionality of the governmental action, these provisions should be considered
and weighed as against the rationale for the assailed State action.42 The incompatibility of the
70% cap with this provision is patent.
Pilipinas Shell Dealers, on whom the burden to establish the violation of due process and equal
protection lies, offers the following chart of the income statement of a typical petroleum dealer:
QUARTERLY PROFIT AND LOSS STATEMENT

DEALER "A"
Price
VAT (without 70% cap) VAT (with 70%

cap)
Sales/Output
32,748,534
3,274,853.40
Cost of Sales
31,834,717
3,183,471.70
Gross Margin
Operating Expenses Nonvatable items
3,274,853.40
913,817
536,249
31,758.40
317,584
Vatable Items
Total Cost
853,833
Net Profit
59,984
Total Input Tax
VAT Payable
3,215,230.10
2,292,397.38
59,623.30
982,456.02
Unutilized Input VAT 922,832.72

*computed by multiplying output VAT by 70% [3,274,853.40 x 70% = 2,292.397.38]
The presentation of the Pilipinas Shell Dealers more or less jibes with my own observations on
the impact of the 70% cap. The dealer whose income is illustrated above has to outlay a cash
amount of P922,832.72 more than what would have been shelled out if the 70% cap were not in
place. Considering that the net profit of the dealer is only P59,984.00, the consequences could
very well be fatal, especially if these state of events persist in succeeding quarters.
The burden of proof was on the Pilipinas Shell Dealers to prove their allegations, and
accordingly, these figures have been duly presented to the Court for appreciation and evaluation.
Instead, the majority has shunted aside these presentations as being merely theoretical, despite
the fact that they present a clear and present danger to the very life of our nations enterprises.
The majoritys 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 Panglossian43optimism.
The obligation of the majority to refute on the merits the arguments of the Petroleum Dealers
becomes even more grave considering that the respondents have abjectly failed to convincingly
dispute the claims. During oral arguments, respondents attempted to counter the arguments that
the 70% cap was oppressive and confiscatory by presenting the following illustration, which I
fear is severely misleading:
Slide 1
Item Cost VAT
Sales 1,000,000.00 100,000.00

Purchases 800,000.00 80,000.00
Due BIR without cap Due BIR with 70% cap
Output VAT 100,000.00 Output VAT 100,000.00
Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00

Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
Excess Input VAT 10,000.00
Carry-over to next quarter
Slide 2
___________________________________________
Item Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with 70%
cap
Output VAT 100,000.00 Output VAT 100,000.00

Actual Input VAT (60% of output VAT) 60,000.00 Allowable Input VAT 60,000.00
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Excess Input VAT 0

Carry-over to next quarter
This presentation of the respondents is grossly deceptive, as it fails to account for the excess
creditable input VAT that remains unutilized due to the 70% cap. This excess or creditable input
VAT is supposed to be carried over for the computation of the input VAT of the next quarter.
Instead, this excess or creditable input VAT magically disappears from the table of the
respondents. In their memorandum, the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondents, but taking into account the excess
creditable input VAT and extending the situation over a one-year period. I cite with approval the
following chart44 of the Pilipinas Shell Dealers:
Slide 1
Quarter 1
Item No. Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 70% cap
Output VAT 100,000.00
Allowable Input VAT 70,000.00
Net VAT Payable 30,000.00
Excess Input Vat
Carry-over to next quarter 10,000.00
Quarter 2
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Due BIR with 7-% cap
Less: Input VAT
Excess Input VAT fr. 1st Quarter 10,000.00
Input VAT-Current Qtr. 80,000.00
Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00

=========
Excess Input VAT to be carried over to next
Quarter 20,000.00
=========
Quarter 3
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 2nd Qtr. 20,000.00
=========
Excess Input VAT to be carried over to next quarter 30,000.00

==========
Quarter 4
Cost VAT
Sales 1,000,000.00 100,000.00
Purchases 800,000.00 80,000.00
Less: Input VAT
Excess Input VAT fr. 3rd Qtr. 30,000.00
========
Excess Input VAT to be carried over to next quarter 40,000.00
==========
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 governments 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 governments debts. I do see that the
70% cap temporarily allows the government to brag to the world of an increased cash flow.
But this situation would be akin to the provincial man who borrows from everybody in the
barrio in order to show off money and maintain the pretense of prosperity to visiting city
relatives. The illusion of wealth is hardly a legitimate state purpose, especially if projected
at the expense of the very business life of the country.
The majority, in an effort to belittle these concerns, points out that that the excess input tax
remains creditable in succeeding quarters. However, as seen in the above illustration, the actual
application of the excess input tax will always be limited by the amount of output taxes collected
in a quarter, as a result of the 70% cap. Thus, it is entirely possible that a VAT-registered person,
through the accumulation of unutilized input taxes, would have in a quarter an express creditable
input tax of P50,000,000, but would be allowed to actually credit only P70,000 if the output tax
collected for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers, but it is supposed to be
eventually shifted to the end-consumer. The 70% cap effectively prevents this from happening,
as it limits the ability of the business to recover the prepaid input taxes. This is unconscionable,
since in the first place, these intervening
players the manufacturers, producers, traders, retailers are not even supposed to sustain the
losses incurred by reason of the prepayment of the input taxes. Worse, they would be obliged
every quarter to pay to the government from out of their own pockets the equivalent of 30% of
the output taxes, no matter their own particular financial condition. Worst, this twin yoke on the
taxpayer of having to sustain a debit equivalent to 30% of output taxes, and having to await
forever in order to recover the prepaid taxes would impair the cash flow and prove fatal for a
shocking number of businesses which, as they now stand, have to make do with a minimum
profit that stands to be wiped out with the introduction of the 70% cap.
Nonetheless, the majority notes that the excess creditable input tax may be the subject of a tax
credit certificate, which then could be used in payment of internal revenue taxes, or a refund to
the extent that such input taxes have not been applied against output taxes.45 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:
follows:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Cancellation of VAT Registration. A person whose registration has been cancelled due
to retirement from or cessation of business or due to changes or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply
for the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
xxx
This stands in marked contrast to Section 112(B) of the NIRC as it read prior to this amendment.
Under the previous rule, a VAT-registered person was entitled to apply for the tax credit
certificate or refund paid on capital goods even while it remained in operation:
SEC. 112. Refunds or Tax Credits of Input Tax.
xxx
"(B) Capital Goods . A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may be
made only within two (2) years after the close of the taxable quarter when the importation or
purchase was made.
This provision, which could have provided foreseeable and useful relief to the VAT-registered
person, was deleted under the new E-VAT Law. At present, the refund or tax credit certificate
may only be issued upon two instances: on zero-rated or effectively zero-rated sales, and upon
cancellation of VAT registration due to retirement from or cessation of business.46 This is the
cruelest cut of all. Only after the business ceases to be may the State be compelled to repay
the entire amount of the unutilized input tax. It is like a macabre form of sweepstakes
wherein the winner is to be paid his fortune only when he is already dead. Aanhin pa ang
damo kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise recover the unutilized input VAT
could cause such prepaid amount to actually be recognized in the accounting books as a loss.
Under international accounting practices, the unutilized input VAT due to the 70% cap would not
even be recognized as a deferred asset. The same would not hold true if the 70% cap were
eliminated. Under the International Accounting Standards47, 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"48 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".49 As demonstrated, the continuous operation of the 70% cap
precludes the recovery of input VAT prepaid months or years prior. Moreover, the inability to
claim a refund or tax credit certificate until after the business has already ceased virtually renders
it improbable for the input VAT to be recovered. As such, under the International Accounting
Standards, it is with all likelihood that the prepaid input VAT, ostensibly creditable, would
actually be reflected as a loss.50 What heretofore was recognized as an asset would now, with the
imposition of the 70% cap, be now considered as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.
This leads to my next point. The majority asserts that the input tax is not a property or property
right within the purview of the due process clause.51 I respectfully but strongly disagree.
Tellingly, the BIR itself has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are transferred to the surviving
corporation by operation of law.52Assets would fall under the purview of property under the due
process clause, and if the taxing arm of the State recognizes that such property belongs to the
taxpayer and not to the State, then due respect should be given to such expert opinion.
Even under the International Accounting Standards I adverted to above, the unutilized input VAT
credit may be recognized as an asset "to the extent that it is probable that future taxable profit
will be available against which the unused tax losses and unused tax credits can be utilised"53 If
not probable, it would be recognized as a loss.54Since these international standards, duly
recognized by the Securities and Exchange Commission as controlling in this jurisdiction,
attribute tangible gain or loss to the VAT credit, it necessarily follows that there is proprietary
value attached to such gain or loss.
Moreover, the prepaid input tax represents unutilized profit, which can only be utilized if it is
refunded or credited to output taxes. To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege. The Constitution
itself recognizes the right to profit by private enterprises. As I stated earlier, one of the
enunciated State policies under the Constitution is the recognition of the indispensable role of the
private sector, the encouragement of private enterprise, and the provision of incentives to needed
investments.55 Moreover, the Constitution also requires the State to recognize the right of
enterprises to reasonable returns on investments, and to expansion and growth. 56 This, I
believe, encompasses profit.
60-Month Amortization Period
Another portion of Section 8 of the E-VAT Law is unconstitutional, essentially for the same
reasons as above. The relevant portion reads:
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 to recover its
prepaid input VAT. On its face, it might appear injurious primarily to high margin enterprises,
whose purchase of capital goods in a given quarter would routinely exceed P1,000,000.00. The
amortization over a five-year period of the input VAT on these capital goods would definitely eat
up into their profit margin. But it is still possible for such big businesses to survive despite this
new restriction, and their financial pain alone may not be sufficient to cause the invalidity of a
taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other new
businesses, which need to purchase capital goods in order to start up their new
businesses. It is a known fact in the financial community that a majority of businesses start
earning profit only after the second or third year, and many enterprises do not even get to survive
that long. The first few years of a business are the most crucial to its survival, and any financial
benefits it can obtain in those years, no matter how miniscule, may spell the difference between
life and death. For such emerging businesses, it is already difficult under the present system to
recover the prepaid input VAT from the output VAT collected from customers because initial
sales volumes are usually low. With this further limitation, diminishing as it does any opportunity
to have a sustainable cash flow, the ability of new businesses to survive the first three years
becomes even more endangered.
Even existing small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The additional purchase of
capital goods bears as a means of adding value to the consumer good, as a means to justify the
increased selling price. However, the purchase of capital goods in excess of P1,000,000.00
would impose another burden on the small to medium enterprise by further restricting their
ability to immediately recover the entire prepaid input VAT (which would exceed at
leastP100,000.00), 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 Courts previous recognition of the aims of the VAT system to "rationalize the
system of taxes on goods and services, [and] simplify tax administration".57 With the
amortization requirement, the taxpayer would be forced to segregate assets into several classes
and strictly monitor the useful life of assets so that proper classification can be made. The
administrative requirements of the taxpayer in order to monitor the input VAT from the purchase
of capital assets thus has exponentially increased.
5% Withholding VAT on Sales
Pilipinas Shell Dealers argue that Section 12 of the E-VAT law, which amends Section 114(C) of
the NIRC, is also unconstitutional. The provision is supremely unwise, oppressive and
confiscatory in nature, and ruinous to private enterprise and even State development. The
provision reads:
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. xxx
The principle that the Government and its subsidiaries may deduct and withhold a final valueadded tax on its purchase of goods and services is not new, as the NIRC had allowed such
deduction and withholding at the rate of 3% of the gross payment for the purchase of goods, and
6% of the gross receipts for services. However, the NIRC had also provided that this tax
withheld would also be creditable against the VAT liability of the seller or contractor, a
mechanism that was deleted by the E-VAT law. The deletion of this credit apparatus
effectively compels the private enterprise transacting with the government to shoulder the
output VAT that should have been paid by the government in excess of 5% of the gross
selling price, and at the same time unduly burdens the private enterprise by precluding it
from applying any creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the essence of the VAT system,
which characteristically allows the crediting of input taxes against output taxes. Without such
crediting mechanism, which allows the shifting of the VAT to only the final end user, the tax
becomes a straightforward tax on business or income. The effect on the enterprise doing
business with the government would be that two taxes would be imposed on the income by
the business derived on such transaction: the regular personal or corporate income tax on
such income, and this final withholding tax of 5%.
Granted that Congress is not bound to adopt with strict conformity the VAT system, and that it
has to power to impose new taxes on business income, this amendment to Section 114(C) of the
NIRC still remains unconstitutional. It unfairly discriminates against entities which contract
with the government by imposing an additional tax on the income derived from such
transactions. The end result of such discrimination is double taxation on income that is
both oppressive and confiscatory.
It is a legitimate purpose of a tax law to devise a manner by which the government could
save money on its own transactions, but it is another matter if a private enterprise is
punished for doing business with the government. The erstwhile NIRC worked towards such
advantage, by allowing the government to reduce its cash outlay on purchases of goods and
services by withholding the payment of a percentage thereof. While the new E-VAT law retains
this benefit to the government, at the same time it burdens the private enterprise with an
additional tax by refusing to allow the crediting of this tax withheld to the businesss input VAT.
This imposition would be grossly unfair for private entities that transact with the government,
especially on a regular basis. It might be argued that the provision, even if concededly unwise,
nonetheless fails to meet the standard of unconstitutionality, as it affects only those persons or
establishments that choose to do business with the government. However, it is an acknowledged
fact that the government and its subsidiaries rely on contracts with private enterprises in order to
be able to carry out innumerable functions of the State. This provision effectively discourages
private enterprises to do business with the State, as it would impose on the business a
higher rate of tax if it were to transact with the State, as compared to transactions with
other private entities.
Established industries with track records of quality performance could very well be dissuaded
from doing further business with government entities as the higher tax rate would make no
economic sense. Only those enterprises which really need the money, such as those with
substandard track records that have affected their viability in the marketplace, would bother
seeking out government contracts. The corresponding sacrifice in quality would eventually prove
detrimental to the State. Our society can ill afford shoddy infrastructures such as roads, bridges
and buildings that would unnecessarily pose danger to the public at large simply because the
government wanted to skimp on expenses.
The provision squarely contradicts Section 20, Article II of the Constitution as it vacuously
discourages private enterprise, and provides disincentives to needed investments such as
those expected by the State from private businesses. Whatever advantages may be gained by
the temporary increase in the government coffers would be overturned by the disadvantages of
having a reduced pool of private enterprises willing to do business with the government.
Moreover, since government contracts with private enterprises will still remain a necessary fact
of life, the amendment to Section 114(C) of the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same kind of character of
tax.58 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."59 Certainly, both the 5% final tax
withheld and the general corporate income tax are both paid for the benefit of the national
government, and for the same incidence of taxation, the sale/lease of goods and services to the
government.
The Court, in Re: Request of Atty. Bernardo Zialcita60 had cause to make the following
observation I submitapropos to the case at bar, on double taxation in a case involving the attempt
of the BIR to tax the commuted accumulated leave credits of a government lawyer upon his
retirement:
Section 284 of the Revised Administrative Code grants to a government employee 15 days
vacation leave and 15 days sick leave for every year of service. Hence, even if the government
employee absents himself and exhausts his leave credits, he is still deemed to have worked and
to have rendered services. His leave benefits are already imputed in, and form part of, his
salary which in turn is subject to withholding tax on income. He is taxed on the entirety of
his salaries without any deductions for any leaves not utilized. It follows then that the
money values corresponding to these leave benefits both the used and unused have already
been taxed during the year that they were earned. To tax them again when the retiring
employee receives their money value as a form of government concern and appreciation
plainly constitutes an attempt to tax the employee a second time. This is tantamount to
double taxation.61
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 governments 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 nations 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 governments finances will be the death of local business, and correspondingly, the
demise of our society. It is a measure just as draconian as the standard issue taxes of
medieval tyrants.
I am not normally inclined towards the language of the overwrought, yet if the sky were indeed
truly falling, how else could that fact be communicated. The E-VAT Law is of multiple fatal
consequences. How are we to survive as a nation without the bulwark of private industries?
Perhaps the larger scale, established businesses may ultimately remain standing, but they will be
unable to sustain the void left by the demise of small to medium enterprises. Or worse, domestic
industry would be left in the absolute control of monopolies, combines or cartels, whether
dominated by foreigners or local oligarchs. The destruction of subsisting industries would be bad
enough, the destruction of opportunity and the entrepreneurial spirit would be even more
grievous and tragic, as it would mark as well the end of hope. Taxes may be the lifeblood of the
state, but never at the expense of the life of its subjects.
Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and 168730 for lack of merit;
2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and declare Section 21 of the E-VAT
Law as unconstitutional;
3) GRANT the Petition in G.R. No. 168461 and declare as unconstitutional Section 8 of
Republic Act No. 9337, insofar as it amends Section 110(A) and (B) of the National Internal
Revenue Code (NIRC) as well as Section 12 of the same law, with respect to its amendment of
Section 114(C) of the NIRC.
DANTE O. TINGA
Associate Justice
Footnotes
1
Republic Act No. 9337. Referred to intext as "E-VAT Law."
Except insofar as it prays that Section 21 of the E-VAT Law be declared

unconstitutional. Infra.
J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 7-8.
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.
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.
See People v. Vera, 65 Phil. 56, 117 (1937).
Decision, infra.
10
Carpio v. Executive Secretary, GR No. 96409 February 14,1992, 206 SCRA 290,
298; citing In re Guarina, 24 Phil. 37.
11
People v. Vera, supra note 8.
12
See Section 2, National Internal Revenue Code.
13
There are two eminent tests for valid delegation, the "completeness test" and the
"sufficient standard test". The law must be complete in its essential terms and conditions
when it leaves the legislature so that there will be nothing left for the delegate to do when
it reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1, 6-7 (1922). On the other
hand, a sufficient standard is intended to map out the boundaries of the delegates
authority by defining legislative policy and indicating the circumstances under which it is
to be pursued and effected; intended to prevent a total transference of legislative power
from the legislature to the delegate.
14
Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276 SCRA
501, 513-514.
15
Notwithstanding, the Court in Southern Cross did rule that Section 5 of the Safeguard
Measures Act, which required a positive final determination by the Tariff Commission
before the DTI or Agriculture Secretaries could impose general safeguard measures,
operated as a valid restriction and limitation on the exercise by the executive branch of
government of its tariff powers.
16
G.R. No. 115455, 25 August 1994, 235 SCRA 630.
17
M. Evans, A Source of Frequent and Obstinate Altercations: The History and

Application of the Origination Clause.
18
The Federalist No. 58, at 394 (J. Madison) (J.Cooke ed. 1961), cited in J. M. Medina,
The Orignation Clause in the American Constitution: A Comparative Survey, 23 Tulsa
Law Journal 2, at 165.
19
Tolentino v. Secretary of Finance, supra note 16 at 661.
20
See Section 27(1), Article VI, Constitution.
21
Tolentino v. Secretary of Finance, supra note 16 at 668.
22
G.R. No. 124360, 5 November 1997, 281 SCRA 330.
23
Id. at 349-350.
24
People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
25
See Section 1, Article III, Constitution. Private corporations and partnerships are
persons within the scope of the guaranty insofar as their property is concerned. Smith
Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
26
16 C.J.S., at 1150-1151.
27
292 U.S. 40 (1934).
28
Id. at 44.
29
G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
30
Id. at 660-662.
31
Justice Isagani Cruz offers the following examples of taxes that contravene the due
process clause: "A tax, for example, that would claim 80 percent of a persons net income
would clearly be oppressive and could unquestionably struck down as a deprivation of his
property without due process of law. A property tax retroacting to as long as fifty years
back would by tyrannical and unrealistic, as the property might not yet have been then in
the possession of the taxpayer nor, presumably, would he have acquired it had he known
of the tax to be imposed on it." I. Cruz, Constitutional Law, p. 85.
32
"After defining religion, the Court, citing Tanada and Fernando, made this
statement, viz:
The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of
such right can only be justified like other restraints of freedom of expression on the
grounds that there is a clear and present danger of any substantive evil which the State
has the right to prevent. (Tanada and Fernando on the Constitution of the Philippines, vol.
1, 4th ed., p. 297) (emphasis supplied)
This was the Court's maiden unequivocal affirmation of the "clear and present danger"
rule in the religious freedom area, and in Philippine jurisprudence, for that matter."
Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
33
Separate Opinion, infra.
34
Ibid.
35
Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on the
Harmonization of Legislation of Member States Concerning Turnover Taxes, 1971 O.J.
(L 71) 1301.
36
Liam & Ebrill, The Modern VAT.
37
"The most basic law in finance!" Understand the Time Value of Money. http://www.freefinancial-advice.net/time-value-of-money.html. Last visited, 30 August 2005.
38
Time Value of Money. http://www.jetobjects.com/components/finance/

TVM/concepts.html. Last visited, 30 August 2005.
39
There is also the option for the business to go underground and avoid VAT registration,
and consequently avoid remitting VAT payments to the government. It would be facetious
though for a Justice of the Supreme Court to characterize this illegal option as "viable."
40
In Joseph Hellers Catch-22, Yossarian, a World War II pilot reasoned that if he feigned
insanity, he would be necessarily exempt from assignment to dangerous bombing runs in
enemy territory. However, his superiors reasoned that if he were truly insane, he then
would be heedless enough to be sent on those dangerous bombing runs he had sought to
avoid in the first place.
41
Section 20, Article II, Constitution.
42
The due process clause alone is sufficient to invalidate any contravening taxing statute.
On the other hand, Section 20, Article II on its own might not be similarly sufficient.
However, if the taxing statute violates both the due process clause and Section 20, Article
II, then the impetus to strike down the offending law becomes even more compelling, so
as to defeat the generalist invocation of the States inherent powers of taxation.
43
Pangloss was a famed character ridiculed in Voltaires Candide, renowned for his
absolute blind faith in optimism, no matter how dire the circumstances.
44
Id. at 29-30.
45
Decision, infra.
46
This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 12 July
2005, submitted by respondents in its Compliance dated 16 August 2005:
"[Q]: Is there a way by which such unapplied excess input tax credits can be claimed for
refund or issuance of TCC?
[A]: The only time application for refund/issuance of TCC is allowed for input taxes
incurred on the purchase of domestic goods/services is when the same are directly
attributable to zero-rated or effectively zero-rated sales (of goods/services). xxx
For those engaged purely in domestic transactions, the only time that unapplied
input taxes may be applied for the issuance of TCC is when the VAT registration of
the taxpayer is cancelled due to retirement or cessation of business or change in the
status of the taxpayer as a VAT registered taxpayer. As provided for in Section
112(B0, in case of cancellation of VAT registration due to cessation of business or change
in status of taxpayer, the only recourse given to such taxpayer is to apply for the issuance
of TCC on his excess input tax credits which may be used in payment of his other internal
revenue taxes, application for refund thereof is not an option."
See Annexes "18-N" and "18-O", Compliance dated 12 July 2005.
47
See SRC Rule 68(1)(b)(c), Implementing Rules and Regulations to the Securities and
Regulations Code.
48
Section 34, International Accounting Standards 12.
49
Section 36, id.
50
In his Separate Opinion, Justice Panganiban asserts that the deferred input tax credit is
not really confiscated by the government, as it remains an asset in the accounting records
of a business. SeeSeparate Opinion, infra. By the same logic, a law requiring all
businesses to surrender to the government 100% of its gross sales subject to
reimbursement only after a five year period, would pass muster, since the amount is "not
really confiscated by the government as it remains an asset in the accounting records of a
business."
51
Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221 SCRA
108, 115, April 7, 1993) to bolster his stated position that ""[t]here is no vested right in a
deferred input tax account; it is a mere statutory privilege". Separate
Opinion, infra. United Paracale does not pertain to any deferred input taxes, but instead
to "mining claims which according to [petitioners] is private property would constitute
impairment of vested rights since by shifting the forum of the petitioners 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.
52
See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
53
Section 32, International Accounting Standards 12.
54
Supra note 47.
55
Supra note 9.
56
Section 3, Article XIII, Constitution.
57
Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. et al. v. Tan, G.R. No.
L-81311, 30 June 1988.
58
J. Vitug and E. Acosta, supra note 3 at 41.
59
Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R. No. L31156, 27 February 1976, 69 SCRA 460, 466-67; citing CIR v. Lednicky, L-18169, July
31, 1964, 11 SACRA 609 and SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43
SCRA 280.
60
A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
61
Id. at 856.
EN BANC
G.R. No. 168056 ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, ET AL.
G.R. No. 168207 AQUILINO Q. PIMENTEL, JR., ET AL. v. EXECUTIVE SECRETARY
EDUARDO R. ERMITA
G.R. No. 168461 ASSOCIATION OF PILIPINAS SHELL DEALERS, INC., ET AL. v.
G.R. No. 168463 FRANCIS JOSEPH G. ESCUDERO, ET AL. v. CESAR V. PURISIMA,

ET AL.
G.R. No. 168730 BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., ET AL. v. HON.
EDUARDO R. ERMITA, ET AL.
Promulgated:
September 1, 2005
x--------------------------------------------------x
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 1997,1 by essentially increasing the tax rates and expanding the coverage of the ValueAdded Tax (VAT). Undoubtedly, during these financially difficult times, more taxes would be
additionally burdensome to the citizenry. However, like a bitter pill, all Filipino citizens must
bear the burden of these new taxes so as to raise the much-needed revenue for the ailing
Philippine economy. Taxation is the indispensable and inevitable price for a civilized society, and
without taxes, the government would be paralyzed.2 Without the tax reforms introduced by Rep.
Act No. 9337, the then Secretary of the Department of Finance, Cesar V. Purisima, assessed that
"all economic scenarios point to the National Governments inability to sustain its precarious
fiscal position, resulting in severe erosion of investor confidence and economic stagnation."3
Finding Rep. Act No. 9337 as not unconstitutional, both in its procedural enactment and in its
substance, I hereby concur in full in the foregoing majority opinion, penned by my esteemed
colleague, Justice Ma. Alicia Austria-Martinez.
According to petitioners, the enactment of Rep. Act No. 9337 by Congress was riddled with
irregularities and violations of the Constitution. In particular, they alleged that: (1) The
Bicameral Conference Committee exceeded its authority to merely settle or reconcile the
differences among House Bills No. 3555 and 3705 and Senate Bill No. 1950, by including in
Rep. Act No. 9337 provisions not found in any of the said bills, or deleting from Rep. Act No.
9337 or amending provisions therein even though they were not in conflict with the provisions of
the other bills; (2) The amendments introduced by the Bicameral Conference Committee violated
Article VI, Section 26(2), of the Constitution which forbids the amendment of a bill after it had
passed third reading; and (3) Rep. Act No. 9337 contravened Article VI, Section 24, of the
Constitution which prescribes that revenue bills should originate exclusively from the House of
Representatives.
Invoking the expanded power of judicial review granted to it by the Constitution of 1987,
petitioners are calling upon this Court to look into the enactment of Rep. Act No. 9337 by
Congress and, consequently, to review the applicability of the enrolled bill doctrine in this
jurisdiction. Under the said doctrine, the enrolled bill, as signed by the Speaker of the House of
Representatives and the Senate President, and certified by the Secretaries of both Houses of
Congress, shall be conclusive proof of its due enactment.4
Petitioners arguments failed to convince me of the wisdom of abandoning the enrolled bill
doctrine. I believe that it is more prudent for this Court to remain conservative and to continue its
adherence to the enrolled bill doctrine, for to abandon the said doctrine would be to open a
Pandoras Box, giving rise to a situation more fraught with evil and mischief. Statutes enacted by
Congress may not attain finality or conclusiveness unless declared so by this Court. This would
undermine the authority of our statutes because despite having been signed and certified by the
designated officers of Congress, their validity would still be in doubt and their implementation
would be greatly hampered by allegations of irregularities in their passage by the Legislature.
Such an uncertainty in the statutes would indubitably result in confusion and disorder. In all
probability, it is the contemplation of such a scenario that led an American judge to proclaim,
thus
. . . Better, far better, that a provision should occasionally find its way into the statute through
mistake, or even fraud, than, that every Act, state and national, should at any and all times be
liable to put in issue and impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land would lead to mischiefs
absolutely intolerable. . . .5
Moreover, this Court must attribute good faith and accord utmost respect to the acts of a co-equal
branch of government. While it is true that its jurisdiction has been expanded by the Constitution,
the exercise thereof should not violate the basic principle of separation of powers. The expanded
jurisdiction does not contemplate judicial supremacy over the other branches of government.
Thus, in resolving the procedural issues raised by the petitioners, this Court should limit itself to
a determination of compliance with, or conversely, the violation of a specified procedure in the
Constitution for the passage of laws by Congress, and not of a mere internal rule of proceedings
of its Houses.
It bears emphasis that most of the irregularities in the enactment of Rep. Act No. 9337 concern
the amendments introduced by the Bicameral Conference Committee. The Constitution is silent
on such a committee, it neither prescribes the creation thereof nor does it prohibit it. The creation
of the Bicameral Conference Committee is authorized by the Rules of both Houses of Congress.
That the Rules of both Houses of Congress provide for the creation of a Bicameral Conference
Committee is within the prerogative of each House under the Constitution to determine its own
rules of proceedings.
The Bicameral Conference Committee is a creation of necessity and practicality considering that
our Congress is composed of two Houses, and it is highly improbable that their respective bills
on the same subject matter shall always be in accord and consistent with each other. Instead of all
their members, only the appointed representatives of both Houses shall meet to reconcile or settle
the differences in their bills. The resulting bill from their meetings, embodied in the Bicameral
Conference Report, shall be subject to approval and ratification by both Houses, voting
separately.
It does perplex me that members of both Houses would again ask the Court to define and limit
the powers of the Bicameral Conference Committee when such committee is of their own
creation. In a number of cases,6 this Court already made a determination of the extent of the
powers of the Bicameral Conference Committee after taking into account the existing Rules of
both Houses of Congress. In gist, the power of the Bicameral Conference Committee to reconcile
or settle the differences in the two Houses respective bills is not limited to the conflicting
provisions of the bills; but may include matters not found in the original bills but germane to the
purpose thereof. If both Houses viewed the pronouncement made by this Court in such cases as
extreme or beyond what they intended, they had the power to amend their respective Rules to
clarify or limit even further the scope of the authority which they grant to the Bicameral
Conference Committee. Petitioners grievance that, unfortunately, they cannot bring about such
an amendment of the Rules on the Bicameral Conference Committee because they are members
of the minority, deserves scant consideration. That the majority of the members of both Houses
refuses to amend the Rules on the Bicameral Conference Committee is an indication that it is still
satisfied therewith. At any rate, this is how democracy works the will of the majority shall be
controlling.
Worth reiterating herein is the concluding paragraph in Arroyo v. De Venecia,7 which reads
It would be unwarranted invasion of the prerogative of a coequal department for this Court either
to set aside a legislative action as void because the Court thinks the house has disregarded its
own rules of procedure, or to allow those defeated in the political arena to seek a rematch in the
judicial forum when petitioners can find remedy in that department. The Court has not been
invested with a roving commission to inquire into complaints, real or imagined, of legislative
skullduggery. It would be acting in excess of its power and would itself be guilty of grave abuse
of its discretion were it to do so. . . .
Present jurisprudence allows the Bicameral Conference Committee to amend, add, and delete
provisions of the Bill under consideration, even in the absence of conflict thereon between the
Senate and House versions, but only so far as said provisions are germane to the purpose of the
Bill.8 Now, there is a question as to whether the Bicameral Conference Committee, which
produced Rep. Act No. 9337, exceeded its authority when it included therein amendments of
provisions of the National Internal Revenue Code of 1997 not related to VAT.
Although House Bills No. 3555 and 3705 were limited to the amendments of the provisions on
VAT of the National Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said Code, such as those on income,
percentage, and excise taxes. It should be borne in mind that the very purpose of these three Bills
and, subsequently, of Rep. Act No. 9337, was to raise additional revenues for the government to
address the dire economic situation of the country. The National Internal Revenue Code of 1997,
as its title suggests, is the single Code that governs all our national internal revenue taxes. While
it does cover different taxes, all of them are imposed and collected by the national government to
raise revenues. If we have one Code for all our national internal revenue taxes, then there is no
reason why we cannot have a single statute amending provisions thereof even if they involve
different taxes under separate titles. I hereby submit that the amendments introduced by the
Bicameral Conference Committee to non-VAT provisions of the National Internal Revenue Code
of 1997 are not unconstitutional for they are germane to the purpose of House Bills No. 3555 and
3705 and Senate Bill No. 1950, which is to raise national revenues.
Furthermore, the procedural issues raised by the petitioners were already addressed and resolved
by this Court in Tolentino v. Executive Secretary.9 Since petitioners failed to proffer novel factual
or legal argument in support of their positions that were not previously considered by this Court
in the same case, then I am not compelled to depart from the conclusions made therein.
The majority opinion has already thoroughly discussed each of the substantial issues raised by
the petitioners. I would just wish to discuss additional matters pertaining to the petition of the
petroleum dealers in G.R. No. 168461.
They claim that the provision of Rep. Act No. 9337 limiting their input VAT credit to only 70%
of their output VAT deprives them of their property without due process of law. They argue
further that such 70% cap violates the equal protection and uniformity of taxation clauses under
Article III, Section 1, and Article VI, Section 28(1), respectively, of the Constitution, because it
will unduly prejudice taxpayers who have high input VAT and who, because of the cap, cannot
fully utilize their input VAT as credit.
I cannot sustain the petroleum dealers position for the following reasons
First, I adhere to the view that the input VAT is not a property to which the taxpayer has vested
rights. Input VAT consists of the VAT a VAT-registered person had paid on his purchases or
importation of goods, properties, and services from a VAT-registered supplier; more simply, it
is VAT paid. It is not, as averred by petitioner petroleum dealers, a property that the taxpayer
acquired for valuable consideration.10 A VAT-registered person incurs input VAT because he
complied with the National Internal Revenue Code of 1997, which imposed the VAT and made
the payment thereof mandatory; and not because he paid for it or purchased it for a price.
Generally, when one pays taxes to the government, he cannot expect any direct and concrete
benefit to himself for such payment. The benefit of payment of taxes shall redound to the society
as a whole. However, by virtue of Section 110(A) of the National Internal Revenue Code of
1997, prior to its amendment by Rep. Act No. 9337, a VAT-registered person is allowed, subject
to certain substantiation requirements, to credit his input VAT against his output VAT.
Output VAT is the VAT imposed by the VAT-registered person on his own sales of goods,
properties, and services or the VAT he passes on to his buyers. Hence, the VAT-registered person
selling the goods, properties, and services does not pay for the output VAT; said output VAT is
paid for by his consumers and he only collects and remits the same to the government.
The crediting of the input VAT against the output VAT is a statutory privilege, granted by Section
110 of the National Internal Revenue Code of 1997. It gives the VAT-registered person the
opportunity to recover the input VAT he had paid, so that, in effect, the input VAT does not
constitute an additional cost for him. While it is true that input VAT credits are reported as assets
in a VAT-registered persons financial statements and books of account, this accounting treatment
is still based on the statutory provision recognizing the input VAT as a credit. Without Section
110 of the National Internal Revenue Code of 1997, then the accounting treatment of any input
VAT will also change and may no longer be booked outright as an asset. Since the privilege of an
input VAT credit is granted by law, then an amendment of such law may limit the exercise of or
may totally withdraw the privilege.
The amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep. Act No.
9337, which imposed the 70% cap on input VAT credits, is a legitimate exercise by Congress of
its law-making power. To say that Congress may not trifle with Section 110 of the National
Internal Revenue Code of 1997 would be to violate a basic precept of constitutional law that no
law is irrepealable.11 There can be no vested right to the continued existence of a statute, which
precludes its change or repeal.12
It bears to emphasize that Rep. Act No. 9337 does not totally remove the privilege of crediting
the input VAT against the output VAT. It merely limits the amount of input VAT one may credit
against his output VAT per quarter to an amount equivalent to 70% of the output VAT. What is
more, any input VAT in excess of the 70% cap may be carried-over to the next quarter.13 It is
certainly a departure from the VAT crediting system under Section 110 of the National Internal
Revenue Code of 1997, but it is an innovation that Congress may very well introduce, because
VAT will continue to evolve from its pioneering original structure. Dynamically, it will be
subjected to reforms that will make it conform to many factors, among which are: the changing
requirements of government revenue; the social, economic and political vicissitudes of the times;
and the conflicting interests in our society. In the course of its evolution, it will be injected with
some oddities and inevitably transformed into a structure which its revisionists believe will be an
improvement overtime.14
Second, assuming for the sake of argument, that the input VAT credit is indeed a property, the
petroleum dealers right thereto has not vested. A right is deemed vested and subject to
constitutional protection when
". . . [T]he right to enjoyment, present or prospective, has become the property of some particular
person or persons as a present interest. The right must be absolute, complete, and unconditional,
independent of a contingency, and a mere expectancy of future benefit, or a contingent interest in
property founded on anticipated continuance of existing laws, does not constitute a vested right.
So, inchoate rights which have not been acted on are not vested." (16 C. J. S. 214-215)15
Under the National Internal Revenue Code of 1997, before it was amended by Rep. Act No.
9337, the sale or importation of petroleum products were exempt from VAT, and instead, were
subject to excise tax.16 Petroleum dealers did not impose any output VAT on their sales to
consumers. Since they had no output VAT against which they could credit their input VAT, they
shouldered the costs of the input VAT that they paid on their purchases of goods, properties, and
services. Their sales not being subject to VAT, the petroleum dealers had no input VAT credits to
speak of.
It is only under Rep. Act No. 9337 that the sales by the petroleum dealers have become subject to
VAT and only in its implementation may they use their input VAT as credit against their output
VAT. While eager to use their input VAT credit accorded to it by Rep. Act No. 9337, the
petroleum dealers reject the limitation imposed by the very same law on such use.
It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers input VAT
credits were inexistent they were unrecognized and disallowed by law. The petroleum dealers
had no such property called input VAT credits. It is only rational, therefore, that they cannot
acquire vested rights to the use of such input VAT credits when they were never entitled to such
credits in the first place, at least, not until Rep. Act No. 9337.
My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that
petroleum dealers right to use their input VAT as credit against their output VAT unlimitedly has
not vested, being a mere expectancy of a future benefit and being contingent on the continuance
of Section 110 of the National Internal Revenue Code of 1997, prior to its amendment by Rep.
Act No. 9337.
Third, although the petroleum dealers presented figures and computations to support their
contention that the cap shall lead to the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT credits, allows the taxpayer to
carry-over to the succeeding quarters any excess input VAT. The petroleum dealers presented a
situation wherein their input VAT would always exceed 70% of their output VAT, and thus, their
excess input VAT will be perennially carried-over and would remain unutilized. Even though
they consistently questioned the 70% cap on their input VAT credits, the petroleum dealers failed
to establish what is the average ratio of their input VAT vis--vis their output VAT per quarter.
Without such fact, I consider their objection to the 70% cap arbitrary because there is no basis
therefor.
On the other, I find that the 70% cap on input VAT credits was not imposed by Congress
arbitrarily. Members of the Bicameral Conference Committee settled on the said percentage so as
to ensure that the government can collect a minimum of 30% output VAT per taxpayer. This is to
put a VAT-taxpayer, at least, on equal footing with a VAT-exempt taxpayer under Section 109(V)
of the National Internal Revenue Code, as amended by Rep. Act No. 9337.17 The latter taxpayer
is exempt from VAT on the basis that his sale or lease of goods or properties or services do not
exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax on his gross receipts in
lieu of the VAT.18 If a taxpayer with presumably a smaller business is required to pay three
percent (3%) gross receipts tax, a type of tax which does not even allow for any crediting, a VATtaxpayer with a bigger business should be obligated, likewise, to pay a minimum of 30% output
VAT (which should be equivalent to 3% of the gross selling price per good or property or service
sold). The cap assures the government a collection of at least 30% output VAT, contributing to an
improved cash flow for the government.
Attention is further called to the fact that the output VAT is the VAT imposed on the sales by a
VAT-taxpayer; it is paid by the purchasers of the goods, properties, and services, and merely
collected through the VAT-registered seller. The latter, therefore, serves as a collecting agent for
the government. The VAT-registered seller is merely being required to remit to the government a
minimum of 30% of his output VAT collection.
Fourth, I give no weight to the figures and computations presented before this Court by the
petroleum dealers, particularly the supposed quarterly profit and loss statement of a "typical
dealer." How these data represent the financial status of a typical dealer, I would not know when
there was no effort to explain the manner by which they were surveyed, collated, and averaged
out. Without establishing their source therefor, the figures and computations presented by the
petroleum dealers are merely self-serving and unsubstantiated, deserving scant consideration by
this Court. Even assuming that these figures truly represent the financial standing of petroleum
dealers, the introduction and application thereto of the VAT factor, which forebode the collapse
of said petroleum dealers businesses, would be nothing more than an anticipated damage an
injury that may or may not happen. To resolve their petition on this basis would be premature
and contrary to the established tenet of ripeness of a cause of action before this Court could
validly exercise its power of judicial review.
Fifth, in response to the contention of the petroleum dealers during oral arguments before this
Court that they cannot pass on to the consumers the VAT burden and increase the prices of their
goods, it is worthy to quote below this Courts ruling in Churchill v. Concepcion,19 to wit
It will thus be seen that the contention that the rates charged for advertising cannot be raised is
purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test,
and that the plaintiffs themselves admit that a number of other persons have voluntarily and
without protest paid the tax herein complained of. Under these circumstances, can it be held as a
matter of fact that the tax is confiscatory or that, as a matter of law, the tax is unconstitutional? Is
the exercise of the taxing power of the Legislature dependent upon and restricted by the opinion
of two interested witnesses? There can be but one answer to these questions, especially in view
of the fact that others are paying the tax and presumably making reasonable profit from their
business.
As a final observation, I perceive that what truly underlies the opposition to Rep. Act No. 9337 is
not the question of its constitutionality, but rather the wisdom of its enactment. Would it truly
raise national revenue and benefit the entire country, or would it only increase the burden of the
Filipino people? Would it contribute to a revival of our economy or only contribute to the
difficulties and eventual closure of businesses? These are issues that we cannot resolve as the
Supreme Court. As this Court explained in Agustin v. Edu,20 to wit
It does appear clearly that petitioners objection to this Letter of Instruction is not premised on
lack of power, the justification for a finding of unconstitutionality, but on the pessimistic, not to
say negative, view he entertains as to its wisdom. That approach, it put it at its mildest, is
distinguished, if that is the appropriate word, by its unorthodoxy. It bears repeating "that this
Court, in the language of Justice Laurel, does not pass upon questions of wisdom, justice or
expediency of legislation. As expressed by Justice Tuason: It is not the province of the courts to
supervise legislation and keep it within the bounds of propriety and common sense. That is
primarily and exclusively a legislative concern. There can be no possible objection then to the
observation of Justice Montemayor: As long as laws do not violate any Constitutional provision,
the Courts merely interpret and apply them regardless of whether or not they are wise or
salutary. For they, according to Justice Labrador, are not supposed to override legitimate policy
and * * * never inquire into the wisdom of the law. It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections, that only congressional power or
competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid.
This is as it ought to be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to such sphere. There
would then be intrusion not allowable under the Constitution if on a matter left to the discretion
of a coordinate branch, the judiciary would substitute its own"21
To reiterate, we cannot substitute our discretion for Congress, and even though there are
provisions in Rep. Act No. 9337 which we may believe as unwise or iniquitous, but not
unconstitutional, we cannot strike them off by invoking our power of judicial review. In such a
situation, the recourse of the people is not judicial, but rather political. If they severely doubt the
wisdom of the present Congress for passing a statute such as Rep. Act No. 9337, then they have
the power to hold the members of said Congress accountable by using their voting power in the
next elections.
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.
MINITA V. CHICO-NAZARIO
Associate Justice
Abakada Guro Party-list et. al vs. Executive Secretary (G.R. No. 168056) - Digest
Facts:
On May 24, 2005, the President signed into law Republic Act 9337 or the VAT Reform Act.
Before the law took effect on July 1, 2005, the Court issued a TRO enjoining government
from implementing the law in response to a slew of petitions for certiorari and prohibition
questioning the constitutionality of the new law.
The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6:
January 1, 2006, raise the rate of value-added tax to 12%, after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%);
or (ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1%)
Petitioners allege that the grant of stand-by authority to the President to increase the VAT
rate is an abdication by Congress of its exclusive power to tax because such delegation is
not covered by Section 28 (2), Article VI Consti. They argue that VAT is a tax levied on the
sale or exchange of goods and services which cant be included within the purview of tariffs
under the exemption delegation since this refers to customs duties, tolls or tribute payable
upon merchandise to the government and usually imposed on imported/exported goods.
Petitioners further alleged that delegating to the President the legislative power to tax is
contrary to republicanism. They insist that accountability, responsibility and transparency
should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the
Presidents 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 Justice.
Issue:
Whether or not the RA 9337's stand-by authority to the Executive to increase the VAT rate,
especially on account of the recommendatory power granted to the Secretary of Finance,
constitutes undue delegation of legislative power?
Ruling:
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 is 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.
The exceptions are:
(a) delegation of tariff powers to President under Constitution
(b) delegation of emergency powers to President under Constitution
(c) delegation to the people at large
(d) delegation to local governments

(e) delegation to administrative bodies
For the delegation to be valid, it must be complete and it must fix a standard. 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 this case, it is not a delegation of legislative power BUT a delegation of ascertainment of
facts upon which enforcement and administration of the increased 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 nonoperation 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.
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. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present.
Congress just granted the Secretary of Finance the authority to ascertain the existence of a
fact--- whether by December 31, 2005, the VAT collection as a percentage of GDP of the
previous year exceeds 2 4/5 % or the national government deficit as a percentage of GDP of
the previous year exceeds one and 1%. If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the
President.
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. He is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. The Secretary of Finance
becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two conditions laid
out by Congress is present.
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.
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 did not delegate the power
to tax but the mere implementation of the law.
BAKADA GURO PARTY LIST V. ERMITA
September 1, 2005
AUSTRIA-MARTINEZ, J
>>>THE VAT REFORM LAW (RA 9337) IS ENTIRELY CONSTITUTIONAL
NATURE OF VAT
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 endconsumers.
HISTORICAL PERSPECTIVE
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 Executive Order No. 273, that the
VAT system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using
the "tax credit method."
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.
ENROLLED BILL DOCTRINE
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.
COURTS GENERALLY DENIED THE POWER TO INQUIRE INTO CONGRESS
FAILURE TO COMPLY WITH ITS OWN RULES
The cases, both here and abroad, in varying forms of expression, all deny to the courts the power
to inquire into allegations that, in enacting a law, a House of Congress failed to comply with its
own rules, in the absence of showing that there was a violation of a constitutional provision or
the rights of private individuals. In Osmea 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."
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting
provisions in the House and Senate bills. 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 the Supreme Court cannot apply to questions
regarding only the internal operation of Congress.
BICAMERAL CONFERENCE COMMITTEE (BCC)
All the changes or modifications made by the Bicameral Conference Committee were germane
to subjects of the provisions referred to it for reconciliation. Such being the case, the Court does
not see any grave abuse of discretion amounting to lack or excess of jurisdiction committed by
the Bicameral Conference Committee. The Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for compromising differences
between the Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new
provision that is not found either in the House bill or in the Senate bill. If the committee can
propose an amendment consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an "amendment in the nature of a
substitute," so long as such amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the approval of both houses of Congress
to become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without any basis.
NO AMENDEMENT RULE NOT VIOLATED BY BCC
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate
days, and printed copies thereof in its final form have been distributed to its Members three days
before its passage, except when the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment
thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas
and nays entered in the Journal.
There is no reason for requiring that the Committee's Report in these cases must have undergone
three readings in each of the two houses. If that be the case, there would be no end to negotiation
since each house may seek modification of the compromise bill. . . .
EXTENT OF NO AMENDMENT RULE
The No Amendment Rule must be construed as referring only to bills introduced for the first
time in either house of Congress, not to the conference committee report.
BILLS WHICH MUST EXCLUSIVELY ORIGINATE IN THE HOUSE

All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives but
the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that
initiated the move for amending provisions of the NIRC dealing mainly with the value-added
tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No.
1950 proposing amendments not only to NIRC provisions on the value-added tax but also
amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of
provisions not dealing directly with the value-added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the constitutional provision authorizing
the Senate to propose or concur with amendments to a revenue bill that originated from the
House?
YES. In the Tolentino case:
. . . To begin with, it is not the law but the revenue bill which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole. . . . At this point, what is important to
note is that, as a result of the Senate action, a distinct bill may be produced. To insist that a
revenue statute and not only the bill which initiated the legislative process culminating in the
enactment of the law must substantially be the same as the House bill would be to deny the
Senate's power not only to "concur with amendments" but also to "propose amendments." It
would be to violate the coequality of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax
bills, bills authorizing an increase of the public debt, private bills and bills of local application
must come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs and
problems. On the other hand, the senators, who are elected at large, are expected to approach the
same problems from the national perspective. Both views are thereby made to bear on the
enactment of such laws.
NON-DELEGATION OF LEGISLATIVE POWER
The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the doctrine of separation of powers is the
principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata non
delegari potest which means "what has been delegated, cannot be delegated." This doctrine is
based on the ethical principle that such as delegated power constitutes not only a right but a duty
to be performed by the delegate through the instrumentality of his own judgment and not through
the intervening mind of another.
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.
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.
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.
NO DELEGATION OF LEGISLATIVE POWER TO THE PRESIDENT IN THIS CASE
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:
following conditions has been satisfied: xxx
The case 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.
SECRETARY OF FINANCE AS AGENT OF LEGISLATURE; PRESIDENTS POWER OF
CONTROL NOT APPLICABLE
In the present case, in making his recommendation to the President on the existence of either of
the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the
event upon which its expressed will is to take effect. The Secretary of Finance becomes the
means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of Congress. Thus, being the
agent of Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former for
that of the latter.
NO VIOLATION OF PRINCIPLE OF REPUBLICANISM
As to the argument of petitioners that delegating to the President the legislative power to tax is
contrary to the principle of republicanism, the same deserves scant consideration. Congress did
not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a manner is not within the
province of the Court to inquire into, its task being to interpret the law.
NEW TAX NOT OPPRESSIVE
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). It simply means that sources of revenues must be
adequate to meet government expenditures and their variations. The dire need for revenue cannot
be ignored. Our country is in a quagmire of financial woe. During the Bicameral Conference
Committee hearing, then Finance Secretary Purisima bluntly depicted the country's gloomy state
of economic affairs.
. . . policy matters are not the concern of the Court. Government policy is within the exclusive
dominion of the political branches of the government. It is not for this Court to look into the
wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the best means to achieve the
desired results, whether, in short, the legislative discretion within its prescribed limits should be
exercised in a particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial cognizance.
NO DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS
Petitioners argue that the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered person's entitlement to the creditable input tax is a mere
statutory privilege. The distinction between statutory privileges and vested rights must be borne
in mind for persons have no vested rights in statutory privileges. The state may change or take
away rights, which were created by the law of the state, although it may not take away property,
which was vested by virtue of such rights.
EQUAL PROTECTION CLAUSE
The equal protection clause under the Constitution means that "no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances.
The power of the State to make reasonable and natural classifications for the purposes of taxation
has long been established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the State's power is entitled to presumption of validity. As a rule, the judiciary will not
interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.
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.
UNIFORMITY AND EQUITABILITY OF TAXATION
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.
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.
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.
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 imposed a 3% percentage tax on VAT-exempt persons under
Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5
Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the
tax on those previously exempt. Excise taxes on petroleum products and natural gas were
reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt
from paying franchise tax.
Aside from these, Congress also increased the income tax rates of corporations, in order to
distribute the burden of taxation. Domestic, foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a previous 32%. Intercorporate dividends of non-resident
foreign corporations are still subject to 15% final withholding tax but the tax credit allowed on
the corporation's domicile was increased to 20%. The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes anymore. Even the sale by an artist of
his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would
otherwise rest largely on the consumers.
PROGRESSIVITY OF 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. The VAT is
an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the same regardless of
income. In other words, the VAT paid eats the same portion of an income, whether big or small.
The disparity lies in the income earned by a person or profit margin marked by a business, such
that the higher the income or profit margin, the smaller the portion of the income or profit that is
eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT
eats away. At the end of the day, it is really the lower income group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation."
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).

Abakada V ERMITA FD

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Abakada V ERMITA FD

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G.R. No.

168056 September 1, 2005

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the

services and use or lease of properties. These questioned provisions contain a

With regard to "Stand-By Authority" in favor of President

With regard to the "no pass-on" provision

With regard to 70% limit on input tax credit

Provided for amendments to

Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation

Tax on Persons Exempt from VAT

Percentage Tax on domestic carriers and keepers of Garage

Tax on banks and Non-Bank Financial Intermediaries

Excise Tax on manufactured oils and other fuels

Excise Tax on mineral products

Issuance of receipts or sales or commercial invoices

Disposition of Incremental Revenue

b. Article VI, Section 28(2)

(3) Delegation to the people at large;

securing such information is proper.51 The Constitution as a continuously operative charter of

ROMEO J. CALLEJO, SR.

Section 26, R.A. No. 9337.

TSN, July 14, 2005.

Section 105, National Internal Revenue of the Philippines, as amended.

Story, Commentaries 835 (1833).

G.R. No. 147387, December 10, 2003, 417 SCRA 503.

Id., pp. 529-530.

Supra., Note 20.

G.R. No. 115455, August 25, 1994, 235 SCRA 630.

Westers Third New International Dictionary, p. 1897.

TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill

Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Lapus,

G.R. No. 105371, November 11, 1993, 227 SCRA 703.

Supra, Note 23.

Id., pp. 661-663.

Transcript of Session Proceedings, January 7, 2005, pp. 19-20.

16 Am Jur 2d, Constitutional Law, 337.

No. 45685, November 16, 1937, 65 Phil. 56.

Id., pp. 115-120.

Supra, note 43.

Id., pp. 496-497.

16 C.J.S., Constitutional Law, 138.

16 Am Jur 2d, Constitutional Law 340.

Compaia General de Tabacos de Filipinas vs. The Board of Public Utility

Commission on Internal Revenue vs. American Express International, Inc. (Philippine

Respondents Memorandum, pp. 168-169.

The Wealth of Nations, Book V, Chapter II.

TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill

Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC.

E.O. No. 273, Section 1.

Id., Session No. 67, March 7, 2005, p. 726.

Id., Session No. 71, March 15, 2005, p. 803.

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

Revenue Regulations No. 14-2005, Sec. 4. 114-2.

Philippine Judges Association case, supra., note 29.

Section 7, R.A. No. 9337.

No. L-81311, June 30, 1988, 163 SCRA 371, 383.

Section 17, R.A. No. 9337, amending Section 148, NIRC.

Section 18, amending Section 151, NIRC.

Section 14, amending Section 117, NIRC.

Section 15, amending Section 119, NIRC.

Sections 1 and 2, amending Sections 27 and 28, NIRC.

Section 2, amending Section 28, NIRC.