14 Supreme Court Reports Annotated: Abakada Guro Party List vs. Ermita

14 SUPREME COURT REPORTS ANNOTATED
Abakada Guro Party List vs. Ermita
*
G.R. No. 168056. September 1, 2005.
ABAKADA GURO PARTY LIST (Formerly AASJAS)

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

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

represented by its President, ROSARIO ANTONIO;
PETRON DEALERS’ ASSOCIATION represented by its
President, RUTH E. BARBIBI; ASSOCIATION OF
CALTEX DEALERS’ OF THE PHILIPPINES represented
by its President, MERCEDITAS A. GARCIA; ROSARIO
ANTONIO doing business under the name and style of
“ANB NORTH SHELL SERVICE STATION”; LOURDES
MARTINEZ doing business under the name and style of
“SHELL GATE—N. DOMINGO”; BETH-ZAIDA TAN doing
business under the name and style of “ADVANCE SHELL
STATION”; REYNALDO P. MONTOYA
_______________
* EN BANC.
15
VOL. 469, SEPTEMBER 1, 2005 15

doing business under the name and style of “NEW

LAMUAN SHELL SERVICE STATION”; EFREN SOTTO
doing business under the name and style of “RED FIELD
SHELL SERVICE STATION”; DONICA CORPORATION
represented by its President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the name and style of
“R&R PETRON STATION”; PETER M. UNGSON doing
business under the name and style of “CLASSIC STAR
GASOLINE SERVICE STATION”; MARIAN SHEILA A.
LEE doing business under the name and style of “NTE
GASOLINE & SERVICE STATION”; JULIAN CESAR P.
POSADAS doing business under the name and style of
“STARCARGA ENTERPRISES”; ADORACION MAÑEBO
doing business under the name and style of “CMA
MOTORISTS CENTER”; SUSAN M. ENTRATA doing
business under the name and style of “LEONA’S
GASOLINE STATION and SERVICE CENTER”;
CARMELITA BALDONADO doing business under the
name and style of “FIRST CHOICE SERVICE CENTER”;
MERCEDITAS A. GARCIA doing business under the name
and style of “LORPED SERVICE CENTER”; RHEAMAR A.
RAMOS doing business under the name and style of
“RJRAM PTT GAS STATION”; MA. ISABEL VIOLAGO
doing business under the name and style of “VIOLAGO-
PTT SERVICE CENTER”; MOTORISTS’ HEART
CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS’
HARVARD CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HERITAGE CORPORATION 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
16

Finance and GUILLERMO L. PARAYNO, JR., in his

capacity as Commissioner of Internal Revenue,
respondents.
G.R. No. 168463. September 1, 2005.*
FRANCIS JOSEPH G. ESCUDERO, VINCENT

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

petitioner, vs. HON. EDUARDO R. ERMITA, in his
capacity as the Executive Secretary; HON. MARGARITO
TEVES, in his capacity as Secretary of Finance; HON.
JOSE MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and
HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, respondents.
Taxation; Value-Added Tax (VAT); Words and Phrases; The

VAT is a tax on spending or consumption—it is levied on the sale,
barter, exchange or lease of goods or properties and services; Being
an indirect tax on expenditure, the seller of goods or services may
pass on the amount of tax paid to the buyer; In contrast, a direct
tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the
burden to someone else.—As a prelude, the Court deems it apt to
restate the general principles and
17
concepts of value-added tax (VAT), as the confusion and

inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the
sale, barter, exchange or lease of goods or properties and services.
Being an indirect tax on expenditure, the seller of goods or
services may pass on the amount of tax paid to the buyer, with
the seller acting merely as a tax collector. The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-
consumers. In contrast, a direct tax is a tax for which a taxpayer
is directly liable on the transaction or business it engages in,
without transferring the burden to someone else. Examples are
individual and corporate income taxes, transfer taxes, and
residence taxes.
Same; Same; Same; In the Philippines, the value-added
system of sales taxation has long been in existence, albeit in a
different mode—prior to 1978, the system was a single-stage tax
computed under the “cost deduction method” and was payable only
by the original sellers, then the single-stage system was
subsequently modified, and a mixture of the “cost deduction
method” and “tax credit method” was used to determine the value-
added tax payable; Under the “tax credit method,” an entity can
credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports.—In
the Philippines, the value-added system of sales taxation has long
been in existence, albeit in a different mode. Prior to 1978, the
system was a single-stage tax computed under the “cost deduction
method” and was payable only by the original sellers. The single-
stage system was subsequently modified, and a mixture of the
“cost deduction method” and “tax credit method” was used to
determine the value-added tax payable. Under the “tax credit
method,” an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases,
inputs and imports. It was only in 1987, when President Corazon
C. Aquino issued Ex-ecutive Order No. 273, that the VAT system
was rationalized by imposing a multi-stage tax rate of 0% or 10%
on all sales using the “tax credit method.” E.O. No. 273 was
followed by R.A. No. 7716 or the Expanded VAT Law, R.A. No.
8241 or the Improved VAT Law, R.A. No. 8424 or the Tax Reform
Act of 1997, and finally, the presently beleaguered R.A. No. 9337,
also referred to by respondents as the VAT Reform Act.
18
Congress; Bicameral Conference Committee; Legislative Rules;

It should be borne in mind that the power of internal regulation
and discipline are intrinsic in any legislative body, and pursuant
to this inherent constitutional power to promulgate and implement
its own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference
Committee.— Petitioners now beseech the Court to define the
powers of the Bi-cameral Conference Committee. It should be
borne in mind that the power of internal regulation and discipline
are intrinsic in any legislative body for, as unerringly elucidated
by Justice Story, “[i]f the power did not exist, it would be utterly
impracticable to transact the business of the nation, either at all,
or at least with decency, deliberation, and order.” Thus, Article VI,
Section 16 (3) of the Constitution provides that “each House may
determine the rules of its proceed-ings.” Pursuant to this inherent
constitutional power to promulgate and implement its own rules
of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Same; Same; Same; Separation of Powers; Judicial Review;
Congress is the best judge of how it should conduct its own
business expeditiously and in the most orderly manner; If a change
is desired in the practice [of the Bicameral Conference Committee]
it must be sought in Congress since this question is not covered by
any constitutional provision but is only an internal rule of each
house; Even the expanded jurisdiction of the Supreme Court
cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.—Akin to the
Fariñas case, the present petitions also raise an issue regarding
the actions taken by the conference committee on matters
regarding Congress’ compliance with its own internal rules. As
stated earlier, one of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and
the discipline of its members. Congress is the best judge of how it
should conduct its own business expeditiously and in the most
orderly manner. It is also the sole concern of Congress to instill
discipline among the members of its conference committee if it
believes that said members violated any of its rules of
proceedings. Even the expanded jurisdiction of this Court cannot
apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of
19
government. Moreover, as far back as 1994 or more than ten years

ago, in the case of Tolentino vs. Secretary of Finance, the Court
already made the pronouncement that “[i]f a change is desired in
the practice [of the Bicameral Conference Committee] it must be
sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house.”To date, Congress has not seen it fit to make such changes
adverted to by the Court. It seems, therefore, that Congress finds
the practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative action.
Same; Same; Same; Words and Phrases; The term “settle” is
synonymous to “reconcile” and “harmonize”; To reconcile or
harmonize disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of either the
House bill or Senate bill, (b) decide that neither provisions in the
House bill or the provisions in the Senate bill would be carried into
the final form of the bill, and/or (c) try to arrive at a compromise
between the disagreeing provisions.—Under the provisions of both
the Rules of the House of Representatives and Senate Rules, the
Bicameral Conference Committee is mandated to settle the
differences between the disagreeing provisions in the House bill
and the Senate bill. The term “settle” is synonymous to “reconcile”
and “harmonize.” To reconcile or harmonize disagreeing
provisions, the Bicameral Conference Committee may then (a)
adopt the specific provisions of either the House bill or Senate bill,
(b) decide that neither provisions in the House bill or the
provisions in the Senate bill would be carried into the final form
of the bill, and/or (c) try to arrive at a compromise between the
disagreeing provisions.
Same; Same; Same; It is within the power of a conference
committee to include in its report an entirely new provision that is
not found either in the House bill or in the Senate bill—if the
committee can propose an amendment consisting of one or two
provisions, there is no reason why it cannot propose several
provisions, collectively considered as an “amendment in the nature
of a substitute,” so long as such amendment is germane to the
subject of the bills before the committee.—All the changes or
modifications made by the Bicameral Conference Committee were
germane to subjects of the provisions referred to it for
reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of
20
jurisdiction committed by the Bicameral Conference Committee.

In the earlier cases of Philippine Judges Association vs. Prado
and Tolentino vs. Secretary of Finance, the Court recognized the
longstanding 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.
Same; Same; Same; “No Amendment” Rule; The “no-amend-
ment rule” refers only to the procedure to be followed by each house
of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its
concurrence or amendment—Art. VI, Sec. 26 (2) of the Constitution
cannot be taken to mean that the introduction by the Bicameral
Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.—The Court reiterates here that
the “no-amendment rule” refers only to the procedure to be followed
by each house of Congress with regard to bills initiated in each of
said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill
after one house has voted on it would lead to absurdity as this
would mean that the other house of Congress would be deprived
of its constitutional power to amend or introduce changes to said
bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken
to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing
provisions in bills that have been acted upon by both houses of
Congress is prohibited.
21
Same; Origin of Bills; Revenue Bills; Since there is no

question that the revenue bill originated in the House of
Representatives, the Senate was acting within its constitutional
power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes—Article VI, Section
24 of the Constitution does not contain any prohibition or
limitation on the extent of the amendments that may be introduced
by the Senate to the House revenue bill.—In the present cases,
petitioners admit that it was indeed House Bill Nos. 3555 and
3705 that initiated the move for amending provisions of the NIRC
dealing mainly with the value-added tax. Upon transmittal of said
House bills to the Senate, the Senate came out with Senate Bill
No. 1950 proposing amendments not only to NIRC provisions on
the value-added tax but also amendments to NIRC provisions on
other kinds of taxes. Is the introduction by the Senate of
provisions not dealing directly with the value-added tax, which is
the only kind of tax being amended in the House bills, still within
the purview of the constitutional provision authorizing the Senate
to propose or concur with amendments to a revenue bill that
originated from the House? * * * Since there is no question that
the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional
power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate
income taxes, percentage, excise and franchise taxes. Verily,
Article VI, Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments that
may be introduced by the Senate to the House revenue bill.
Same; Same; Same; The main purpose of the bills emanating
from the House of Representatives is to bring in sizeable revenues
for the government to supplement our country’s serious financial
problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes,
and the Senate, approaching the measures from the point of
national perspective, can introduce amendments within the
purposes of those bills, like providing ways that would soften the
impact of the VAT measure on the consumer.—The main purpose
of the bills emanating from the House of Representatives is to
bring in sizeable revenues for the government to supplement our
country’s serious financial problems, and improve tax
administration and control of the leakages in revenues
22
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.
Same; Same; Same; Germaneness Rule; The amendments
made on provisions in the tax on income of corporations are
germane to the purpose of the house bills which is to raise revenues
for the government, and the sections referring to other percentage
and excise taxes are germane to the reforms to the VAT system, as
these sections would cushion the effects of VAT on consumers.—As
the Court has said, the Senate can propose amendments and in
fact, the amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which
is to raise revenues for the government. Likewise, the Court finds
the sections referring to other percentage and excise taxes
germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers. Considering that
certain goods and services which were subject to percentage tax
and excise tax would no longer be VAT-exempt, the consumer
would be burdened more as they would be paying the VAT in
addition to these taxes. Thus, there is a need to amend these
sections to soften the impact of VAT.
Separation of Powers; Delegation of Powers; A logical
corollary to the doctrine of separation of powers is the principle of
non-delegation of powers, a doctrine based on the ethical principle
that such as delegated power constitutes not only a right but a
duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of
another.—The principle of separation of powers ordains that each
of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. A logical corollary to the
doctrine of separation of powers is the principle of non-delegation
of powers, as expressed in the Latin maxim: potestas delegata non
delegari potest which means “what has been delegated, cannot be
delegated.” This doctrine is based on the ethical principle that
such as delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumen-
23
tality of his own judgment and not through the intervening mind
of another.
Same; Same; Exception to the Non-Delegation of Legislative
Powers; Words and Phrases; The powers which Congress is
prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative—appertaining exclusively to
the legislative department; Purely legislative power has been
described as the authority to make a complete law—complete as to
the time when it shall take effect and as to whom it shall be
applicable—and to determine the expediency of its enactment; It is
the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its
delegation.—With respect to the Legislature, Section 1 of Article
VI of the Constitution provides that “the Legislative power shall
be vested in the Congress of the Philippines which shall consist of
a Senate and a House of Representatives.” The powers which
Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been
described as the authority to make a complete law—complete as to
the time when it shall take effect and as to whom it shall be
applicable—and to determine the expediency of its enactment.
Thus, the rule is that in order that a court may be justified in
holding a statute unconstitutional as a delegation of legislative
power, it must appear that the power involved is purely
legislative in nature—that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the
liability of its use or the manner of its exercise, which determines
the validity of its delegation. Nonetheless, the general rule
barring delegation of legislative powers is subject to the following
recognized limitations or exceptions: (1) Delegation of tariff
powers to the President under Section 28 (2) of Article VI of the
Constitution; (2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution; (3)
Delegation to the people at large; (4) Delegation to local
governments; and (5) Delegation to administrative bodies.
Same; Same; Same; Tests of Valid Delegation; A delegation is
valid only if the law (a) is complete in itself, setting forth therein
the policy to be executed, carried out, or implemented by the
delegate, and (b) fixes a standard—the limits of which are
sufficiently determinate and determinable—to which the delegate
must conform in the per-
24
formance of his functions; A sufficient standard is one which

defines legislative policy, marks its limits, maps out its boundaries
and specifies the public agency to apply it.—In every case of
permissible delegation, there must be a showing that the
delegation itself is valid. It is valid only if the law (a) is complete
in itself, setting forth therein the policy to be executed, carried
out, or implemented by the delegate; and (b) fixes a standard—the
limits of which are sufficiently determinate and determinable—to
which the delegate must conform in the performance of his
functions. A sufficient standard is one which defines legislative
policy, marks its limits, maps out its boundaries and specifies the
public agency to apply it. It indicates the circumstances under
which the legislative command is to be effected. Both tests are
intended to prevent a total transference of legislative authority to
the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
Same; Same; Taxation; While the power to tax cannot be
delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its
operation depends, the rationale being that the preliminary
ascertainment of facts as basis for the enactment of legislation is
not of itself a legislative function but is simply ancillary to
legislation; The Constitution as a continuously operative charter of
government does not require that Congress find for itself every fact
upon which it desires to base legislative action or that it make for
itself detailed determinations which it has declared to be
prerequisite to application of legislative policy to particular facts
and circumstances impossible for Congress itself properly to
investigate.—The legislature may delegate to execu-tive officers or
bodies the power to determine certain facts or conditions, or the
happening of contingencies, on which the operation of a statute is,
by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their authority.
While the power to tax cannot be delegated to executive agencies,
details as to the enforcement and administration of an exercise of
such power may be left to them, including the power to determine
the existence of facts on which its operation depends. The
rationale for this is that the preliminary ascertainment of facts as
basis for the enactment of legislation is not of itself a legislative
function, but is simply ancillary to legislation. Thus, the duty of
correlating informa-
25
tion and making recommendations is the kind of subsidiary

activity which the legislature may perform through its members,
or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is
impossible in the absence of accurate information on the part of
the legislators, and any reasonable method of securing such
information is proper. The Constitution as a continuously
operative charter of government does not require that Congress
find for itself every fact upon which it desires to base legislative
action or that it make for itself detailed determinations which it
has declared to be prerequisite to application of legislative policy
to particular facts and circumstances impossible for Congress
itself properly to investigate.
Same; Same; Same; Statutory Construction; The case before
the Court is not a delegation of legislative power—it is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent; No
discretion would be exercised by the President; The use of the word
“shall” connotes a mandatory order.—The case before the Court is
not a delegation of legislative power. It is simply a delegation of
ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent.
The legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive. No
discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word shall is used in the
common proviso. The use of the word shall connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion. Where the law is clear
and unambiguous, it must be taken to mean exactly what it says,
and courts have no choice but to see to it that the mandate is
obeyed. Thus, it is the ministerial duty of the President to
immediately impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be
evaded by the President. Inasmuch as the law specifically uses
the word shall, the exercise of discretion by the President does not
come into play. It is a clear directive to impose the 12% VAT rate
when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain
specified contingency, or upon
26
the ascertainment of certain facts or conditions by a person or

body other than the legislature itself.
Same; Same; Presidency; Control Power; Doctrine of Qualified
Political Agency; When one speaks of the Secretary of Finance as
the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief
Executive—as such, he occupies a political position and holds
office in an advisory capacity, and, in the language of Thomas
Jefferson, “should be of the President's bosom confidence” and, in
the language of Attorney-General Cushing, is “subject to the
direction of the President.”— When one speaks of the Secretary of
Finance as the alter ego of the President, it simply means that as
head of the Department of Finance he is the assistant and agent
of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by
and through the executive departments, and the acts of the
secretaries of such departments, such as the Department of
Finance, performed and promulgated in the regular course of
business, are, unless disapproved or reprobated by the Chief
Executive, presumptively the acts of the Chief Executive. The
Secretary of Finance, as such, occupies a political position and
holds office in an advisory capacity, and, in the language of
Thomas Jefferson, “should be of the President’s bosom confidence”
and, in the language of Attorney-General Cushing, is “subject to
the direction of the President.”
Same; Same; Same; Same; Same; In the present case, in
making his recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is not acting
as the alter ego of the President or even her subordinate, and he is
not subject to the power of control and direction of the President—
he is acting as the agent of the legislative department, to determine
and declare the event upon which its expressed will is to take
effect, becoming the means or tool by which legislative policy is
determined and implemented.—In the present case, in making his
recommendation to the President on the existence of either of the
two conditions, the Secretary of Finance is not acting as the alter
ego of the President or even her subordinate. In such instance, he
is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department,
to determine and declare the event upon which its expressed will
is to take effect. The Secretary of Finance
27
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.
Same; Same; Congress does not abdicate its functions or
unduly delegate power when it describes what job must be done,
who must do it, and what is the scope of his authority—in our
complex economy that is frequently the only way in which the
legislative process can go forward.—Congress simply granted the
Secretary of Finance the authority to ascertain the existence of a
fact, namely, whether by December 31, 2005, the value-added tax
collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or the
national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). If either
of these two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the
President. Then the 12% VAT rate must be imposed by the
President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally
permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative
process can go forward.
Same; Same; Taxation; Value-Added Tax; The intent and will
to increase the VAT rate to 12% came from Congress and the task
of the President is to simply execute the legislative policy.—As to
the argument of petitioners ABAKADA GURO Party List, et al.
that delegating to the President the legislative power to tax is
contrary to the principle of republicanism, the same deserves
scant consideration. Congress did not delegate the power to tax
but the mere im-
28
plementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is
to simply execute the legislative policy. That Congress chose to do
so in such a manner is not within the province of the Court to
inquire into, its task being to interpret the law.
Judicial Review; The Court does not rule on allegations which
are manifestly conjectural, as these may not exist at all—the Court
deals with facts, not fancies, on realities, not appearances.—The
insinuation by petitioners Pimentel, et al. that the President has
ample powers to cause, influence or create the conditions to bring
about either or both the conditions precedent does not deserve any
merit as this argument is highly speculative. The Court does not
rule on allegations which are manifestly conjectural, as these may
not exist at all. The Court deals with facts, not fancies; on
realities, not appearances. When the Court acts on appearances
instead of realities, justice and law will be short-lived.
Same; Separation of Powers; Statutory Construction;
Rewriting the law is a forbidden ground that only Congress may
tread upon.— Under the common provisos of Sections 4, 5 and 6 of
R.A. No. 9337, if any of the two conditions set forth therein are
satisfied, the President shall increase the VAT rate to 12%. The
provisions of the law are clear. It does not provide for a return to
the 10% rate nor does it empower the President to so revert if,
after the rate is increased to 12%, the VAT collection goes below
the 2 4/5 of the GDP of the previous year or that the national
government deficit as a percentage of GDP of the previous year
does not exceed 1 1/2%. Therefore, no statutory construction or
interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a
forbidden ground that only Congress may tread upon.
Taxation; Value-Added Tax; Fiscal Adequacy; Words and
Phrases; The principle of fiscal adequacy as a characteristic of a
sound tax system, which was originally stated by Adam Smith in
his Canons of Taxation, simply means that sources of revenues
must be adequate to meet government expenditures and their
variations.— That the first condition amounts to an incentive to
the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the
law was passed,
29
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. It
simply means that sources of revenues must be adequate to meet
government expenditures and their variations.
Same; Same; Due Process; Equal Protection; Where the due
process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need
for proof of such persuasive character as would lead to such a
conclusion.—The doctrine is that where the due process and equal
protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
Same; Same; Words and Phrases; Input Tax is defined under
Section 110(A) of the NIRC, as amended, as the value-added tax
due from or paid by a VAT-registered person on the importation of
goods or local purchase of good and services, including lease or use
of property, in the course of trade or business, from a VAT-
registered person, and Output Tax is the value-added tax due on
the sale or lease of taxable goods or properties or services by any
person registered or required to register under the law.—Section 8
of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited
against the output tax. It states, in part: “[P]rovided, that the
input tax inclusive of the input VAT carried over from the
previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: …”” Input Tax is
defined under Section 110(A) of the NIRC, as amended, as the
value-added tax due from or paid by a VAT-registered person on
the importation of goods or local purchase of good and services,
including lease or use of property, in the course of trade or
business, from a VAT-registered person, and Output Tax is the
value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to
register under the law.
30
Same; Same; Due Process; Vested Rights; The input tax is not
a property or a property right within the constitutional purview of
the due process clause—a VAT-registered person’s entitlement to
the creditable input tax is a mere statutory privilege; The right to
credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove or limit;
The distinction between statutory privileges and vested rights must
be borne in mind for persons have no vested rights in statutory
privileges.—The input tax is not a property or a property right
within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is
a mere statutory privilege. The distinction between statutory
privileges and vested rights must be borne in mind for persons
have no vested rights in statutory privileges. The state may
change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested
by virtue of such rights. Under the previous system of single-stage
taxation, taxes paid at every level of distribution are not
recoverable from the taxes payable, although it becomes part of
the cost, which is deductible from the gross revenue. When Pres.
Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on
purchase or importation of goods and services by VAT-registered
persons against the output tax was introduced. This was adopted
by the Expanded VAT Law (R.A. No. 7716), and The Tax Reform
Act of 1997 (R.A. No. 8424). The right to credit input tax as
against the output tax is clearly a privilege created by law, a
privilege that also the law can remove, or in this case, limit.
Same; Same; Congress admitted that the spread-out of the
creditable input tax in this case amounts to a 4-year interest-free
loan to the government; For whatever is the purpose of the 60-
month amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.—It is
worth mentioning that Congress admitted that the spread-out of
the creditable input tax in this case amounts to a 4-year interest-
free loan to the government. In the same breath, Congress also
justified its move by saying that the provision was designed to
raise an annual revenue of 22.6 billion. The legislature also
dispelled the fear that the provision will fend off foreign
investments, saying that foreign investors have other tax
incentives provided by law, and citing the case of China, where
despite a 17.5% non-creditable VAT, foreign investments were not
31
deterred. Again, for whatever is the purpose of the 60-month

amortization, this involves executive economic policy and
legislative wisdom in which the Court cannot intervene.
Same; Same; With regard to the 5% creditable withholding
tax imposed on payments made by the government for taxable
transactions, Section 114 (C) of the National Internal Revenue
Code merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system—the
government in this case is constituted as a withholding agent with
respect to their payments for goods and services.—With regard to
the 5% creditable withholding tax imposed on payments made by
the government for taxable transactions, Section 12 of R.A. No.
9337, which amended Section 114 of the NIRC, reads: * * *
Section 114(C) merely provides a method of collection, or as stated
by respondents, a more simplified VAT withholding system. The
government in this case is constituted as a withholding agent
with respect to their payments for goods and services. Prior to its
amendment, Section 114(C) provided for different rates of value-
added taxes to be withheld—3% on gross payments for purchases
of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross
payments for services supplied by public work contractors; or 10%
on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these
different rates, except for the 10% on lease or property rights
payment to nonresidents, were deleted, and a uniform rate of 5%
is applied.
Same; Same; Words and Phrases; In tax usage, “final,” as
opposed to creditable, means full; As applied to value-added tax,
taxable transactions with the government are subject to a 5% tax
rate, which constitutes as full payment of the tax payable on the
transaction.—The Court observes, however, that the law used the
word final. In tax usage, final, as opposed to creditable, means
full. Thus, it is provided in Section 114(C): “final value-added tax
at the rate of five percent (5%).” In Revenue Regulations No. 02-
98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source. (A) Final
Withholding Tax.—Under the final withholding tax system the
amount of income tax withheld by the withholding agent is
constituted as full and final payment
32
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.
Same; Same; It is clear that Congress intended to treat
differently transactions with the government; Since it has not been
shown that the class subject to the final 5% final withholding tax
has been unreasonably narrowed, there is no reason to invalidate
the provision.—The Court need not explore the rationale behind
the provision. It is clear that Congress intended to treat
differently taxable transactions with the government. This is
supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax
liability of the seller or contractor, to wit: SEC. 114. Return and
Payment of Value-added Tax.—(C) Withholding of Creditable
Value-added Tax.—The Government or any of its political
subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to
the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold the value-added tax due at the rate of three
percent (3%) of the gross payment for the purchase of goods and
six percent (6%) on gross receipts for services rendered by
contractors on every sale or installment payment which shall be
creditable against the value-added tax liability of the seller
or contractor: Provided, however, That in the case of government
public works
33
contractors, the withholding rate shall be eight and one-half

percent (8.5%): Provided, further, That the payment for lease or
use of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of
payment. For this purpose, the payor or person in control of the
payment shall be considered as the withholding agent. The
valued-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied) As amended, the use
of the word final and the deletion of the word creditable exhibits
Congress’s intention to treat transactions with the government
differently. Since it has not been shown that the class subject to
the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the 5% final
withholding tax. It applies to all those who deal with the
government.
Same; Same; Judicial Review; The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and
facts, uncertain—any disquisition by the Court on this point will
only be, as Shakespeare describes life in Macbeth, “full of sound
and fury, signifying nothing”; It need not take an astute
businessman to know that it is a matter of exception that a
business will sell goods or services without profit or value-added.
—Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or value-
added even if there is no profit or value-added. Petitioners’ stance
is purely hypothetical, argumentative, and again, one-sided. The
Court will not engage in a legal joust where premises are what ifs,
arguments, theoretical and facts, uncertain. Any disquisition by
the Court on this point will only be, as Shake-speare describes life
in Macbeth, “full of sound and fury, signifying nothing.” What’s
more, petitioners’ contention assumes the proposition that there
is no profit or value-added. It need not take an astute
businessman to know that it is a matter of exception that a
business will sell goods or services without profit or value-added.
It cannot be overstressed that a business is created precisely for
profit.
Same; Same; Equal Protection; The power of the State to make
reasonable and natural classifications for the purposes of taxation
has long been established.—The equal protection clause under the
Constitution means that “no person or class of persons shall be
de-
34
prived 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.
Same; Same; Same; The equal protection clause does not
require the universal application of the laws on all persons or
things without distinction; While the implementation of the law
may yield varying end results depending on one’s profit margin
and value-added, the Court cannot go beyond what the legislature
has laid down and interfere with the affairs of business.—
Petitioners point out that the limitation on the creditable input
tax if the entity has a high ratio of input tax, or invests in capital
equipment, or has several transactions with the government, is
not based on real and substantial differences to meet a valid
classification. The argument is pedantic, if not outright baseless.
The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the
amounts to be raised, the methods of assessment, valuation and
collection. Petitioners’ alleged distinctions are based on variables
that bear different consequences. While the implementation of the
law may yield varying end results depending on one’s profit
margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of
business. The equal protection clause does not require the
universal application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal
protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is
meant the grouping of persons or things similar to each other in
certain particulars and different from all others in these same
particulars.
Same; Same; Same; Uniformity of Taxation; The rule of
uniform taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the
particular class.—Uniformity in taxation means that all taxable
articles or
35
kinds of property of the same class shall be taxed at the same

rate. Different articles may be taxed at different amounts
provided that the rate is uniform on the same class everywhere
with all people at all times. In this case, the tax law is uniform as
it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC, provide for a rate of
10% (or 12%) on sale of goods and properties, importation of
goods, and sale of services and use or lease of properties. These
same sections also provide for a 0% rate on certain sales and
transaction. Neither does the law make any distinction as to the
type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on
purchase of capital goods or the 5% final withholding tax by the
government. It must be stressed that the rule of uniform taxation
does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular
class.
Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.
— R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does not
apply to sales of goods or services with gross annual sales or
receipts not exceeding P1,500,000.00. Also, basic marine and
agricultural food products in their original state are still not
subject to the tax, thus ensuring that prices at the grassroots level
will remain accessible. As was stated in Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan: The
disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an
aggregate gross annual sales exceeding P200,000.00. Small corner
sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other necessities,
spared as they are from the incidence of the VAT, are expected to
be relatively lower and within the reach of the general public.
Same; Same; Progressive Taxation; Progressive taxation is
built on the principle of the taxpayer’s ability to pay—taxation is
progressive when its rate goes up depending on the resources of the
person affected.—Petitioners contend that the limitation on the
creditable input tax is anything but regressive. It is the smaller
business with higher input tax-output tax ratio that will suffer
the consequences. Progressive taxation is built on the principle of
the taxpayer’s ability
36

to pay. This principle was also lifted from Adam Smith’s Canons
of Taxation, and it states: I. The subjects of every state ought to
contribute towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that is, in
proportion to the revenue which they respectively enjoy under the
protection of the state. Taxation is progressive when its rate goes
up depending on the resources of the person affected.
Same; Same; Same; The VAT is an antithesis of progressive
taxation—by its very nature, it is regressive; The principle of
progressive taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or business for every
goods bought or services enjoyed is the same regardless of income.
—The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation has
no relation with the VAT system inasmuch as the VAT paid by
the consumer or business for every goods bought or services
enjoyed is the same regardless of income. In other words, the VAT
paid eats the same portion of an income, whether big or small.
The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that
is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of
the day, it is really the lower income group or businesses with
low-profit margins that is always hardest hit.
Same; Same; Same; The Constitution does not really prohibit
the imposition of indirect taxes, like the VAT.—The Constitution
does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall “evolve a
progressive system of taxation.” The Court stated in the Tolentino
case, thus: The Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall ‘evolve a
progressive system of taxation.’ The constitutional provision has
been interpreted to mean simply that ‘direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 [Second ed. 1977]) Indeed, the mandate to
Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form
of indirect taxes, would have been prohibited with the procla-
37

mation of Art. VIII, §17 (1) of the 1973 Constitution from which
the present Art. VI, §28 (1) was taken. Sales taxes are also
regressive. Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the taxpayers' ability to
pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC),
while granting exemptions to other transactions. (R.A. No. 7716,
§4 amending §103 of the NIRC)
Same; Same; Judicial Review; The Court cannot strike down
a law as unconstitutional simply because of its yokes.—It has been
said that taxes are the lifeblood of the government. In this case, it
is just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on
the plight of the masses. But it does not have the panacea for the
malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its
yokes. Let us not be overly influenced by the plea that for every
wrong there is a remedy, and that the judiciary should stand
ready to afford relief. There are undoubtedly many wrongs the
judicature may not correct, for instance, those involving political
questions. . . . Let us likewise disabuse our minds from the notion
that the judiciary is the repository of remedies for all political or
social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three distinct
and separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three, and a
zealous regard of the prerogatives of each, knowing full well that
one is not the guardian of the others and that, for official wrong-
doing, each may be brought to account, either by impeachment,
trial or by the ballot box.
DAVIDE, JR., C.J., Separate Concurring and Dissenting

Opinion:
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax;

It was beyond the ambit of the authority of the Senate to propose
amendments to provisions not covered by the House Bills or not related to
the subject matter of the House Bills, which is VAT.— Obviously, these
provisions do not deal with VAT. It must be noted that the House Bills
initiated amendments to provisions pertaining to VAT only. Doubtless,
the Senate has the constitutional power to
38
concur with the amendments to the VAT provisions introduced in the

House Bills or even to propose its own version of VAT measure. But that
power does not extend to initiation of other tax measures, such as
introducing amendments to provisions on corporate income taxes,
percentage taxes, franchise taxes, and excise taxes like what the Senate
did in these cases. It was beyond the ambit of the authority of the Senate
to propose amendments to provisions not covered by the House Bills or
not related to the subject matter of the House Bills, which is VAT. To
allow the Senate to do so would be tantamount to vesting in it the power
to initiate revenue bills—a power that exclusively pertains to the House
of Representatives under Section 24, Article VI of the Constitution, which
provides: Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
PUNO, J., Concurring and Dissenting Opinion:
Judicial Review; Requisites; Ripeness Doctrine; The power of judicial

review under Article VIII, Section 5(2) of the 1987 Constitution is limited
to the review of “actual cases and controversies;” The basic rationale of the
doctrine of ripeness is “to prevent the courts, through premature
adjudication, from entangling themselves in abstract disagreements.”—
The power of judicial review under Article VIII, section 5(2) of the 1987
Constitution is limited to the review of “actual cases and controversies.”
As rightly stressed by retired Justice Vicente V. Mendoza, this
requirement gives the judiciary “the opportunity, denied to the
legislature, of seeing the actual operation of the statute as it is applied to
actual facts and thus enables it to reach sounder judgment” and
“enhances public acceptance of its role in our system of government.” It
also assures that the judiciary does not intrude on areas committed to the
other branches of government and is confined to its role as defined by the
Constitution. Apposite thereto is the doctrine of ripeness whose basic
rationale is “to prevent the courts, through premature adjudication, from
entangling themselves in abstract disagreements.” Central to the
doctrine is the determination of “whether the case involves uncertain or
contingent future events that may not occur as anticipated, or indeed may
not occur at all.” The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which
39

are “not immediately involved are not thereby thrown open for a judicial
determination of constitutionality.”
Same; Same; Same; Taxation; The power to adjust the tax rate given
to the President is futuristic and may or may not be exercised—the Court
is therefore beseeched to render a conjectural judgment based on
hypothetical facts.—It is manifest that the constitutional challenge to
sections 4 to 6 of R.A. No. 9337 cannot hurdle the requirement of
ripeness. These sections give the President the power to raise the VAT rate
to 12% on January 1, 2006 upon satisfaction of certain fact-based
conditions. We are not endowed with the infallible gift of prophesy to
know whether these conditions are certain to happen. The power to
adjust the tax rate given to the President is futuristic and may or may
not be exercised. The Court is therefore beseeched to render a conjectural
judgment based on hypothetical facts. Such a supplication has to be
rejected.
Congress; Bicameral Conference Committee; A Bicameral Conference

Committee has limited powers and cannot be allowed to act as if it were a
“third house” of Congress.—With due respect, I submit that the most
important constitutional issue posed by the petitions at bar relates to the
parameters of power of a Bicameral Conference Committee. Most of the
issues in the petitions at bar arose because the Bicameral Conference
Committee concerned exercised powers that went beyond reconciling the
differences between Senate Bill No. 1950 and House Bill Nos. 3705 and
3555. In Tolentino v. Secretary of Finance, I ventured the view that a
Bicameral Conference Committee has limited powers and cannot be
allowed to act as if it were a “third house” of Congress. I further warned
that unless its roving powers are reigned in, a Bicameral Conference
Committee can wreck the lawmaking process which is a cornerstone of
the democratic, republican regime established in our Constitution. The
passage of time fortifies my faith that there ought to be no legal u-turn
on this preeminent principle.
Same; Same; It is only by strictly following the contours of powers of a

Bicameral Conference Committee, as delineated by the rules of the House
and the Senate, that we can prevent said Committee from acting as a
“third” chamber of Congress.—I respectfully submit that it is only by
strictly following the contours of powers of a Bicameral Conference
Committee, as delineated by the rules of the House and the Senate, that
we can prevent said Committee from acting as a
40

“third” chamber of Congress. Under the clear rules of both the Senate
and House, its power can go no further than settling differences in their
bills or joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the
House of Representatives provide as follows: * * * Under both rules, it is
obvious that a Bicameral Conference Committee is a mere agent of the
House or the Senate with limited powers. The House contingent in the
Committee cannot, on its own, settle differences which are substantial in
character. If it is confronted with substantial differences, it has to go back
to the chamber that created it “for the latter’s appropriate action.” In
other words, it must take the proper instructions from the chambers that
created it. It cannot exercise its unbridled discretion. Where there is no
difference between the bills, it cannot make any change. Where the
difference is substantial, it has to return to the chamber of its origin and
ask for appropriate instructions. It ought to be indubitable that it cannot
create a new law, i.e., that which has never been discussed in either
chamber of Congress. Its parameters of power are not porous, for they are
hedged by the clear limitation that its only power is to settle differences
in bills and joint resolutions of the two chambers of Congress.
Same; Same; Amendments which did not harmonize conflicting

provisions between the constituent bills of R.A. No. 9337 but are entirely
new and extraneous concepts which fall beyond the median thereof
transgress the limits of the Bicameral Conference Committee’s authority
and must be struck down.—These amendments did not harmonize
conflicting provisions between the constituent bills of R.A. No. 9337 but
are entirely new and extraneous concepts which fall beyond the median
thereof. They transgress the limits of the Bicameral Conference
Committee’s authority and must be struck down. I cannot therefore
subscribe to the thesis of the majority that “the changes introduced by
the Bicameral Conference Committee on disagreeing provisions were
meant only to reconcile and harmonize the disagreeing provisions for it
did not inject any idea or intent that is wholly foreign to the subject
embraced by the original provisions.” Same; Same; Germaneness Rule; It
is high time to re-examine the test of germaneness proffered in Tolentino v.
Secretary of Finance, 235 SCRA 630 (1994)—the test of germaneness is
overly broad and is the fountainhead of mischief for it allows the
Bicameral Conference Committee to change provisions in the bills of the
House and the
41
Senate when they are not even in disagreement; The Constitution did not
establish a Bicameral Conference Committee that can act as a “third
house” of Congress with super veto power over bills passed by the Senate
and the House.—The majority further defends the constitutionality of the
above provisions by holding that “all the changes or modifications were
germane to subjects of the provisions referred to it for reconciliation.”
With due respect, it is high time to re-examine the test of germaneness
proffered in Tolentino. The test of germaneness is overly broad and is the
fountainhead of mischief for it allows the Bicameral Conference
Committee to change provisions in the bills of the House and the Senate
when they are not even in disagreement. Worse still, it enables the
Committee to introduce amendments which are entirely new and have
not previously passed through the coils of scrutiny of the members of
both houses. The Constitution did not establish a Bicameral Conference
Committee that can act as a “third house” of Congress with super veto
power over bills passed by the Senate and the House. We cannot concede
that super veto power without wrecking the delicate architecture of
legislative power so carefully laid down in our Constitution. The clear
intent of our fundamental law is to install a lawmaking structure
composed only of two houses whose members would thoroughly debate
proposed legislations in representation of the will of their respective
constituents. The institution of this lawmaking structure is unmistakable
from the following provisions: (1) requiring that legislative power shall be
vested in a bicameral legislature; (2) providing for quorum requirements;
(3) requiring that appropriation, revenue or tariff bills, bills authorizing
increase of public debt, bills of local application, and private bills
originate exclusively in the House of Representatives; (4) requiring that
bills embrace one subject expressed in the title thereof; and (5)
mandating that bills undergo three readings on separate days in each
House prior to passage into law and prohibiting amendments on the last
reading thereof. A Bicameral Conference Committee with untrammeled
powers will destroy this lawmaking structure. At the very least, it will
diminish the free and open debate of proposed legislations and facilitate
the smuggling of what purports to be laws.
Same; Same; Republicanism; It cannot be overemphasized that in a

republican form of government, laws can only be enacted by all the duly
elected representatives of the people—it cuts against conventional wisdom
in democracy to lodge this power in the hands of a few
42
or in the claws of a committee.—It cannot be overemphasized that in a

republican form of government, laws can only be enacted by all the duly
elected representatives of the people. It cuts against conventional wisdom
in democracy to lodge this power in the hands of a few or in the claws of a
committee. It is for these reasons that the argument that we should
overlook the excesses of the Bicameral Conference Committee because its
report is anyway approved by both houses is a futile attempt to square
the circle for an unconstitutional act is void and cannot be redeemed by
any subsequent ratification.
Same; Same; Same; No doomsday scenario will ever justify the

thrashing of the Constitution—the Constitution is meant to be our rule
both in good times as in bad times.—In conclusion, I wish to stress that
this is not the first time nor will it be last that arguments will be foisted
for the Court to merely wink at assaults on the Constitution on the
ground of some national interest, sometimes clear and at other times
inchoate. To be sure, it cannot be gainsaid that the country is in the
vortex of a financial crisis. The broadsheets scream the disconcerting
news that our debt payments for the year 2006 will exceed Pph1 billion
daily for interest alone. Experts underscore some factors that will further
drive up the debt service expenses such as the devaluation of the peso,
credit downgrades and a spike in interest rates. But no doomsday
scenario will ever justify the thrashing of the Constitution. The
Constitution is meant to be our rule both in good times as in bad times. It
is the Court’s uncompromising obligation to defend the Constitution at
all times lest it be condemned as an irrelevant relic.
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be

all-encompassing in some countries like Great Britain, but as applied to
our jurisdiction, it must yield to mandatory provisions of our 1987
Constitution.—I believe, however, that the enrolled bill doctrine is not
absolute. It may be all-encompassing in some countries like Great
Britain, but as applied to our jurisdiction, it must yield to mandatory
provisions of our 1987 Constitution. The Court can take judicial notice of
the form of government in Great Britain. It is unlike that in our country
and, therefore, the doctrine from which it originated could be modified
accordingly by our Constitution. In fine, the enrolled bill doctrine applies
mainly to the internal
43
rules and processes followed by Congress in its principal duty of

lawmaking. However, when the Constitution imposes certain conditions,
restrictions or limitations on the exercise of congressional prerogatives,
the judiciary has both the power and the duty to strike down
congressional actions that are done in plain contravention of such
conditions, restrictions or limitations. Insofar as the present case is
concerned, the three most important restrictions or limitations to the
enrolled bill doctrine are the “origination,” “no-amend-ment” and “three-
reading” rules which I will discuss later.
Same; Bicameral Conference Committee (BCC); The Bicameral

Conference Committee created by Congress to iron out differences between
the Senate and the House of Representatives versions of the E-VAT bills is
one such “branch or instrumentality of the govern-ment,” over which this
Court may exercise certiorari review to determine whether or not grave
abuse of discretion has been committed; and, specifically, to find out
whether the constitutional conditions, restrictions and limitations on law-
making have been violated.—The Bicameral Conference Committee
(BCC) created by Congress to iron out differences between the Senate
and the House of Representatives versions of the E-VAT bills is one such
“branch or instrumentality of the government,” over which this Court
may exercise certiorari review to determine whether or not grave abuse
of discretion has been committed; and, specifically, to find out whether
the constitutional conditions, restrictions and limitations on law-making
have been violated. In general, the BCC has at least five options in
performing its functions: (1) adopt the House version in part or in toto, (2)
adopt the Senate version in part or in toto, (3) consolidate the two
versions, (4) reject non-conflicting provisions, and (5) adopt completely
new provisions not found in either version. This, therefore, is the simple
question: In the performance of its function of reconciling conflicting
provisions, has the Committee blatantly violated the Constitution?
Same; Presidency; Separation of Powers; Control Power; Doctrine of

Qualified Political Agency; I respectfully disagree with the statements
that, first, the Secretary of Finance is “acting as the agent of the legislative
department” or an “agent of Congress” in determining and declaring the
event upon which its expressed will is to take effect; and, second, that the
Secretary’s personality “is in reality but a projection of that of Congress”—
the Secretary of Finance is not an
44
alter ego of Congress, but of the President.—I concur with the ponencia in
that there was no undue delegation of legislative power in the increase
from 10 percent to 12 percent of the VAT rate. I respectfully disagree,
however, with the statements therein that, first, the secretary of finance
is “acting as the agent of the legislative department” or an “agent of
Congress” in determining and declaring the event upon which its
expressed will is to take effect; and, second, that the secretary’s
personality “is in reality but a projection of that of Con-gress.” The
secretary of finance is not an alter ego of Congress, but of the President.
The mandate given by RA 9337 to the secretary is not equipollent to an
authority to make laws. In passing this law, Congress did not restrict or
curtail the constitutional power of the President to retain control and
supervision over the entire Executive Department. The law should be
construed to be merely asking the President, with a recommendation
from the President’s alter ego in finance matters, to determine the
factual bases for making the increase in VAT rate operative. Indeed, as I
have mentioned earlier, the fact-finding condition is a mere
administrative, not legislative, function.
Same; Bicameral Conference Committee; I respectfully submit that

the amendments made by the BCC (that were culled from the Senate
version) regarding income taxes are not legally germane to the subject
matter of the House bills.—I respectfully submit that the amendments
made by the BCC (that were culled from the Senate version) regarding
income taxes are not legally germane to the subject matter of the House
bills. Revising the income tax rates on domestic, resident foreign and
nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends;
and reducing the allowable deduction for interest expense are legally
unrelated and not germane to the subject matter contained in the House
bills; they violate the origination principle.
Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French

engineer, who invented the VAT.—It was Maurice Lauré, a French
engineer, who invented the VAT. In 1954, he had the idea of imposing an
indirect tax on consumption, called taxe sur la valeur ajoutée, which was
quickly adopted by the Direction Générale des Impost, the new French tax
authority of which he became joint director. Consequently, taxpayers at
all levels in the production process,
45
rather than retailers or tax authorities, were forced to administer and

account for the tax themselves.
Same; Same; Due Process; Vested Rights; There is no vested right in a

deferred input tax—it is a mere statutory privilege which the State may
modify or withdraw, being merely an asset granted by operation of law.—
There is no vested right in a deferred input tax account; it is a mere
statutory privilege. The State may modify or withdraw such privilege,
which is merely an asset granted by operation of law. Moreover, there is
no vested right in generally accepted accounting principles. These refer to
accounting concepts, measurement techniques, and standards of
presentation in a company’s financial statements, and are not rooted in
laws of nature, as are the laws of physical science, for these are merely
developed and continually modified by local and international regulatory
accounting bodies. To state otherwise and recognize such asset account as
a vested right is to limit the taxing power of the State. Unlimited,
plenary, comprehensive and supreme, this power cannot be unduly
restricted by mere creations of the State.
Same; Same; Same; Same; In the exercise of its inherent power to tax,
the State validly interferes with the right to property of persons, natural or
artificial; The reduction of tax credits is a question of economic policy, not
of legal perlustration.—Petitioners have not been denied due process or,
as I have illustrated earlier, equal protection. In the exercise of its
inherent power to tax, the State validly interferes with the right to
property of persons, natural or artificial. Those similarly situated are
affected in the same way and treated alike, “both as to privileges
conferred and liabilities enforced.” RA 9337 was enacted precisely to
achieve the objective of raising revenues to defray the necessary expenses
of government. The means that this law employs are reasonably related
to the accomplishment of such objective, and not unduly oppressive. The
reduction of tax credits is a question of economic policy, not of legal
perlustration. Its determination is vested in Congress, not in this Court.
Since the purpose of the law is to raise revenues, it cannot be denied that
the means employed is reasonably related to the achievement of that
purpose. Moreover, the proper congressional procedure for its enactment
was followed; neither public notice nor public hearings were denied.
46
Same; Same; Unlike the laws of physical science, the VAT system can
always be modified to suit modern fiscal demands.—It is contended that
the VAT should be proportional in nature. I submit that this
proportionality pertains to the rate imposable, not the credit allowable.
Private enterprises are subjected to a proportional VAT rate, but VAT
credits need not be. The VAT is, after all, a human concept that is neither
immutable nor invariable. In fact, it has changed after it was adopted as
a system of indirect taxation by other countries. Again unlike the laws of
physical science, the VAT system can always be modified to suit modern
fiscal demands. The State, through the Legislative Department, may
even choose to do away with it and revert to our previous system of
turnover taxes, sales taxes and compensating taxes, in which credits may
be disallowed altogether.
YNARES-SANTIAGO, J., Concurring and Dissenting

Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in the
exercise of this rule-making power, Congress failed to set parameters in
the functions of the Bicameral Conference Committee and allowed the
latter unbridled authority to perform acts which Congress itself is
prohibited, like the passage of a law without undergoing the requisite
three-reading and the so-called no-amendment rule, then the same
amount to grave abuse of discretion which this Court is empowered to
correct under its expanded certiorari jurisdiction.— Section 16(3), Article
VI of the 1987 Constitution explicitly allows each House to determine the
rules of its proceedings. However, the rules must not contravene
constitutional provisions. The rule-making power of Congress should take
its bearings from the Constitution. If in the exercise of this rule-making
power, Congress failed to set parameters in the functions of the
committee and allowed the latter unbridled authority to perform acts
which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment
rule, then the same amount to grave abuse of discretion which this Court
is empowered to correct under its expanded 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.
47
Same; Same; I fully subscribe to the theory advanced in the

Dissenting Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v.
Secretary of Finance that the authority of the bicameral conference
committee was limited to the reconciliation of disagreeing provisions or
the resolution of differences or inconsistencies—the Bicameral Conference
Committee is authorized only to adopt either the version of the House bill
or the Senate bill, or adopt neither.—The Rules of the House of
Representatives and the Rules of the Senate provide that in the event
there is disagreement between the provisions of the House and Senate
bills, the differences shall be settled by a bicameral conference
committee. By this, I fully subscribe to the theory advanced in the
Dissenting Opinion of Chief Justice Hilario G. Davide, Jr. in Tolentino v.
Secretary of Finance that the authority of the bicameral conference
committee was limited to the reconciliation of disagreeing provisions or
the resolution of differences or inconsistencies. Thus, it could only either
(a) restore, wholly or partly, the specific provisions of the House bill
amended by the Senate bill, (b) sustain, wholly or partly, the Senate’s
amendments, or (c) by way of a compromise, to agree that neither
provisions in the House bill amended by the Senate nor the latter’s
amendments thereto be carried into the final form of the former.
Otherwise stated, the Bicameral Conference Committee is authorized
only to adopt either the version of the House bill or the Senate bill, or
adopt neither. It cannot, as the ponencia proposed, “try to arrive at a
compromise,” such as introducing provisions not included in either the
House or Senate bill, as it would allow a mere ad hoc committee to
substitute the will of the entire Congress and without undergoing the
requisite three-reading, which are both constitutionally proscribed. To
allow the committee unbridled discretion to overturn the collective will of
the whole Congress defies logic considering that the bills are passed
presumably after study, deliberation and debate in both houses. A lesser
body like the Bicameral Conference Committee should not be allowed to
substitute its judgment for that of the entire Congress, whose will is
expressed collectively through the passed bills.
Same; Same; No-Amendment Rule; The ponencia’s submission that

despite its limited authority, the Bicameral Conference Committee could
“compromise the disagreeing provisions” by substituting it with its own
version clearly violates the three-reading requirement, as the committee’s
version would no longer undergo the same since it would be immediately
put into vote by the respective houses.—Before
48
a bill becomes a law, it must pass three readings. Hence, the ponencia’s
submission that despite its limited authority, the Bicameral Conference
Committee could “compromise the disagreeing provisions” by substituting
it with its own version—clearly violate the three-reading requirement, as
the committee’s version would no longer undergo the same since it would
be immediately put into vote by the respective houses. In effect, it is not a
bill that was passed by the entire Congress but by the members of the ad
hoc committee only, which of course is constitutionally infirm. I disagree
that the no-amendment rule referred only to “the procedure to be
followed by each house of Congress with regard to bills initiated in each
of said respective houses” because it would relegate the no-amendment
rule to a mere rule of procedure. To my mind, the no-amendment rule
should be construed as prohibiting the Bicameral Conference Committee
from introducing amendments and modifications to non-disagreeing
provisions of the House and Senate bills. In sum, the committee could
only either adopt the version of the House bill or the Senate bill, or adopt
neither. As Justice Reynato S. Puno said in his Dissenting Opinion in
Tolentino v. Secretary of Finance, there is absolutely no legal warrant for
the bold submission that a Bicameral Conference Committee possesses
the power to add/delete provisions in bills already approved on third
reading by both Houses or an ex post veto power.
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting

Opinion:
Congress; Taxation; Separation of Powers; Delegation of Powers;

Taxation 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.—Taxation is an inherent attribute of sovereignty. It
is a power that is purely legislative and which the central legislative body
cannot delegate either to the executive or judicial department of
government without infringing upon the theory of separation of powers.
The rationale of this doctrine may be traced from the democratic
principle of “no taxation without representation.” The power of taxation
being so pervasive, it is in the best interest of the people that such power
be lodged only in the Legislature. Composed of the people’s
representatives, it is “closer to the pulse of the people and . . . are
therefore in a better position to determine both the extent of the legal
burden the people are capable of
49
bearing and the benefits they need.” Also, this set-up provides security
against the abuse of power. As Chief Justice Marshall said: “In imposing
a tax, the legislature acts upon its constituents. The power may be
abused; but the interest, wisdom, and justice of the representative body,
and its relations with its constituents, furnish a sufficient security.”
Consequently, Section 24, Article VI of our Constitution enshrined the
principle of “no taxation without representation” by providing that “all . . .
revenue bills . . . shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.” This provision generally confines the power of taxation to
the Legislature.
Same; Same; Same; Same; Value-Added Tax; R.A. No. 9337, in

granting to the President the stand-by authority to increase the VAT rate
from 10% to 12%, the Legislature abdicated its power by delegating it to
the President.—R.A. No. 9337, in granting to the President the stand-by
authority to increase the VAT rate from 10% to 12%, the Legislature
abdicated its power by delegating it to the President. This is
constitutionally impermissible. The Legislature may not escape its duties
and responsibilities by delegating its power to any other body or
authority. Any attempt to abdicate the power is unconstitutional and
void, on the principle that potestas delegata non delegare potest. As Judge
Cooley enunciated: “One of the settled maxims in constitutional law is,
that the power conferred upon the legislature to make laws cannot be
delegated by that department to any other body or authority. Where the
sovereign power of the state has located the authority, there it must
remain; and by the constitutional agency alone the laws must be made
until the Constitution itself is changed. The power to whose judgment,
wisdom, and patriotism this high prerogative has been entrusted cannot
relieve itself of the responsibility by choosing other agencies upon which
the power shall be devolved, nor can it substitute the judgment, wisdom,
and patriotism of any other body for those to which alone the people have
seen fit to confide this sovereign trust.”
Same; Same; Same; Same; Same; Tariff Powers; If the intention of

the Framers of the Constitution is to permit the delegation of the power to
fix tax rates or VAT rates to the President, such could have been easily
achieved by the mere inclusion of the term “tax rates” or “VAT rates” in the
enumeration.—Noteworthy is the absence of tax rates or VAT rates in the
enumeration. If the intention of the Fram-
50
ers of the Constitution is to permit the delegation of the power to fix tax
rates or VAT rates to the President, such could have been easily achieved
by the mere inclusion of the term “tax rates” or “VAT rates” in the
enumeration. It is a dictum in statutory construction that what is
expressed puts an end to what is implied. Expressium facit cessare
tacitum. This is a derivative of the more familiar maxim express mention
is implied exclusion or expressio unius est exclusio alterius.
Considering that Section 28 (2), Article VI expressly speaks only of “tariff
rates, import and export quotas, tonnage and wharfage dues and other
duties and imposts,” by no stretch of imagination can this enumeration
be extended to include the VAT.
Same; Same; Same; Same; Same; Control Power; The two conditions
set forth by law would have been sufficient had it not been for the fact that
the President, being at the helm of the entire officialdom, has more than
enough power of control to bring about the existence of such conditions—
that the President’s exercise of an authority is practically within her
control is tantamount to giving no conditions at all.—At first glance, the
two conditions may appear to be definite standards sufficient to guide the
President. However, to my mind, they are ineffectual and malleable as
they give the President ample opportunity to exercise her authority in
arbitrary and discretionary fashion. The two conditions set forth by law
would have been sufficient had it not been for the fact that the President,
being at the helm of the entire officialdom, has more than enough power
of control to bring about the existence of such conditions. Obviously, R.A.
No. 9337 allows the President to determine for herself whether the VAT
rate shall be increased or not at all. The fulfillment of the conditions is
entirely placed in her hands. If she wishes to increase the VAT rate, all
she has to do is to strictly enforce the VAT collection so as to exceed the 2
4/5% ceiling. The same holds true with the national government deficit.
She will just limit government expenses so as not to exceed the 1 1/2%
ceiling. On the other hand, if she does not wish to increase the VAT rate,
she may discourage the Secretary of Finance from making the
recommendation. That the President’s exercise of an authority is
practically within her control is tantamount to giving no conditions at all.
I believe this amounts to a virtual surrender of legislative power to her.
It must be stressed that the validity of a law is not tested by what has
been done but by what may be done under its provisions.
51
Same; Taxation; One of the principles of sound taxation is fiscal

adequacy—neither an excess nor a deficiency of revenue vis-à-vis the needs
of government would be in keeping with the principle; Our Senators must
have forgotten that for every increase of taxes, the burden always
redounds to the people; Taxation is not a power to be exercised at one’s
whim.—Why authorize the President to increase the VAT rate on the
premise alone that she deserves an “incentive” or “reward”? Indeed, why
should she be rewarded for performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the principles of
sound taxation is fiscal adequacy. The proceeds of tax revenue should
coincide with, and approximate the needs of, government expenditures.
Neither an excess nor a deficiency of revenue vis-à–-vis the needs of
government would be in keeping with the principle. Equating the grant of
authority to the President to increase the VAT rate with the grant of
additional allowance to a studious son is highly inappropriate. Our
Senators must have forgotten that for every increase of taxes, the burden
always redounds to the people. Unlike the additional allowance given to a
studious son that comes from the pocket of the granting parent alone, the
increase in the VAT rate would be shouldered by the masses. Indeed,
mandating them to pay the increased rate as an award to the President
is arbitrary and unduly oppressive. Taxation is not a power to be
exercised at one’s whim.
Same; Origination Rule; Words and Phrases; It can be reasonably

concluded that when Section 24, Article VI provides that revenue bills
shall originate exclusively from the House of Representatives, what the
Constitution mandates is that any revenue statute must begin or start
solely and only in the House.—The adverb “exclusively” means “in an
exclusive manner.” The term “exclusive” is defined as “excluding or
having power to exclude; limiting to or limited to; single, sole, undivided,
whole.” In one case, this Court define the term “exclusive” as “possessed
to the exclusion of others; appertaining to the subject alone, not
including, admitting, or pertaining to another or others.” As for the term
“originate,” its meaning are “to cause the beginning of; to give rise to; to
initiate; to start on a course or journey; to take or have origin; to be
deprived; arise; begin or start.” With the foregoing definitions in mind, it
can be reasonably concluded that when Section 24, Article VI provides
that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue
statute must
52
begin or start solely and only in the House. Not the Senate. Not both
Chambers of Congress. But there is more to it than that. It also means
that “an act for taxation must pass the House first.” It is no consequence
what amendments the Senate adds. A perusal of the legislative history of
R.A. No. 9337 shows that it did not “exclusively originate” from the House
of Representatives.
Same; Same; The Senate in passing Senate Bill No. 1950, a tax
measure, merely took into account House Bills No. 3555 and 3705, but did
not concur with or amend either or both bills.—Senate Bill No. 1950 is not
based on any bill passed by the House of Representatives. It has a
legislative identity and existence separate and apart from House Bills
No. 3555 and 3705. Instead of concurring or proposing amendments,
Senate Bill No. 1950 merely “takes into consideration” the two House
Bills. To take into consideration means “to take into account.”
Consideration, in this sense, means “deliberation, attention, observation
or contemplation. Simply put, the Senate in passing Senate Bill No. 1950,
a tax measure, merely took into account House Bills No. 3555 and 3705,
but did not concur with or amend either or both bills. As a matter of fact,
it did not even take these two House Bills as a frame of reference. In
Tolentino, the majority subscribed to the view that Senate may amend
the House revenue bill by substitution or by presenting its own version of
the bill. In either case, the result is “two bills on the same subject.” This is
the source of the “germaneness” rule which states that the Senate bill
must be germane to the bill originally passed by the House of
Representatives. In Tolentino, this was not really an issue as both the
House and Senate Bills in question had one subject—the VAT.
Same; Same; Germaneness Rule; The Senate could not, without
violating the germaneness rule and the principle of “exclusive origination,”
propose tax matters not included in the House Bills.—The facts obtaining
here is very much different from Tolentino. It is very apparent that
House Bills No. 3555 and 3705 merely intended to amend Sections 106,
107, 108, 109, 110, 111 and 114 of the NIRC of 1997, pertaining to the
VAT provisions. On the other hand, Senate Bill No. 1950 intended to
amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117,
119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to
matters outside of VAT, such as income tax, percentage tax, franchise
tax, taxes on banks and other financial intermediaries, excise taxes, etc.
Thus, I am of the position
53
that the Senate could not, without violating the germaneness rule and
the principle of “exclusive origination,” propose tax matters not included
in the House Bills.
CALLEJO, SR., J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Foreign Jurisprudence;

There are significant textual differences between the US Federal
Constitution’s and our Constitution’s prescribed congressional procedure
for enacting laws—the degree of freedom accorded by the US Federal
Constitution to the US Congress markedly differ from that accorded by
our Constitution to the Philippine Congress.—To my mind, this
unqualified adherence by the majority opinion in Tolentino, and now by
the ponencia, to the practice of the US Congress and its conference
committee system ought to be re-examined. There are significant textual
differences between the US Federal Constitution’s and our Constitution’s
prescribed congressional procedure for enacting laws. Accordingly, the
degree of freedom accorded by the US Federal Constitution to the US
Congress markedly differ from that accorded by our Constitution to the
Philippine Congress.
Same; Three-Reading Rule; No-Amendment Rule; The “three-reading”

and “no-amendment” rules, absent in the US Federal Constitution, but
expressly mandated by Article VI, Section 26(2) of our Constitution are
mechanisms instituted to remedy the “evils” inherent in a bicameral
system of legislature, including the conference committee system.—The
“three-reading” and “no-amendment” rules, absent in the US Federal
Constitution, but expressly mandated by Article VI, Section 26(2) of our
Constitution are mechanisms instituted to remedy the “evils” inherent in
a bicameral system of legislature, including the conference committee
system. Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of
the Constitution on the Bicameral Conference Committee and the
amendments it introduced to R.A. No. 9337 has “effectively dismantled”
the “three-reading rule” and “no-amendment rule.”
Same; Same; Same; The proscription on amendments upon the last

reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to afford
the public an opportunity to express their opinions or objections thereon;
Analogously, it is said that the “three-reading rule” operates “as a self-
binding mechanism that allows the legisla-
54
ture to guard against the consequences of its own future passions, myopia,
or herd behavior.—It is well to recall the rationale for the “no-
amendment rule” and the “three-reading rule” in Article VI, Section 26(2)
of the Constitution. The proscription on amendments upon the last
reading is intended to subject all bills and their amendments to intensive
deliberation by the legislators and the ample ventilation of issues to
afford the public an opportunity to express their opinions or objections
thereon. Analogously, it is said that the “three-reading rule” operates “as
a self-binding mechanism that allows the legislature to guard against the
consequences of its own future passions, myopia, or herd behavior. By
requiring that bills be read and debated on successive days, legislature
may anticipate and forestall future occasions on which it will be seized by
deliberative pathologies.” As Jeremy Bentham, a noted political analyst,
put it: “[t]he more susceptible a people are of excitement and being led
astray, so much the more ought they to place themselves under the
protection of forms which impose the necessity of reflection, and prevent
surprises.”
AZCUNA, J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; There is here

no abdication by Congress of its power to fix the rate of the tax since the
rate increase provided under the law, from 10% to 12%, is definite and
certain to occur, effective 1 January 2006.—The Gross Domestic Product
for 2005 is estimated at P5.3 Trillion pesos. The tax effort of the present
VAT is now at 1.5%. The national budgetary deficit against the GDP is
now at 3%. So to reduce the deficit to 1.5% from 3%, one has to increase
the tax effort from VAT, now at 1.5%, to at least 3%, thereby exceeding
the 2 4/5 percent ceiling in condition (i), making condition (i) happen. If,
on the other hand, this is not done, then condition (ii) happens—the
budget deficit remains over 1.5%. What is the result of this? The result is
that in reality, the law does not impose any condition, or the rate increase
thereunder, from 10% to 12%, effective January 1, 2006, is unconditional.
For a condition is an event that may or may not happen, or one whose
occurrence is uncertain. Now while condition (i) is indeed uncertain and
condition (ii) is likewise uncertain, the combination of both makes the
occurrence of one of them certain. Accordingly, there is here no abdication
by Congress of its power to fix the rate of the tax since the rate increase
provided under the law, from 10% to 12%, is definite
55
and certain to occur, effective January 1, 2006. All that the President will
do is state which of the two conditions occurred and thereupon
implement the rate increase.
Same; Germaneness Rule; I would rather give the necessary leeway to

Congress, as long as the changes are germane to the bill being changed,
the bill which originated from the House of Representatives, and these are
so, since these were precisely the mitigating measures that go hand-on-
hand with E-VAT, and are, therefore, essential—and hopefully sufficient
—means to enable our people to bear the sacrifices they are being asked to
make; The provisions on corporate income taxes, which are not germane to
the E-VAT law, are not found in the Senate and House bills.—The
introduction of the mitigating or cushioning measures through the
Senate or through the Bicameral Conference Committee, is also being
questioned by petitioners as unconstitutional for violating the rule
against amendments after third reading and the rule that tax measures
must originate exclusively in the House of Representatives (Art. VI, Secs.
24 and 26 [2], Constitution). For my part, I would rather give the
necessary leeway to Congress, as long as the changes are germane to the
bill being changed, the bill which originated from the House of
Representatives, and these are so, since these were precisely the
mitigating measures that go hand-on-hand with the E-VAT, and are,
therefore, essential—and hopefully sufficient—means to enable our
people to bear the sacrifices they are being asked to make. Such an
approach is in accordance with the Enrolled Bill Doctrine that is the
prevailing rule in this jurisdiction. (Tolentino v. Secretary of Finance, 249
SCRA 628 [1994]). The exceptions I find are the provisions on corporate
income taxes, which are not germane to the E-VAT law, and are not
found in the Senate and House bills.
TINGA, J., Dissenting and Concurring Opinion:

Taxation; Value-Added Tax; Judicial Review; Due Process; Taxes
may be inherently punitive, but when the fine line between damage and
destruction is crossed, the courts must step forth and cut the hangman’s
noose.—The E-VAT Law, as it stands, will exterminate our country’s
small to medium enterprises. This will be the net effect of affirming
Section 8 of the law, which amends Sections 110 of the National Internal
Revenue Code (NIRC) by imposing a seventy percent (70%) cap on the
creditable input tax a VAT-registered person may apply every quarter
and a mandatory sixty (60)-month
56
amortization period on the input tax on goods purchased or imported in a

calendar month if the acquisition cost of such goods exceeds One Million
Pesos (P1,000,000.00). Taxes may be inherently punitive, but when the
fine line between damage and destruction is crossed, the courts must step
forth and cut the hangman’s noose. Justice Holmes once confidently
asserted that “the power to tax is not the power to destroy while this
Court sits,” and we should very well live up to this expectation not only of
the revered Holmes, but of the Filipino people who rely on this Court as
the guardian of their rights. At stake is the right to exist and subsist
despite taxes, which is encompassed in the due process clause.
Same; Same; Origination Rule; Article VI, Section 24 of the

Constitution, also known as the origination clause, derives origin from
British practice—from the assertion that the power to tax the public at
large must reside in the representatives of the people, the principle evolved
that money bills must originate in the House of Commons and may not be
amended by the House of Lords; In our country though, both members of
the House and Senate are directly elected by the people, hence the vitality
of the original conception of the rule has somewhat lost luster.—Section 24
is also known as the origination clause, which derives origin from British
practice. From the assertion that the power to tax the public at large
must reside in the representatives of the people, the principle evolved
that money bills must originate in the House of Commons and may not be
amended by the House of Lords. The principle was adopted across the
shores in the United States, and was famously described by James
Madison in The Federalist Papers as follows: This power over the purse,
may in fact be regarded as the most complete and effectual weapon with
which any constitution can arm the immediate representatives of the
people, for obtaining a redress of every grievance, and for carrying into
effect every just and salutary measure. There is an eminent difference
from the British system from which the principle emerged, and from our
own polity. To this day, only members of the British House of Commons
are directly elected by the people, with the members of the House of
Lords deriving their seats from hereditary peerage. Even in the United
States, members of the Senate were not directly elected by the people,
but chosen by state legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British and American
people that tax legislation arises with the consent of the sovereign people,
57
through their directly elected representatives. In our country though,

both members of the House and Senate are directly elected by the people,
hence the vitality of the original conception of the rule has somewhat lost
luster.
Same; Same; Bicameral Conference Committee; Germaneness Rule; I

agree that any amendment made by the Bicameral Conference Committee
that is not germane to the subject matter of the House or Senate Bills is
not valid.—Tolentino adduced the principle, adopted from American
practice, that the version as approved by the Bicameral Conference
Committee need only be germane to the subject of the House and Senate
bills in order to be valid. The majority, in applying the test of
germaneness, upholds the contested provisions of the E-VAT Law. Even
the members of the Court who prepared to strike down provisions of the
law applying germaneness nonetheless accept the basic premise that
such test is controlling. I agree that any amendment made by the
Bicameral Conference Committee that is not germane to the subject
matter of the House or Senate Bills is not valid. It is the only valid
ground by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.
Same; Same; Same; Same; I deem it unduly restrictive on the plenary

powers of Congress to legislate, to coerce the body to adhere to judge-made
standards, such as a standard of “legal germaneness.”— The
germaneness standard which should guide Congress or the Bicameral
Conference Committee should be appreciated in its normal but total
sense. In that regard, my views contrast with that of Justice Panganiban,
who asserts that provisions that are not “legally germane” should be
stricken down. The legal notion of germaneness is just but one component,
along with other factors such as economics and politics, which guides the
Bicameral Conference Committee, or the legislature for that matter, in the
enactment of laws. After all, factors such as economics or politics are
expected to cast a pervasive influence on the legislative process in the
first place, and it is essential as well to allow such “non-legal” elements to
be considered in ascertaining whether Congress has complied with the
criteria of germaneness. Congress is a political body, and its rationale for
legislating may be guided by factors other than established legal
standards. I deem it unduly restrictive on the plenary powers of Congress
to legislate, to coerce the body to adhere to judge-made standards,
58
such as a standard of “legal germaneness.” The Constitution is the only

legal standard that Congress is required to abide by in its enactment of
laws.
Same; Same; Same; Same; It would be myopic to consider that the

subject matter of the House Bill is solely the VAT system, rather than the
generation of revenue—the mere fact that the law is popularly known as
the E-VAT Law, or that most of its provisions pertain to the VAT, or
indirect taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to the
VAT system.—I cannot agree with the position maintained by the Chief
Justice, Justices Panganiban and Azcuna that the provisions of the law
that do not pertain to VAT should be stricken as unconstitutional. These
would include, for example, the provisions raising corporate income
taxes. The Bicameral Conference Committee, in evaluating the proposed
amendments, necessarily takes into account not just the provisions
relating to the VAT, but the entire revenue generating mechanism in
place. If, for example, amendments to non-VAT related provisions of the
NIRC were intended to offset the expanded coverage for the VAT, then
such amendments are germane to the purpose of the House and Senate
Bills. Moreover, it would be myopic to consider that the subject matter of
the House Bill is solely the VAT system, rather than the generation of
revenue. The majority has sufficiently demonstrated that the legislative
intent behind the bills that led to the E-VAT Law was the generation of
revenue to counter the country’s dire fiscal situation. The mere fact that
the law is popularly known as the E-VAT Law, or that most of its
provisions pertain to the VAT, or indirect taxes, does not mean that any
and all amendments which are introduced by the Bicameral Conference
Committee must pertain to the VAT system.
Same; Same; Same; Same; Municipal Corporations; Local

Government Units; Section 21 of the law, which was not contained in
either the House or Senate Bills, imposes restrictions on the use by local
government units of their incremental revenue from the VAT—these
restrictions are alien to the principal purposes of revenue generation, or
the purposes of restructuring the VAT system.—I do believe that the test
of germaneness was violated by the E-VAT Law in one regard. Section 21
of the law, which was not contained in either the House or Senate Bills,
imposes restrictions on the use by local
59
government units of their incremental revenue from the VAT. These

restrictions are alien to the principal purposes of revenue generation, or
the purposes of restructuring the VAT system. I could not see how the
provision, which relates to budgetary allocations, is germane to the E-
VAT Law. Since it was introduced only in the Bicam-eral Conference
Committee, the test of germaneness is essential, and the provision does
not pass muster. I join Justice Puno and the Chief Justice in voting to
declare Section 21 as unconstitutional.
Same; Same; Same; The deletion of the two disparate “no pass on”
provisions which were approved by the House in one instance, and only by
the Senate in the other, remains in the sphere of compromise that
ultimately guides the approval of the final version.—I also offer this brief
comment regarding the deletion of the so-called “no pass on” provisions,
which several of 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.
Same; Same; Same; An outright declaration that the deletion of the

two elementally different “no-pass on” provisions is unconstitutional, is of
dubious efficacy in this case.—An outright declaration that the deletion of
the two elementally different “no-pass on” provi-
60
sions 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.
Same; Same; Due Process; It is difficult though to put into

quantifiable terms how onerous a taxation statute must be before it
contravenes the due process clause.—Sison pronounces more concretely
how a tax statute may contravene the due process clause. Arbitrariness,
confiscation, overstepping the state’s jurisdiction, and lack of a public
purpose are all grounds for nullity encompassed under the due process
invocation. Yet even these more particular standards as enunciated in
Sison are quite exacting, and difficult to reach. Even the constitutional
challenge posed in Sison failed to pass muster. The 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. 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.
61
Same; Same; Same; In testing the validity of a tax statute as against

the due process clause, the Court should go beyond a facial examination of
the statute, and seek to understand how exactly it would operate.—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.
Same; Same; Same; We should not cede ground to those

transgressions of the people’s fundamental rights simply because the
mechanism employed to violate constitutional guarantees is steeped in
disciplines not normally associated with the legal profession.—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 people’s
fundamental rights simply because the mechanism employed to violate
constitutional guarantees is steeped in disciplines not normally
associated with the legal profession. Venality cannot be allowed to
triumph simply due to its sophistication. This petition imputes in the E-
VAT Law unconstitutional oppression of the fatal variety, but in order to
comprehend exactly how and why that is so, one has to delve into the
complex milieu of the VAT system. The party alleging the law’s
unconstitutionality of course has the burden to demonstrate the
violations in understandable terms, but if such proof is presented, the
Court’s duty is to engage accordingly.
62
Same; Same; Same; Judicial Review; 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.—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.
Same; Same; Same; Clear and Present Danger Doctrine; One of the
most significant legal principles of the last century, the “clear and present
danger” doctrine in free speech cases, in fact emanates from the
prospectivity, and not the actuality of danger.—The Court has long
responded to strike down prospective actions, even if the injury has not
yet even occurred. One of the most significant legal principles of the last
century, the “clear and present danger” doctrine in free speech cases, in
fact emanates from the prospectivity, and not the actuality of danger. The
Court has not been hesitant to nullify acts which might cause injury,
owing to the presence of a clear and present danger of a substantive evil
which the State has the right to prevent. It has even extended the “clear
and present danger rule” beyond the confines of freedom of expression to
the realm of freedom
63
of religion, as noted by Justice Puno in his ponencia in Estrada v.

Escritor.
Same; Same; Same; Same; Not every unwise law is unconstitutional,

but every unconstitutional law is unwise, for an unconstitutional law
contravenes a primordial principle or guarantee on which our polity is
founded.—In the same vein, the claim that my arguments strike at the
wisdom, rather than the constitutionality of the law are misplaced.
Concededly, the assailed provisions of the E-VAT law are basically
unwise. But any provision of law that directly contradicts the
Constitution, especially the Bill of Rights, are similarly unwise, as they
run inconsistent with the fundamental law of the land, the enunciated
state policies and the elemental guarantees assured by the State to its
people. Not every unwise law is unconstitutional, but every
unconstitutional law is unwise, for an unconstitutional law contravenes a
primordial principle or guarantee on which our polity is founded.
Same; Same; Same; Same; If our society can take cold comfort in the
ability of the legislature to amend its enactments as the defense against
unconstitutional laws, what remains then as the function of judicial
review? The long-standing tradition has been reliance on the judicial
branch, and not the legislative branch, for salvation from unconstitutional
laws.—It is also asserted that if the implementation of the 70% cap
imposes an unequal effect on different types of businesses with varying
profit margins and capital requirements, then the remedy would be an
amendment of the law. Of course, the remedy of legislative amendment
applies to even the most unconstitutional of laws. But if our society can
take cold comfort in the ability of the legislature to amend its enactments
as the defense against unconstitutional laws, what remains then as the
function of judicial review? This legislative capacity to amend
unconstitutional laws runs concurrently with the judicial capacity to
strike down unconstitutional laws. In fact, the long-standing tradition
has been reliance on the judicial branch, and not the legislative branch,
for salvation from unconstitutional laws.
Same; Same; VAT is distinguishable from the standard excise or

percentage taxes in that it is imposable not only on the final transaction
involving the end user, but on previous stages as well so long as there was
a sale involved.—VAT is distinguishable from the standard excise or
percentage taxes in that it is imposable not only on
64
the final transaction involving the end user, but on previous stages as
well so long as there was a sale involved. Thus, VAT does not simply
pertain to the extra percentage paid by the buyer of a fast-food meal, but
also that paid by restaurant itself to its suppliers of raw food products.
This multi-stage system is more acclimated to the vagaries of the modern
industrial climate, which has long surpassed the stage when there was
only one level of transfer between the farmer who harvests the crop and
the person who eats the crop. Indeed, from the extraction or production of
the raw material to its final consumption by a user, several transactions
or sales materialize. The VAT system assures that the government shall
reap income for every transaction that is had, and not just on the final
sale or transfer.
Same; Same; There is another key characteristic of the VAT—that no
matter how many 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.—There is another key
characteristic of the VAT—that no matter how many the taxable
transactions that precede the final purchase or sale, it is the end-user, or
the consumer, that ultimately shoulders the tax. Despite its name, VAT
is generally not intended to be a tax on value added, but rather as a tax
on consumption. Hence, there is a mechanism in the VAT system that
enables firms to offset the tax they have paid on their own purchases of
goods and services against the tax they charge on their sales of goods and
services. Section 105 of the NIRC assures that “the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.” The assailed provisions of the E-VAT law strike at
the heart of this accepted principle.
Same; Same; In theory, VAT is not supposed to affect the profit

margin—if such margin is affected, it is only because of the prepayment of
the input taxes, and this should be remedied by the immediate recovery
through the crediting system of the settled input taxes; The new E-VAT
law changes all that, and puts in jeopardy the survival of small to
medium enterprises.—Profit is a chancy matter, and in cases of small to
medium enterprises, usually small if any. It is quite common for retail
and distribution enterprises to incur profits of less than 1% of their gross
revenues. Low profitability is not an
65
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.
Same; Same; The majority fails to consider one of the most important
concepts in finance, time value for money—the longer the amount remains
unutilized, the higher the degree of its depreciation in value, in
accordance with the concept of time value of money.—The majority fails to
consider one of the most important concepts in finance, time value for
money. Simply put, the value of one peso is worth more today than in
2006. Money that you hold today is worth more because you can invest it
and earn interest. By reason of the 70% cap, the amount of input VAT
credit that remains unutilized would continue accumulate for months
and years. The longer the amount remains unutilized, the higher the
degree of its depreciation in value, in accordance with the concept of time
value of money. Even assuming that the business eventually recovers the
input VAT credit, the sum recovered would have decreased in practical
value.
Same; Same; The raison d’etre of this 70% cap is to make it appear on
paper that the government is more solvent than it actually is; If the 70%
cap was designed in order to enhance revenue collection, then I submit
that the means employed stand beyond reason.—It would be sad, but fair,
if a business ceases because of its inability to
66
compete with other businesses. It would be utter malevolence to condemn

an enterprise to death solely through the employment of a deceptive
accounting wizardry. For the raison d’etre of this 70% cap is to make it
appear on paper that the government is more solvent than it actually is.
Conceding for the nonce, there is a temporary advantage gained by the
government by this 70% cap, as the steady remittance by businesses of
the 30% output VAT would assure a cash flow. Such collection may only
momentarily resolve an endemic problem in our local tax system, the
problem of collection itself. If the 70% cap was designed in order to
enhance revenue collection, then I submit that the means employed
stand beyond reason. If sheer will proves insufficient in assuring that the
State all taxes due it, there should be allowable discretion for the
government to formulate creative means to enhance collection. But to do
so by depriving low profit enterprises of whatever meager income earned
and consequently assuring the death of these industries goes beyond any
valid State purpose.
Same; Same; The effect of the 70% cap is to effectively impose a tax
amounting to 3% of gross revenue.—Only stable businesses with
substantial cash flows, or extraordinarily successful enterprises will be
able to remain in operation should the 70% cap be retained. The effect of
the 70% cap is to effectively impose a tax amounting to 3% of gross
revenue. The amount may seem insignificant to those without working
knowledge of the ways of business, but anybody who is actually familiar
with business would be well aware the profit margins of the retailing and
distribution sectors typically amount to less than 1% of the gross
revenues. A taxpayer has to earn a margin of at least 3% on gross
revenue in order to recoup the losses sustained due to the 70% cap. But
as stated earlier, profits are chancy, and the entrepreneur does not have
full control of the conditions that lead to profit.
Same; Same; Due Process; The standard of “deprivation of life” of

juridical persons employs different variables than that of natural persons.
—In analyzing the effects of the 70% cap, and appreciating how it
violates the due process clause, we should not focus solely on the end
consumers. Undoubtedly, consumers will face hardships due to the
increased prices, but their threshold of physical survival, as individual
people, is significantly less than that of enterprises. Somehow, I do not
think the new E-VAT would generally deprive
67
consumers of the bare necessities such as food, water, shelter and

clothing. There may be significant deprivation of comfort as a result, but
not of life. The same does not hold true for businesses. The standard of
“deprivation of life” of juridical persons employs different variables than
that of natural persons. What food and water may be for persons, profit is
for an enterprise—the bare necessity for survival. For businesses, the
implementation of the same law, with the 70% cap and 60-month
amortization period, would mean the deprivation of profit, which is the
determinative necessity for the survival of a business.
Same; Same; Same; Catch-22; This is your basic Catch-22 situation—

no matter which means the enterprise employs to recover from the E-VAT
Law, it will still go down in flames.—Reduction of expenditures is not the
exclusive antidote to these impositions under the E-VAT Law, as there
must also be a corresponding increase in the amount of gross sales. To do
so though, would require an increase in the selling price, dampening
consumer enthusiasm, and further impairing the ability of the enterprise
to recover from the E-VAT Law. This is your basic Catch-22 situation—
no matter which means the enterprise employs to recover from the E-
VAT Law, it will still go down in flames.
Same; Same; In essentially prohibiting the recovery of small profit
margins, the E-VAT law effectively sends the message that only high
margin businesses are welcome to do business in the Philip-pines—it
stifles any entrepreneurial ambitions of Filipinos unfortunate enough to
have been born poor yet seek a better life by sacrificing all to start a small
business.—Section 8 of the E-VAT law, while ostensibly even-handed in
application, fails to appreciate valid substantial distinctions between
large scale enterprises and small and medium enterprises. The latter
group, owing to the limited capability for capital investment, subsists on
modest profit margins, whereas the former expects, by reason of its
substantial capital investments, a high margin. In essentially prohibiting
the recovery of small profit margins, the E-VAT law effectively sends the
message that only high margin businesses are welcome to do business in
the Philippines. It stifles any entrepreneurial ambitions of Filipinos
unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.
68
Same; Same; Sadly, the majority refuses to confront the figures or

engage in a meaningful demonstration of how these assailed provisions
truly operate—instead, it counters with platitudes and bromides that do
not intellectually satisfy.—The burden of proof was on the Pilipinas Shell
Dealers’ to prove their allegations, and accordingly, these figures have
been duly presented to the Court for appreciation and evaluation.
Instead, the majority has shunted aside these presentations as being
merely theoretical, despite the fact that they present a clear and present
danger to the very life of our nation’s enterprises. The majority’s position
would have been more credible had it faced the issue squarely, and
endeavored to demonstrate in like numerical fashion why the 70% cap is
not oppressive, confiscatory, or otherwise violative of the due process
clause. Sadly, the majority refuses to confront the figures or engage in a
meaningful demonstration of how these assailed provisions truly operate.
Instead, it counters with platitudes and bromides that do not
intellectually satisfy. Considering that the very vitality, if not life of our
domestic economy is at stake, I think it derelict to our duty to block out
these urgent concerns presented to the Court with blind faith tinged with
irrational Panglossian optimism.
Same; Same; The 70% cap is not merely an unwise imposition—it is a

burden designed, either through sheer heedlessness or cruel calculation, to
kill off the small and medium enterprises that are the soul, if not the
heart, of our economy, and it is not merely an undue taking of property,
but constitutes an unjustified taking of life as well; The illusion of wealth
is hardly a legitimate state purpose, especially if projected at the expense
of the very business life of the country.— The 70% cap is not merely an
unwise imposition. It is a burden designed, either through sheer
heedlessness or cruel calculation, to kill off the small and medium
enterprises that are the soul, if not the heart, of our economy. It is not
merely an undue taking of property, but constitutes an unjustified taking
of life as well. And what legitimate, germane purposes does this lethal
70% cap serve? It certainly does not increase the government’s revenue
since the unutilized creditable input VAT should be entered in the
government books as a debt payable as it is supposed to be eventually
repaid to the taxpayer, and so on the contrary it increases the
government’s debts. I do see that the 70% cap temporarily allows the
government to brag to the world of an increased cash flow. But this
situation would be akin to the provincial man who borrows from
everybody in the barrio
69
in order to show off money and maintain the pretense of prosperity to

visiting city relatives. The illusion of wealth is hardly a legitimate state
purpose, especially if projected at the expense of the very business life of
the country.
Same; Same; What the majority fails to mention is that under Section
10 of the E-VAT Law, which amends Section 112 of the NIRC, the tax
credit or refund may not be done while the enterprise remains operational.
—Nonetheless, the majority notes that the excess creditable input tax
may be the subject of a tax credit certificate, which then could be used in
payment of internal revenue taxes, or a refund to the extent that such
input taxes have not been applied against output taxes. What the
majority fails to mention is that under Section 10 of the E-VAT Law,
which amends Section 112 of the NIRC, such credit or refund may not be
done while the enterprise remains operational.
Same; Same; The inability to immediately credit or otherwise recover

the unutilized input VAT could cause such prepaid amount to actually be
recognized in the accounting books as a loss; What heretofore was
recognized as an asset would now, with the imposition of the 70% cap, be
now considered as a loss, enhancing the view that the 70% cap is
ultimately confiscatory in nature.—The inability to immediately credit or
otherwise recover the unutilized input VAT could cause such prepaid
amount to actually be recognized in the accounting books as a loss. Under
international accounting practices, the unutilized input VAT due to the
70% cap would not even be recognized as a deferred asset. The same
would not hold true if the 70% cap were eliminated. Under the
International Accounting Standards, the unutilized input VAT credit is
recognized as an asset “to the extent that it is probable that future
taxable profit will be available against which the unused tax losses and
unused tax credits can be utili[z]ed” Thus, if the immediate accreditation
of the input VAT credit can be obtained, as it would without the 70% cap,
the asset could be recognized. However, the same Standards hold that
“[t]o the extent that it is not probable that taxable profit will be available
against which the unused tax losses or unused tax credits can be utilised,
the deferred tax asset is not recognised.” As demonstrated, the
continuous operation of the 70% cap precludes the recovery of input VAT
prepaid months or years prior. Moreover, the inability to claim a refund
or tax credit certificate until after the business has
70
already ceased virtually renders it improbable for the input VAT to be

recovered. As such, under the International Accounting Standards, it is
with all likelihood that the prepaid input VAT, ostensibly creditable,
would actually be reflected as a loss. What heretofore was recognized as
an asset would now, with the imposition of the 70% cap, be now
considered as a loss, enhancing the view that the 70% cap is ultimately
confiscatory in nature.
Same; Same; Due Process; Assets would fall under the purview of
property under the due process clause, and if the taxing arm of the State
recognizes that such property belongs to the taxpayer and not to the State,
then due respect should be given to such expert opinion.— The BIR itself
has recognized that unutilized input VAT is one of those assets, corporate
attributes or property rights that, in the event of a merger, are
transferred to the surviving corporation by operation of law. Assets would
fall under the purview of property under the due process clause, and if
the taxing arm of the State recognizes that such property belongs to the
taxpayer and not to the State, then due respect should be given to such
expert opinion. Even under the International Accounting Standards I
adverted to above, the unutilized input VAT credit may be recognized as
an asset “to the extent that it is probable that future taxable profit will
be available against which the unused tax losses and unused tax credits
can be utilised” If not probable, it would be recognized as a loss. Since
these international standards, duly recognized by the Securities and
Exchange Commission as controlling in this jurisdiction, attribute
tangible gain or loss to the VAT credit, it necessarily follows that there is
proprietary value attached to such gain or loss.
Same; Same; Same; To assert that the input VAT is merely a privilege
is to correspondingly claim that the business profit is similarly a mere
privilege.—The prepaid input tax represents unutilized profit, which can
only be utilized if it is refunded or credited to output taxes. To assert that
the input VAT is merely a privilege is to correspondingly claim that the
business profit is similarly a mere privilege. The Constitution itself
recognizes the right to profit by private enterprises. As I stated earlier,
one of the enunciated State policies under the Constitution is the
recognition of the indispensable role of the private sector, the
encouragement of private enterprise, and the provision of incentives to
needed investments. Moreover, the Constitution also requires the State to
recognize the right of
71
enterprises to reasonable returns on investments, and to expansion and

growth. This, I believe, encompasses profit.
Same; Same; The amortization over a five-year period of the input

VAT on these capital goods would definitely eat up into the profit margin
of enterprises.—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.
Same; Same; 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.—Even existing
small to medium enterprises are imperiled by this 60 month amortization
restriction, especially considering the application of the 70% cap. The
additional purchase of capital goods bears as a means of adding value to
the consumer good, as a means to justify the increased selling price.
However, the purchase of capital goods in excess of P1,000,000.00 would
impose another burden on the small to medium enterprise by further
restricting their ability to immediately recover the entire prepaid input
VAT (which would exceed at least
72
P100,000.00), as they would be compelled to wait for at least five years

before they can do so. Another hurdle is imposed for such small to
medium enterprise to obtain the profit margin critical to survival. For
some lucky enterprises who may be able to survive the injury brought
about by the 70% cap, this 60 month amortization period might instead
provide the mortal head wound.
Same; Same; The deletion of the credit apparatus—where tax

withheld would also be creditable against the VAT liability of the seller or
contractor—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.—The principle that the
Government and its subsidiaries may deduct and withhold a final value-
added tax on its purchase of goods and services is not new, as the NIRC
had allowed such deduction and withholding at the rate of 3% of the
gross payment for the purchase of goods, and 6% of the gross receipts for
services. However, the NIRC had also provided that this tax withheld
would also be creditable against the VAT liability of the seller or
contractor, a mechanism that was deleted by the E-VAT law. The deletion
of this credit apparatus effectively compels the private enterprise
transacting with the government to shoulder the output VAT that should
have been paid by the government in excess of 5% of the gross selling price,
and at the same time unduly burdens the private enterprise by precluding
it from applying any creditable input VAT on the same transaction.
Notably, the removal of the credit mechanism runs contrary to the
essence of the VAT system, which characteristically allows the crediting
of input taxes against output taxes. Without such crediting mechanism,
which allows the shifting of the VAT to only the final end user, the tax
becomes a straightforward tax on business or income. The effect on the
enterprise doing business with the government would be that two taxes
would be imposed on the income by the business derived on such
transaction: the regular personal or corporate income tax on such income,
and this final withholding tax of 5%.
Same; Same; 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.—Granted that Congress is not
73
bound to adopt with strict conformity the VAT system, and that it has to
power to impose new taxes on business income, this amendment to
Section 114(C) of the NIRC still remains unconstitutional. It unfairly
discriminates against entities which contract with the government by
imposing an additional tax on the income derived from such transactions.
The end result of such discrimination is double taxation on income that is
both oppressive and confiscatory. It is a legitimate purpose of a tax law to
devise a manner by which the government could save money on its own
transactions, but it is another matter if a private enterprise is punished
for doing business with the government. The erstwhile NIRC worked
towards such advantage, by allowing the government to reduce its cash
outlay on purchases of goods and services by withholding the payment of
a percentage thereof. While the new E-VAT law retains this benefit to the
government, at the same time it burdens the private enterprise with an
additional tax by refusing to allow the crediting of this tax withheld to
the business’s input VAT.
Same; Same; Section 114(C) of the NIRC 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.—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.
Same; Same; Double Taxation; Words and Phrases; Double taxation

means taxing for the same tax period the same thing or activity twice,
when it should be taxed but once, for the same purpose and with the same
kind of character of tax; Double taxation is not expressly forbidden in our
constitution, but the Court has recognized it as obnoxious “where the
taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose.”—Double taxation means
taxing for the same tax period the
74
same thing or activity twice, when it should be taxed but once, for the
same purpose and with the same kind of character of tax. Double
taxation is not expressly forbidden in our constitution, but the Court has
recognized it as obnoxious “where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same jurisdiction for
the same purpose.” Certainly, both the 5% final tax withheld and the
general corporate income tax are both paid for the benefit of the national
government, and for the same incidence of taxation, the sale/lease of
goods and services to the government.
Same; Same; Intelligent tax policy should extend beyond the singular-
minded goal of raising State funds—the old-time philosophy behind the
taxing schemes of war-mongering monarchs and totalitarian states—and
should sincerely explore the concept of taxation as a means of providing
genuine incentives to private enterprise to spur economic growth, of
promoting egalitarian social justice that would allow everyone to their fair
share of the nation’s wealth.—The VAT system, in itself, is intelligently
designed, and stands as a fair means to raise revenue. It has been
adopted worldwide by countries hoping to employ an efficient means of
taxation. The concerns I have raised do not detract from my general
approval of the VAT system. I do lament though that our government’s
wholehearted adoption of the VAT system is endemic of what I deem a
flaw in our national tax policy in the last few decades. The power of
taxation, inherent in the State and ever so powerful, has been generally
employed by our financial planners for a solitary purpose: the raising of
revenue. Revenue generation is a legitimate purpose of taxation, but
standing alone, it is a woefully unsophisticated design. Intelligent tax
policy should extend beyond the singular-minded goal of raising State
funds—the old-time philosophy behind the taxing schemes of war-
mongering monarchs and totalitarian states—and should sincerely
explore the concept of taxation as a means of providing genuine
incentives to private enterprise to spur economic growth; of promoting
egalitarian social justice that would allow everyone to their fair share of
the nation’s wealth. Instead, we are condemned by a national policy
driven by the monomania for State revenue. It may be beyond my oath as
a Justice to compel the government to adopt an economic policy in
consonance with my personal views, but I offer these observations since
they lie at the very heart of the noxiousness of the assailed provisions of
the E-VAT law. The 70% cap, the 60-month amortization period and the
5% withholding tax on govern-
75
ment transactions were selfishly designed to increase government

revenue at the expense of the survival of local industries.
Same; Same; Under the device employed in the E-VAT law, the price
to be paid for a more sustainable liquidity of the government’s finances
will be the death of local business, and correspondingly, the demise of our
society.—I am not insensitive to the concerns raised by the respondents
as to the dire consequences to the economy should the E-VAT law be
struck down. I am aware that the granting of the petition in G.R. No.
168461 will negatively affect the cash flow of the government. If that
were the only relevant concern at stake, I would have no problems
denying the petition. Unfortunately, under the device employed in the E-
VAT law, the price to be paid for a more sustainable liquidity of the
government’s finances will be the death of local business, and
correspondingly, the demise of our society. It is a measure just as
draconian as the standard issue taxes of medieval tyrants.
Same; Same; Taxes may be the lifeblood of the state, but never at the
expense of the life of its subjects.—I am not normally inclined towards the
language of the overwrought, yet if the sky were indeed truly falling, how
else could that fact be communicated. The E-VAT Law is of multiple fatal
consequences. How are we to survive as a nation without the bulwark of
private industries? Perhaps the larger scale, established businesses may
ultimately remain standing, but they will be unable to sustain the void
left by the demise of small to medium enterprises. Or worse, domestic
industry would be left in the absolute control of monopolies, combines or
cartels, whether dominated by foreigners or local oligarchs. The
destruction of subsisting industries would be bad enough, the destruction
of opportunity and the entrepreneurial spirit would be even more
grievous and tragic, as it would mark as well the end of hope. Taxes may
be the lifeblood of the state, but never at the expense of the life of its
subjects.
CHICO-NAZARIO, J., Concurring Opinion:
Congress; Enrolled Bill Doctrine; I believe that it is more prudent for

this Court to remain conservative and to continue its adherence to the
enrolled bill doctrine, for to abandon the said doctrine would be to open a
Pandora’s Box, giving rise to a situation more fraught with evil and
mischief.—Petitioners’ arguments failed to
76
convince me of the wisdom of abandoning the enrolled bill doctrine. I

believe that it is more prudent for this Court to remain conservative and
to continue its adherence to the enrolled bill doctrine, for to abandon the
said doctrine would be to open a Pandora’s Box, giving rise to a situation
more fraught with evil and mischief. Statutes enacted by Congress may
not attain finality or conclusiveness unless declared so by this Court.
This would undermine the authority of our statutes because despite
having been signed and certified by the designated officers of Congress,
their validity would still be in doubt and their implementation would be
greatly hampered by allegations of irregularities in their passage by the
Legislature. Such an uncertainty in the statutes would indubitably result
in confusion and disorder. In all probability, it is the contemplation of
such a scenario that led an American judge to proclaim, thus—. . . Better,
far better, that a provision should occasionally find its way into the
statute through mistake, or even fraud, than, that every Act, state and
national, should at any and all times be liable to put in issue and
impeached by the journals, loose papers of the Legislature, and parol
evidence. Such a state of uncertainty in the statute laws of the land
would lead to mischiefs absolutely intolerable. . . .
Same; Bicameral Conference Committee; It does perplex me that

members of both Houses would again ask the Court to define and limit the
powers of the Bicameral Conference Committee when such committee is of
their own creation; That the majority of the members of both Houses
refuses to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith.—It does perplex me that
members of both Houses would again ask the Court to define and limit
the powers of the Bicameral Conference Committee when such committee
is of their own creation. In a number of cases, this Court already made a
determination of the extent of the powers of the Bicameral Conference
Committee after taking into account the existing Rules of both Houses of
Congress. In gist, the power of the Bicameral Conference Committee to
reconcile or settle the differences in the two Houses’ respective bills is not
limited to the conflicting provisions of the bills; but may include matters
not found in the original bills but germane to the purpose thereof. If both
Houses viewed the pronouncement made by this Court in such cases as
extreme or beyond what they intended, they had the power to amend
their respective Rules to clarify or limit even further the scope of the
authority which they grant to the Bicameral Conference
77
Committee. Petitioners’ grievance that, unfortunately, they cannot bring

about such an amendment of the Rules on the Bicameral Conference
Committee because they are members of the minority, deserves scant
consideration. That the majority of the members of both Houses refuses
to amend the Rules on the Bicameral Conference Committee is an
indication that it is still satisfied therewith. At any rate, this is how
democracy works—the will of the majority shall be controlling.
Taxation; Germaneness Rule; If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles.—Although House Bills No. 3555 and 3705
were limited to the amendments of the provisions on VAT of the National
Internal Revenue Code of 1997, Senate Bill No. 1950 had a much wider
scope and included amendments of other provisions of the said Code,
such as those on income, percentage, and excise taxes. It should be borne
in mind that the very purpose of these three Bills and, subsequently, of
Rep. Act No. 9337, was to raise additional revenues for the government to
address the dire economic situation of the country. The National Internal
Revenue Code of 1997, as its title suggests, is the single Code that
governs all our national internal revenue taxes. While it does cover
different taxes, all of them are imposed and collected by the national
government to raise revenues. If we have one Code for all our national
internal revenue taxes, then there is no reason why we cannot have a
single statute amending provisions thereof even if they involve different
taxes under separate titles. I hereby submit that the amendments
introduced by the Bicameral Conference Committee to non-VAT
provisions of the National Internal Revenue Code of 1997 are not
unconstitutional for they are germane to the purpose of House Bills No.
3555 and 3705 and Senate Bill No. 1950, which is to raise national
revenues.
Same; Value-Added Tax; Since the privilege of an input VAT credit is

granted by law, then an amendment of such law may limit the exercise of
or may totally withdraw the privilege.—The crediting of the input VAT
against the output VAT is a statutory privilege, granted by Section 110 of
the National Internal Revenue Code of 1997. It gives the VAT-registered
person the opportunity to recover the input VAT he had paid, so that, in
effect, the input VAT does not
78

constitute an additional cost for him. While it is true that input VAT
credits are reported as assets in a VAT-registered person’s financial
statements and books of account, this accounting treatment is still based
on the statutory provision recognizing the input VAT as a credit. Without
Section 110 of the National Internal Revenue Code of 1997, then the
accounting treatment of any input VAT will also change and may no
longer be booked outright as an asset. Since the privilege of an input VAT
credit is granted by law, then an amendment of such law may limit the
exercise of or may totally withdraw the privilege.
Same; Same; To say that Congress may not trifle with Section 110 of
the National Internal Revenue Code of 1997 would be to violate a basic
precept of constitutional law—that no law is irrepealable; There can be no
vested right to the continued existence of a statute, which precludes its
change or repeal.—The amendment of Section 110 of the National
Internal Revenue Code of 1997 by Rep. Act No. 9337, which imposed the
70% cap on input VAT credits, is a legitimate exercise by Congress of its
law-making power. To say that Congress may not trifle with Section 110
of the National Internal Revenue Code of 1997 would be to violate a basic
precept of constitutional law—that no law is irrepealable. There can be
no vested right to the continued existence of a statute, which precludes
its change or repeal.
Same; Same; It should be remembered that prior to Rep. Act No.

9337, the petroleum dealers’ input VAT credits were inexistent—they were
unrecognized and disallowed by law—the petroleum dealers had no such
property called input VAT credits.—Under the National Internal Revenue
Code of 1997, before it was amended by Rep. Act No. 9337, the sale or
importation of petroleum products were exempt from VAT, and instead,
were subject to excise tax. Petroleum dealers did not impose any output
VAT on their sales to consumers. Since they had no output VAT against
which they could credit their input VAT, they shouldered the costs of the
input VAT that they paid on their purchases of goods, properties, and
services. Their sales not being subject to VAT, the petroleum dealers had
no input VAT credits to speak of. It is only under Rep. Act No. 9337 that
the sales by the petroleum dealers have become subject to VAT and only
in its implementation may they use their input VAT as credit against
their output VAT. While eager to use their input VAT credit
79
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the
limitation imposed by the very same law on such use. It should be
remembered that prior to Rep. Act No. 9337, the petroleum dealers’ input
VAT credits were inexistent—they were unrecognized and disallowed by
law. The petroleum dealers had no such property called input VAT
credits. It is only rational, therefore, that they cannot acquire vested
rights to the use of such input VAT credits when they were never entitled
to such credits in the first place, at least, not until Rep. Act No. 9337. My
view, at this point, when Rep. Act No. 9337 has not yet even been
implemented, is that petroleum dealers’ right to use their input VAT as
credit against their output VAT unlimitedly has not vested, being a mere
expectancy of a future benefit and being contingent on the continuance of
Section 110 of the National Internal Revenue Code of 1997, prior to its
amendment by Rep. Act No. 9337.
Same; Same; The 70% cap on input VAT credits was not imposed by
Congress arbitrarily—members of the Bicameral Conference Committee
settled on the said percentage so as to ensure that the government can
collect a minimum of 30% output VAT per taxpayer, to put a VAT-
taxpayer, at least, on equal footing with a VAT-exempt taxpayer under
Section 109(V) of the National Internal Revenue Code, as amended by
Rep. Act No. 9337.—I find that the 70% cap on input VAT credits was not
imposed by Congress arbitrarily. Members of the Bicameral Conference
Committee settled on the said percentage so as to ensure that the
government can collect a minimum of 30% output VAT per taxpayer. This
is to put a VAT-taxpayer, at least, on equal footing with a VAT-exempt
taxpayer under Section 109(V) of the National Internal Revenue Code, as
amended by Rep. Act No. 9337. The latter taxpayer is exempt from VAT
on the basis that his sale or lease of goods or properties or services do not
exceed P1,500,000; instead, he is subject to pay a three percent (3%) tax
on his gross receipts in lieu of the VAT. If a taxpayer with presumably a
smaller business is required to pay three percent (3%) gross receipts tax,
a type of tax which does not even allow for any crediting, a VAT-taxpayer
with a bigger business should be obligated, likewise, to pay a minimum of
30% output VAT (which should be equivalent to 3% of the gross selling
price per good or property or service sold). The cap assures the
government a collection of at least 30% output VAT, contributing to an
improved cash flow for the government.
80
SPECIAL CIVIL ACTION in the Supreme Court.
The facts are stated in the opinion of the Court.

Carlos G. Baniqued and Laura Victoria Yuson-Layug for
petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie
Taguian, Agustin C. Bacungan III and Roland Allan C. Abarquez
for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B.
Gorospe for petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of

all, should be borne by everyone, and the more man enjoys the
advantages of society, the more he ought to hold himself honored in
contributing to those expenses.
—Anne Robert Jacques Turgot (1727-1781)

French statesman and economist
Mounting budget deficit, revenue generation, inadequate

fiscal allocation for education, increased emoluments for health
workers, and wider coverage for full value-added tax benefits . . 1.
these are the reasons why Republic Act No. 9337 (R.A. No. 9337)
was enacted. Reasons, the wisdom of which, the Court even with
its extensive constitutional power of review, cannot probe. The
petitioners in these cases, however, question not only the wisdom
of the law, but also perceived constitutional infirmities in its
passage.
_______________
1 Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,
112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National
Internal Revenue Code of 1997, As Amended and For Other Purposes.”
81
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. 2
House Bill No. 3555 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
3
reading.
House Bill No. 3705 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.
_______________
2 Entitled, “An Act Restructuring the Value-Added Tax, Amending for

the Purpose Sections 106, 107, 108, 110 and 114 of the National Internal
Revenue Code of 1997, As Amended, and For Other Purposes.”
3 Entitled, “An Act Amending Sections 106, 107, 108, 109, 110 and 111
of the National Internal Revenue Code of 1997, As Amended, and For
Other Purposes.”
82

Meanwhile, the Senate Committee 4

on Ways and Means
approved Senate Bill No. 1950 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. 5
July 1, 2005 is the effectivity date of R.A. No. 9337.
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
_______________
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.
83

Artemio V. Panganiban, voiced the rationale for its

issuance of the temporary restraining order on July 1,
2005, to wit:
J. . . . But before I go into the details of your

PANGANIBAN: presentation, let me just tell you a little
background. You know when the law took
effect on July 1, 2005, the Court issued a
TRO at about 5 o’clock in the afternoon.
But before that, there was a lot of
complaints aired on television and on
radio. Some people in a gas station were
complaining that the gas prices went up
by 10%. Some people were complaining
that their electric bill will go up by 10%.
Other times people riding in domestic air
carrier were complaining that the prices
that they’ll have to pay would have to go
up by 10%. While all that was being
aired, per your presentation and per our
own understanding of the law, that’s not
true. It’s not true that the e-vat law
necessarily increased prices by 10%
uniformly isn’t it?
ATTY. No, Your Honor.
BANIQUED:
J. It is not?
PANGANIBAN:
ATTY. It’s not, because, Your Honor, there isan
BANIQUED: Executive Order that granted the
Petroleum companies some subsidy . .
.interrupted
J. That’s correct . . .
PANGANIBAN:
ATTY. . . . and therefore that was meant to
BANIQUED: temper the impact . . . interrupted
J. . . . mitigating measures . . .
PANGANIBAN:
ATTY. Yes, Your Honor.
BANIQUED:
J. As a matter of fact a part of the
PANGANIBAN: mitigating measures would be the
eliminationof the Excise Tax and the
import duties.That is why, it is not
correct to say that
84

the VAT as to petroleum dealers

increased prices by 10%.
BANIQUED:

J. And therefore, there is no justification for
PANGANIBAN: increasing the retail price by 10% to cover
the E-Vat tax. If you consider the excise
tax and the import duties, the Net Tax
would probably be in the neighborhood of
7%? We are not going into exact figures I
am just trying to deliver a point that
different industries, different products,
different services are hit differently. So
it’s not correct to say that all prices must
go up by 10%.
ATTY. You’re right, Your Honor.
BANIQUED:
J. Now. For instance, Domestic Airline
PANGANIBAN: 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. I guess so, Your Honor, yes.
BANIQUED:
J. There are other products that the people
PANGANIBAN: were complaining on that first day, were
being increased arbitrarily by 10%. And
that’s one reason among many others this
Court had to issue TRO because of the
confusion in the implementation. That’s
why we added as an issue in this case,
even if it’s tangentially taken up by the
pleadings of the parties, the confusion in
the implementation of the E-vat. Our
people were subjected to the mercy of
that confusion of an across the board
increase of 10%, which you yourself now
admit and I think even the Government
will admit is incorrect. In some cases, it
should be
85

3% only, in some cases it should be 6%

depending on these mitigating measures
and the location and situation of each
product, of each service, of each company,
isn’t it?
BANIQUED:

J. Alright. So that’s one reason why we had
PANGANIBAN: 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
6
the law is upheld by this
Court. . . . The Court also directed the
parties to file their respective
Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA

GURO Party List, et al., filed a petition for prohibition on
May 27, 2005. They question the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10% VAT
on importation of goods, and Section 6 imposes a 10% VAT
on sale of services and use or lease of properties. These
questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after any of the following
conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary

of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
_______________
6 TSN, July 14, 2005.
86

(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half
percent (1 1/2%).
Petitioners argue that the law is unconstitutional, as it

constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed

a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority
of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the increase
in the VAT rate to 12% contingent on any of the two
conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it
imposes an unfair and additional tax burden on the people,
in that: (1) the 12% increase is ambiguous because it does
not state if the rate would be returned to the original 10%
if the conditions are no longer satisfied; (2) the rate is
unfair and unreasonable, as the people are unsure of the
applicable VAT rate from year to year; and (3) the increase
in the VAT rate, which is supposed to be an incentive to the
President to raise the VAT collection to at least 2 4/5 of the
GDP of the previous year, should only be based on fiscal
adequacy.
Petitioners further claim that the inclusion of a stand-by
authority granted to the President by the Bicameral
Conference Committee is a violation of the “no-amendment
rule” upon last reading of a bill laid down in Article VI,
Section 26(2) of the Constitution.
87

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 confisca-tory.
Petitioners’ argument is premised on the constitutional
right of non-deprivation of life, liberty or property without
due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that
may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of
law. Petitioners further contend that like any other
property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same,
the government gets to tax a profit or value-added even if
there is no profit or value-added.
Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the
limitation on
88

the creditable input tax if: (1) the entity has a high ratio of
input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on
real and substantial differences to meet a valid
classification.
Lastly, petitioners contend that the 70% limit is
anything but progressive, violative of Article VI, Section
28(1) of the Constitution, and that it is the smaller
businesses with higher input tax to output tax ratio that
will suffer the consequences thereof for it wipes out
whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by

Rep. Francis Joseph G. Escudero filed this petition for
certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an

undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted
without jurisdiction in deleting the no pass on
provisions present in Senate Bill No. 1950 and
House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee 7
of Sections 27, 28, 34, 116, 117, 119, 121, 125, 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,
alleg-
_______________
7 Section 125 of the National Internal Revenue Code, as amended, was

not amended by R.A. No. 9337, as can be gleaned from the title and body
of the law.
89

ing unconstitutionality of the law on the ground that the

limitation on the creditable input tax in effect allows VAT-
registered establishments to retain a portion of the taxes
they collect, thus violating the principle that tax collection
and revenue should be solely allocated for public purposes
and expenditures. Petitioner Garcia further claims that
allowing these establishments to pass on the tax to the
consumers is inequitable, in violation of Article VI, Section
28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment

in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance,
235 SCRA 630 (1994), respondents argue that the
procedural issues raised by petitioners, i.e., legality of the
bicameral proceedings, exclusive origination of revenue
measures and the power of the Senate concomitant thereto,
have already been settled. With regard to the issue of
undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12%
once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the
increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by
government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the
anchor of the government’s fiscal reform agenda. A reform
in the value-added system of taxation is the core revenue
measure
90
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
91

8
and services. Being an indirect tax on expenditure, the
seller of goods or services
9
may pass on the amount of tax
paid to the
10
buyer, with the seller acting merely as a tax
collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is
directly liable on the transaction or business it engages in,
11
without transferring the burden to someone else.
Examples are individual and corporate12
income taxes,
transfer taxes, and residence taxes.
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”
13
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 or14outputs 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
ra-
_______________
8 Section 105, National Internal Revenue of the Philippines, as

amended.
9 Ibid.
10 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
11 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA
771.
12 Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA
217.
13 Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in
the Philippines (First Edition 2000).
14 Commissioner of Internal Revenue vs. Seagate Technology (Phils.),
G.R. No. 153866, February 11, 2005, 451 SCRA 132.
92

tionalized by imposing a multi-stage tax rate

15
of 0% or 10%
on all sales using the “tax credit method.”
E.O. No. 273 was 16
followed by R.A. No. 7716 or the
Expanded
17
VAT Law, R.A. No. 8241 or the Improved18VAT
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.
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;
_______________
15 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipi-nas, Inc.

vs. Tan, G.R. Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988,
163 SCRA 371.
16 Entitled, “An Act Restructuring the Value-Added Tax (VAT) System,
Widening its Tax Base and Enhancing its Administration, And for these
Purposes Amending and Repealing the Relevant Provisions of the
National Internal Revenue Code, as amended, and for other Purposes.”
17 Entitled, “An Act Amending Republic Act No. 7716, otherwise known
as the Value-Added Tax Law and Other Pertinent Provisions of the
National Internal Revenue Code, as Amended.”
18 Entitled, “An Act Amending the National Internal Revenue Code, as
Amended, and for other Purposes.”
93

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
19
at all, or at least
with decency, deliberation, and order.” Thus, Article VI,
Section 16 (3) of the Constitution provides that “each
House may determine the rules of its proceedings.”
Pursuant to this inherent constitutional power to
promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the
creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of
House of Representatives provides as follows:
Sec. 88. Conference Committee.—In the event that the House does
not agree with the Senate on the amendment to any bill or joint
resolution, the differences may be settled by the conference
committees of both chambers.
In resolving the differences with the Senate, the House panel
shall, as much as possible, adhere to and support the House Bill.
If the differences with the Senate are so substantial that they
materially impair the House Bill, the panel shall report such fact
to the House for the latter’s appropriate action.
_______________
19 Story, Commentaries 835 (1833).
94

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
95

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.
20
In the recent case of Fariñas vs. The Executive Secretary,
the Court En Banc, unanimously reiterated and
emphasized its adherence to the “enrolled bill doctrine,”
thus, declining therein petitioners’ plea for the Court to go
behind the enrolled copy of the bill. Assailed in said case
was Congress’s creation of two sets of bicameral conference
committees, the lack of records of said committees’
proceedings, the alleged violation of said committees of the
rules of both houses, and the disappearance or deletion of
one of the provisions in the compromise bill submitted by
the bicameral conference committee. It was argued that
such irregularities in the passage of the law nullified R.A.
No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the “enrolled bill doctrine,” the signing of a bill by the

Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress that it
was passed are conclusive of its due enactment. A review of cases
reveals the Court’s consistent adherence to the rule. The Court
finds no reason to deviate from the salutary rule in this
case where the irregularities alleged by the petitioners
mostly involved the internal rules of Congress, e.g.,
creation of the 2nd or 3rd Bicameral Conference
Committee by the House. This Court is not the proper
forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules
are merely procedural and with their observance the
courts have no concern. Whatever doubts there may be as
to the formal validity of Rep. Act No. 9006 must be resolved
in its favor. The Court reiterates its ruling in Arroyo vs. De
Venecia, viz.:
But the cases, both here and abroad, in varying forms of

expression, all deny to the courts the power to inquire into
allegations that, in enacting a law, a House
_______________
20 G.R. No. 147387, December 10, 2003, 417 SCRA 503.
96

of Congress failed to comply with its own rules, in the absence of

showing that there was a violation of a constitutional provision
or the rights of private individuals. In Osmeña v. Pendatun, it was
held: “At any rate, courts have declared that ‘the rules adopted by
deliberative bodies are subject to revocation, modification or waiver at
the pleasure of the body adopting them.’ And it has been said that
“Parliamentary rules are merely procedural, and with their
observance, the courts have no concern. They may be waived or
disregarded by the legislative body.” Consequently, “mere failure
to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of
21
members have agreed to a particular measure.” (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 provisions22 in the House and Senate
bills. Akin to the Fariñas case, the present petitions also
raise an issue regarding the actions taken by the
conference committee on matters regarding Congress’
compliance with its own internal rules. As stated earlier,
one of the most basic and inherent power of the legislature
is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how
it should conduct its own business expeditiously and in the
most orderly manner. It is also the sole concern of Congress
to instill discipline among the members of its conference
committee if it believes that said members violated any of
its rules of proceedings. Even the expanded jurisdiction of
this Court cannot apply to questions regarding only the
internal operation of Congress, thus, the Court is wont to
deny a review of the internal proceedings of a co-equal
branch of government.
_______________
21 Id., pp. 529-530.

22 Supra., Note 20.
97

Moreover, as far back as 1994 or more than ten23years ago,

in the case of Tolentino vs. Secretary of Finance, the Court
already made the pronouncement that “[i]f a change is
desired in the practice [of the Bicameral Conference
Committee] it must be sought in Congress since this
question is not covered by any constitutional
24
provision but
is only an internal rule of each house.” To date, Congress
has not seen it fit to make such changes adverted to by the
Court. It seems, therefore, that Congress finds the
practices of the bicameral conference committee to be very
useful for purposes of prompt and efficient legislative
action.
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. House Bill No. Senate Bill No.

3555 3705 1950
With regard to “Stand-By Authority” in favor of President
Provides for 12% Provides for 12% Provides for a
VAT on every sale VAT in general on single rate of 10%
of goods or sales of goods or VAT on sale of
properties properties and goods or properties
(amending Sec. 106 reduced rates for (amending Sec.
of NIRC); 12% VAT sale of certain 106 of NIRC), 10%
on importation of locally VAT on sale of
goods (amending manufactured services including
Sec. 107 of NIRC); goods and sale of electricity
and 12% VAT on petroleum by generation
sale of services and products and raw companies, trans-
use materials to be
used in
_______________
23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.

24 Id., p. 670.
98

or lease of the manufacturethereof mission

properties(amending (amending Sec. 106 of and
Sec. 108 of NIRC) NIRC);12% VAT on distribution
importation of goods companies,
and reduced rates for and use or
certain imported lease of
products including properties
petroleum products (amending
(amending Sec. 107 of Sec. 108 of
NIRC); and 12% VAT NIRC)
on sale of services and
use or lease of
properties and a
reduced rate for certain
services including
power generation
(amending Sec. 108 of
NIRC)
With regard to the “no pass-on” provision

No Provides that the Provides that the VAT
similar VAT imposed on imposed onsales of electricity
provision power generation bygeneration companies and
and on the sale of services of transmission
petroleum companies and distribution
products shall be companies, as well as those of
absorbed by franchise grantees of electric
generation utilities shall not apply to
companies or residential end-users. VAT
sellers, shall be absorbed by
respectively, and generation, transmission,
shall not be and distribution companies.
passed on to
consumers
99

With regard to 70% limit on input tax credit

Provides that the input tax credit No Provides
for capital goods on which a VAT similar that the
has been paid shall be equally provision input tax
distributed over 5 years or the credit for
depreciable life of such capital capital goods
goods; the input tax credit for on which a
goods and services other than VAT has
capital goods shall not exceed 5% been paid
of the total amount of such goods shall be
and services; and for persons equally
engaged in retail trading of goods, distributed
the allowable input tax credit over 5 years
shall not exceed 11% of the total or the
amount of goods purchased. depreciable
life of such
capital
goods; the
input tax
credit for
goods and
services
other than
capital goods
shall not
exceed 90%
of the output
VAT.
With regard to amendments to be made to NIRC provisions

regarding income and excise taxes
No No Provided for amendments to several
similar similar NIRC provisions regarding corporate
provision provision 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
100

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
1/2%, when the President, upon recommendation of
the Secretary of Finance shall raise the rate of VAT
to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only
the VAT imposed on electricity generation,
transmission and distribution companies should not
be passed on to consumers or whether both the VAT
imposed on electricity generation, transmission and
distribution companies and the VAT imposed on
sale of petroleum products may be passed on to con-
101
VOL. 469, SEPTEMBER 1, 2005 101

sumers, the Bicameral Conference Committee chose

to settle such disagreement by altogether deleting
from its Report any no pass-on provision.
With regard to the disagreement on whether input
3. 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.
102

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 term25 “settle” is synonymous to
“reconcile” and “harmonize.” To reconcile or harmonize
disagreeing provisions, the Bicameral Conference
Committee may then (a) adopt the specific provisions of
either th e 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
Bicam-eral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or
intent that is wholly foreign to the subject embraced by the
original provisions.
The so-called stand-by authority in favor of the
President, whereby the rate of 10% VAT wanted by the
Senate is retained until such time that certain conditions
arise when the 12% VAT wanted by the House shall be
imposed, appears to be a compromise to try to bridge the
difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally
within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the
transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto,
Chairman of the Senate Panel, explained the reason for
deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill
simple. And we were thinking that no sector should be a
beneficiary of legislative grace, neither should any sector be
discriminated on. The VAT is an indirect tax. It is a pass on-tax.
And let’s keep it
_______________
25 Webster’s Third New International Dictionary, p. 1897.
103
VOL. 469, SEPTEMBER 1, 2005 103

plain and simple. Let’s not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this
two-thirds of the globe, I have yet to see a VAT with a no pass-
though provision. So, the thinking26
of the Senate is basically
simple, let’s keep the VAT simple. (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that

the no pass-on provision
27
“never really enjoyed the support
of either House.”
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 28
collection efforts at an apparent
disadvantage.”
As to the amendments to NIRC provisions on taxes
other than the value-added tax proposed in Senate Bill No.
1950, since said provisions were among those referred to it,
the conference committee had to act on the same and it
basically adopted the version of the Senate.
Thus, all the changes or modifications made by the
Bicameral Conference Committee were germane to subjects
of the
_______________
26 TSN, Bicameral Conference Committee on the Disagreeing

Provisions of Senate Bill No. 1950 and House Bill Nos. 3705 and 3555,
May 10, 2005, p. 4.
27 Id., p. 3.
28 Sponsorship Speech of Representative Teves, in behalf of
Representative Jesli Lapus, TSN, January 7, 2005, pp. 34-35.
104

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 29
earlier cases
of Philippine Judges Association
30
vs. Prado and Tolentino
vs. Secretary of Finance, the Court recognized the long-
standing legislative practice of giving said conference
committee ample latitude for compromising differences
between the Senate and the House. Thus, in the Tolentino
case, it was held that:
. . . it is within the power of a conference committee to include in

its report an entirely new provision that is not found either in the
House bill or in the Senate bill. If the committee can propose an
amendment consisting of one or two provisions, there is no reason
why it cannot propose several provisions, collectively considered
as an “amendment in the nature of a substitute,” so long as such
amendment is germane to the subject of the bills before the
committee. After all, its report was not final but needed the
approval of both houses of Congress to become valid as an act of
the legislative department. The charge that in this case the
Conference Committee acted as 31
a third legislative
chamber is thus without any basis. (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI,

Section 26(2) of the Constitution on the
“No-Amendment Rule”
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has

passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies
to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be
_______________
29 G.R. No. 105371, November 11, 1993, 227 SCRA 703.

30 Supra, Note 23.
31 Id., p. 668.
105
VOL. 469, SEPTEMBER 1, 2005 105

allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral

conference committee is allowed to add or delete provisions
in the House bill and the Senate bill after these had passed
three readings is in effect a circumvention of the “no
amendment rule” (Sec. 26 (2), Art. VI of the 1987
Constitution), fails to convince the Court to deviate from its
ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s Report
in these cases must have undergone three readings in each of the
two houses. If that be the case, there would be no end to
negotiation since each house may seek modification of the
compromise bill . . . .
Art. VI. § 26 (2) must, therefore, be construed as
referring only to bills introduced for the first time in
either house
32
of Congress, not to the conference committee
report. (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.
_______________
32 Id., p. 671.
106

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) Tax on Resident Foreign Corporation
(1)
28(B) Inter-corporate Dividends
(1)
34(B) Inter-corporate Dividends
(1)
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers
ofGarage
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
107
VOL. 469, SEPTEMBER 1, 2005 107

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 Senate’s power not
only to “concur with amendments” but also to “propose
amendments.” It would be to violate
108

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 33
are thereby made to bear on the enactment of such laws.
(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:
_______________
33 Id., pp. 661-663.
109
VOL. 469, SEPTEMBER 1, 2005 109

One of the challenges faced by the present administration is the

urgent and daunting task of solving the country’s serious
financial problems. To do this, government expenditures must be
strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but
our fiscal authorities are still optimistic the government will be
operating on a balanced budget by the year 2009. In fact, several
measures that will result to significant expenditure savings have
been identified by the administration. It is supported with a
credible package of revenue measures that include
measures to improve tax administration and control the
leakages in revenues from income taxes and the value-
added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House

Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she

reiterated that we all acknowledged that on top of our agenda
must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector
deficit and eventually achieve a balanced budget by the year 2009,
we need to seize windows of opportunities which might
seem poignant in the beginning, but in the long run prove
effective and beneficial to the overall status of our
economy. One such opportunity is a review of existing tax
rates, evaluating
34
the relevance given our present
conditions. (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating

from the House of Representatives is to bring in sizeable
revenues for the government to supplement our country’s
serious financial problems, and improve tax administration
and control of the leakages in revenues from income taxes
and value-added taxes. As these house bills were
transmitted to the Senate, the latter, approaching the
measures from the point of national perspective, can
introduce amendments within the purposes of those bills. It
can provide for ways that
_______________
34 Transcript of Session Proceedings, January 7, 2005, pp. 19-20.
110

would soften the impact of the VAT measure on the

consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the
consumers. The sponsorship speech of Sen. Ralph Recto on
why the provisions on income tax on corporation were
included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and
Means will raise P64.3 billion in additional revenues annually
even while by mitigating prices of power, services and petroleum
products.
However, not all of this will be wrung out of VAT. In fact, only
P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab—P10.5 billion- will be picked by
corporations. What we therefore prescribe is a burden sharing
between corporate Philippines and the consumer. Why should the
latter bear all the pain? Why should the fiscal salvation be only on
the burden of the consumer?
The corporate world’s equity is in form of the increase in the
corporate income tax from 32 to 35 percent, but up to 2008 only.
This will raise P10.5 billion a year. After that, the rate will slide
back, not to its old rate of 32 percent, but two notches lower, to 30
percent.
Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This
fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them.
We intend to keep the length of their sacrifice brief. We would like
to assure them that not because there is a light at the end of the
tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders35
of
the small man. Big business will be there to share the burden.
As the Court has said, the Senate can propose amendments

and in fact, the amendments made on provisions in the tax
on
_______________
35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
111
VOL. 469, SEPTEMBER 1, 2005 111

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 the36
blow of higher prices they will
have to pay as a result of VAT.
The other sections amended by the Senate pertained to

matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are
germane to the subject matter and purposes of the house
bills, which is to supplement our country’s fiscal deficit,
among
_______________
36 Id., p. 726.
112

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.
113
VOL. 469, SEPTEMBER 1, 2005 113


14 Supreme Court Reports Annotated: Abakada Guro Party List vs. Ermita

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14 Supreme Court Reports Annotated: Abakada Guro Party List vs. Ermita

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14 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

ABAKADA GURO PARTY LIST (Formerly AASJAS)

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

ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

VOL. 469, SEPTEMBER 1, 2005 15

doing business under the name and style of “NEW

16 SUPREME COURT REPORTS ANNOTATED

Finance and GUILLERMO L. PARAYNO, JR., in his

G.R. No. 168463. September 1, 2005.*

FRANCIS JOSEPH G. ESCUDERO, VINCENT

G.R. No. 168730. September 1, 2005.*

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.,

Taxation; Value-Added Tax (VAT); Words and Phrases; The

VOL. 469, SEPTEMBER 1, 2005 17

Abakada Guro Party List vs. Ermita

concepts of value-added tax (VAT), as the confusion and

18 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

Congress; Bicameral Conference Committee; Legislative Rules;

VOL. 469, SEPTEMBER 1, 2005 19

Abakada Guro Party List vs. Ermita

government. Moreover, as far back as 1994 or more than ten years

20 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

jurisdiction committed by the Bicameral Conference Committee.

VOL. 469, SEPTEMBER 1, 2005 21

Abakada Guro Party List vs. Ermita

Same; Origin of Bills; Revenue Bills; Since there is no

22 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

from income taxes and value-added taxes. As these house bills

VOL. 469, SEPTEMBER 1, 2005 23

Abakada Guro Party List vs. Ermita

24 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

formance of his functions; A sufficient standard is one which

VOL. 469, SEPTEMBER 1, 2005 25

Abakada Guro Party List vs. Ermita

tion and making recommendations is the kind of subsidiary

26 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

the ascertainment of certain facts or conditions by a person or

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Abakada Guro Party List vs. Ermita

becomes the means or tool by which legislative policy is

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Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

which in this case, is mainly to raise revenue. In fact, fiscal

30 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita

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Abakada Guro Party List vs. Ermita

deterred. Again, for whatever is the purpose of the 60-month

32 SUPREME COURT REPORTS ANNOTATED

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Abakada Guro Party List vs. Ermita

contractors, the withholding rate shall be eight and one-half

34 SUPREME COURT REPORTS ANNOTATED

Abakada Guro Party List vs. Ermita