G.R. No.

168056 September 1, 2005 President certified the bill on March 11, 2005, and was approved by the Senate on second and third
reading on April 13, 2005.
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners, On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a
vs. committee conference on the disagreeing provisions of the proposed bills.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill
GUILLERMO PARAYNO, JR., Respondent. 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
x-------------------------x Representatives agreeing thereto the next day, May 11, 2005.

DECISION 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.
AUSTRIA-MARTINEZ, J.:
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary
The expenses of government, having for their object the interest of all, should be borne by everyone, and restraining order, effective immediately and continuing until further orders, enjoining respondents from
the more man enjoys the advantages of society, the more he ought to hold himself honored in enforcing and implementing the law.
contributing to those expenses.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through
-Anne Robert Jacques Turgot (1727-1781) Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining
order on July 1, 2005, to wit:
French statesman and economist
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased background. You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5
emoluments for health workers, and wider coverage for full value-added tax benefits … these are the o’clock in the afternoon. But before that, there was a lot of complaints aired on television and on radio.
reasons why Republic Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Some people in a gas station were complaining that the gas prices went up by 10%. Some people were
Court even with its extensive constitutional power of review, cannot probe. The petitioners in these complaining that their electric bill will go up by 10%. Other times people riding in domestic air carrier
cases, however, question not only the wisdom of the law, but also perceived constitutional infirmities in were complaining that the prices that they’ll have to pay would have to go up by 10%. While all that was
its passage. 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?
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 ATTY. BANIQUED : No, Your Honor.
unconstitutional.
J. PANGANIBAN : It is not?
LEGISLATIVE HISTORY
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and companies some subsidy . . . interrupted
Senate Bill No. 1950.
J. PANGANIBAN : That’s correct . . .
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways
and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
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 J. PANGANIBAN : . . . mitigating measures . . .
reading.
ATTY. BANIQUED : Yes, Your Honor.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F.
Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the
3555. The House Committee on Ways and Means approved the bill on February 2, 2005. The President Excise Tax and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers
also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on second increased prices by 10%.
and third reading on February 28, 2005.
ATTY. BANIQUED : Yes, Your Honor.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7,
2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover
3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and the E-Vat tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the
1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. 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 On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
must go up by 10%. constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.

ATTY. BANIQUED : You’re right, Your Honor. 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
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the
Sales Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and
So, therefore, there is no justification to increase the fares by 10% at best 7%, correct? 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
ATTY. BANIQUED : I guess so, Your Honor, yes. 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
J. PANGANIBAN : There are other products that the people were complaining on that first day, were collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy.
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 Petitioners further claim that the inclusion of a stand-by authority granted to the President by the
tangentially taken up by the pleadings of the parties, the confusion in the implementation of the E-vat. Bicameral Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill
Our people were subjected to the mercy of that confusion of an across the board increase of 10%, which laid down in Article VI, Section 26(2) of the Constitution.
you yourself now admit and I think even the Government will admit is incorrect. In some cases, it should
be 3% only, in some cases it should be 6% depending on these mitigating measures and the location and G.R. No. 168461
situation of each product, of each service, of each company, isn’t it?
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
ATTY. BANIQUED : Yes, Your Honor. Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337:

J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all 1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods
these and we wish the government will take time to clarify all these by means of a more detailed shall be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds
implementing rules, in case the law is upheld by this Court. . . .6 One Million Pesos (₱1, 000,000.00);

The Court also directed the parties to file their respective Memoranda. 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
G.R. No. 168056
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section and properties) and 108 (sale of services and use or lease of properties) of the NIRC.
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 Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive,
questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the and confiscatory.
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: 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
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, petitioners, the contested sections impose limitations on the amount of input tax that may be claimed.
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated,
been satisfied: 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
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
exceeds two and four-fifth percent (2 4/5%); or
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1)
percent (1 ½%). 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.
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 Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section
Constitution. 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
G.R. No. 168207 make.
G.R. No. 168463 PROCEDURAL ISSUE

Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this Whether R.A. No. 9337 violates the following provisions of the Constitution:
petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the
following grounds: a. Article VI, Section 24, and

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation b. Article VI, Section 26(2)
of Article VI, Section 28(2) of the Constitution;
SUBSTANTIVE ISSUES
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 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:
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,7
148, 151, 236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) a. Article VI, Section 28(1), and
of the Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively
in the House of Representatives b. Article VI, Section 28(2)

G.R. No. 168730 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
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, Constitution:
2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax
in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating a. Article VI, Section 28(1), and
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 b. Article III, Section 1
the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RULING OF THE COURT
RESPONDENTS’ COMMENT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners
failed to cast doubt on its validity. The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods
or properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA on the amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of
VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.
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 In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
concomitant thereto, have already been settled. With regard to the issue of undue delegation of engages in, without transferring the burden to someone else.11 Examples are individual and corporate
legislative power to the President, respondents contend that the law is complete and leaves no income taxes, transfer taxes, and residence taxes.12
discretion to the President but to increase the rate to 12% once any of the two conditions provided
therein arise. 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
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on method" and was payable only by the original sellers. The single-stage system was subsequently
the creditable input tax, the 60-month amortization on the purchase or importation of capital goods modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine
exceeding ₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, the value-added tax payable.13 Under the "tax credit method," an entity can credit against or subtract
oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.14
among others.
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit
A reform in the value-added system of taxation is the core revenue measure that will tilt the balance method."15
towards a sustainable macroeconomic environment necessary for economic growth.
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved
ISSUES VAT Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A.
No. 9337, also referred to by respondents as the VAT Reform Act.
The Court defined the issues, as follows:
The Court will now discuss the issues in logical sequence.
 Rule XII, Section 35 of the Rules of the Senate states:
PROCEDURAL ISSUE
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision
I. 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
Whether R.A. No. 9337 violates the following provisions of the Constitution: of the Senate Panel in the conference committee with the approval of the Senate.

a. Article VI, Section 24, and 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
b. Article VI, Section 26(2) each House panel, voting separately.

A. The Bicameral Conference Committee 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.
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; 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
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills; 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
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the discipline its members, may the Court then delve into the details of how Congress complies with its
output tax; and 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
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in committee are unconstitutional, but whether the bicameral conference committee has strictly complied
addition to the value-added tax. with the rules of both houses, thereby remaining within the jurisdiction conferred upon it by Congress.

Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee. In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated
and emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners’ plea for
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any the Court to go behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two
legislative body for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be sets of bicameral conference committees, the lack of records of said committees’ proceedings, the
utterly impracticable to transact the business of the nation, either at all, or at least with decency, alleged violation of said committees of the rules of both houses, and the disappearance or deletion of
deliberation, and order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each House one of the provisions in the compromise bill submitted by the bicameral conference committee. It was
may determine the rules of its proceedings." Pursuant to this inherent constitutional power to argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.
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. Striking down such argument, the Court held thus:

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows: 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
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the conclusive of its due enactment. A review of cases reveals the Court’s consistent adherence to the rule.
amendment to any bill or joint resolution, the differences may be settled by the conference committees The Court finds no reason to deviate from the salutary rule in this case where the irregularities alleged by
of both chambers. 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
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and internal rules of Congress, whether House or Senate. Parliamentary rules are merely procedural and with
support the House Bill. If the differences with the Senate are so substantial that they materially impair their observance the courts have no concern. Whatever doubts there may be as to the formal validity of
the House Bill, the panel shall report such fact to the House for the latter’s appropriate action. Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia,
viz.:
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit
statement of the changes in or amendments to the subject measure. But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in
... the absence of showing that there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the
voting thereon. The House shall vote on the Conference Committee Report in the same manner and body adopting them.’ And it has been said that "Parliamentary rules are merely procedural, and with
procedure as it votes on a bill on third and final reading. their observance, the courts have no concern. They may be waived or disregarded by the legislative
body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action
(taken by a deliberative body) when the requisite number of members have agreed to a particular Provides for a single rate of 10% VAT on sale of goods or properties (amending Sec. 106 of NIRC), 10%
measure."21 (Emphasis supplied) VAT on sale of services including sale of electricity by generation companies, transmission and
distribution companies, and use or lease of properties (amending Sec. 108 of NIRC)
The foregoing declaration is exactly in point with the present cases, where petitioners allege
irregularities committed by the conference committee in introducing changes or deleting provisions in With regard to the "no pass-on" provision
the House and Senate bills. Akin to the Fariñas case,22 the present petitions also raise an issue regarding
the actions taken by the conference committee on matters regarding Congress’ compliance with its own No similar provision
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 Provides that the VAT imposed on power generation and on the sale of petroleum products shall be
absorbed by generation companies or sellers, respectively, and shall not be passed on to consumers
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. Provides that the VAT imposed on sales of electricity by generation companies and services of
transmission companies and distribution companies, as well as those of franchise grantees of electric
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of utilities shall not apply to residential
Finance,23 the Court already made the pronouncement that "[i]f a change is desired in the practice [of
the Bicameral Conference Committee] it must be sought in Congress since this question is not covered by end-users. VAT shall be absorbed by generation, transmission, and distribution companies.
any constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen
it fit to make such changes adverted to by the Court. It seems, therefore, that Congress finds the With regard to 70% limit on input tax credit
practices of the bicameral conference committee to be very useful for purposes of prompt and efficient
legislative action. Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally
distributed over 5 years or the depreciable life of such capital goods; the input tax credit for goods and
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the services other than capital goods shall not exceed 5% of the total amount of such goods and services;
bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court and for persons engaged in retail trading of goods, the allowable input tax credit shall not exceed 11% of
observes that there was a necessity for a conference committee because a comparison of the provisions the total amount of goods purchased.
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:
No similar provision
House Bill No. 3555

Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally
House Bill No.3705 distributed over 5 years or the 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.

Senate Bill No. 1950 With regard to amendments to be made to NIRC provisions regarding income and excise taxes

With regard to "Stand-By Authority" in favor of President No similar provision

Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on
importation of goods (amending Sec. 107 of NIRC); and 12% VAT on sale of services and use or lease of No similar provision
properties (amending Sec. 108 of NIRC)

Provided for amendments to several NIRC provisions regarding corporate income, percentage, franchise
Provides for 12% VAT in general on sales of goods or properties and reduced rates for sale of certain and excise taxes
locally manufactured goods and petroleum products and raw materials to be used in the manufacture
thereof (amending Sec. 106 of NIRC); 12% VAT on importation of goods and reduced rates for certain The disagreements between the provisions in the House bills and the Senate bill were with regard to (1)
imported products including petroleum products (amending Sec. 107 of NIRC); and 12% VAT on sale of what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation,
services and use or lease of properties and a reduced rate for certain services including power transmission and distribution companies should not be passed on to consumers, as proposed in the
generation (amending Sec. 108 of NIRC) 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.
 the specific provisions of either the House bill or Senate bill, (b) decide that neither provisions in the
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, House bill or the provisions in the Senate bill would
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 be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
on the disagreeing provisions by making the following changes: provisions.

1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject
difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the any idea or intent that is wholly foreign to the subject embraced by the original provisions.
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 The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the
gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government deficit as a Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House
percentage of GDP of the previous year exceeds 1½%, when the President, upon recommendation of the shall be imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed
Secretary of Finance shall raise the rate of VAT to 12% effective January 1, 2006. 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.
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 The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained
of petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to the reason for deleting the no pass-on provision in this wise:
settle such disagreement by altogether deleting from its Report any no pass-on provision.
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral should be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an
Conference Committee decided to adopt the position of the House by putting a limitation on the amount indirect tax. It is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put a no
of input tax that may be credited against the output tax, although it crafted its own language as to the pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have
amount of the limitation on input tax credits and the manner of computing the same by providing thus: yet to see a VAT with a no pass-though provision. So, the thinking of the Senate is basically simple, let’s
keep the VAT simple.26 (Emphasis supplied)
(A) Creditable Input Tax. – . . .
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed
... the support of either House."27

Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business With regard to the amount of input tax to be credited against output tax, the Bicameral Conference
for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month Committee came to a compromise on the percentage rate of the limitation or cap on such input tax
of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, credit, but again, the change introduced by the Bicameral Conference Committee was totally within the
excluding the VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, however, intent of both houses to put a cap on input tax that may be
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: . . . 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
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y
tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the introducing limitations on the claiming of tax credit, we are capping a major leakage that has placed our
excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive collection efforts at an apparent disadvantage."28
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 As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate
to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other Bill No. 1950, since said provisions were among those referred to it, the conference committee had to act
internal revenue taxes, . . . on the same and it basically adopted the version of the Senate.

4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to
percentage and excise taxes, the conference committee decided to include such amendments and subjects of the provisions referred
basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the
tax to be imposed. 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
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the
Conference Committee is mandated to settle the differences between the disagreeing provisions in the Court recognized the long-standing legislative practice of giving said conference committee ample
House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize."25 To latitude for compromising differences between the Senate and the House. Thus, in the Tolentino case, it
reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt 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 28(B)(1)
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 Inter-corporate Dividends
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 34(B)(1)
department. The charge that in this case the Conference Committee acted as a third legislative chamber
is thus without any basis.31 (Emphasis supplied) Inter-corporate Dividends

B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment 116
Rule"
Tax on Persons Exempt from VAT
Article VI, Sec. 26 (2) of the Constitution, states:
117
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 Percentage Tax on domestic carriers and keepers of Garage
passage, except when the President certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, 119
and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal. Tax on franchises

Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or 121
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 Tax on banks and Non-Bank Financial Intermediaries
convince the Court to deviate from its ruling in the Tolentino case that:
148
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 Excise Tax on manufactured oils and other fuels
each house may seek modification of the compromise bill. . . .
151
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in
either house of Congress, not to the conference committee report.32 (Emphasis supplied) Excise Tax on mineral products

The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by 236
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 Registration requirements
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 237
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 Issuance of receipts or sales or commercial invoices
to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.
288
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of
Revenue Bills Disposition of Incremental Revenue

Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the
income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit: 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,
Section 27 107,108, 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
Rates of Income Tax on Domestic Corporation of Representatives. Hence, they argue that since the proposed amendments did not originate from the
House, such amendments are a violation of Article VI, Section 24 of the Constitution.
28(A)(1)
The argument does not hold water.
Tax on Resident Foreign Corporation
Article VI, Section 24 of the Constitution reads: 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
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local and controlled and revenues must be significantly increased. This may be easier said than done, but our
application, and private bills shall originate exclusively in the House of Representatives but the Senate fiscal authorities are still optimistic the government will be operating on a balanced budget by the year
may propose or concur with amendments. 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
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the improve tax administration and control the leakages in revenues from income taxes and the value-added
move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of tax (VAT). (Emphasis supplied)
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 Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
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 In the budget message of our President in the year 2005, she reiterated that we all acknowledged that
constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill on top of our agenda must be the restoration of the health of our fiscal system.
that originated from the House?
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus: 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
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to such opportunity is a review of existing tax rates, evaluating the relevance given our present
"originate exclusively" in the House of Representatives. It is important to emphasize this, because a bill conditions.34 (Emphasis supplied)
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 Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring
action, a distinct bill may be produced. To insist that a revenue statute – and not only the bill which in sizeable revenues for the government
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 to supplement our country’s serious financial problems, and improve tax administration and control of
"propose amendments." It would be to violate the coequality of legislative power of the two houses of the leakages in revenues from income taxes and value-added taxes. As these house bills were
Congress and in fact make the House superior to the Senate. transmitted to the Senate, the latter, approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It can provide for ways that would soften
… the impact of the VAT measure on the consumer, i.e., by distributing the burden across all sectors
instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen. Ralph
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version Recto on why the provisions on income tax on corporation were included is worth quoting:
even with respect to bills which are required by the Constitution to originate in the House.
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional
... revenues annually even while by mitigating prices of power, services and petroleum products.

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on
authorizing an increase of the public debt, private bills and bills of local application must come from the twelve goods and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
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 What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why
senators, who are elected at large, are expected to approach the same problems from the national should the latter bear all the pain? Why should the fiscal salvation be only on the burden of the
perspective. Both views are thereby made to bear on the enactment of such laws.33 (Emphasis supplied) consumer?

Since there is no question that the revenue bill exclusively originated in the House of Representatives, The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35
the Senate was acting within its percent, but up to 2008 only. This will raise ₱10.5 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.
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, Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision
Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the that will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have
amendments that may be introduced by the Senate to the House revenue bill. an expiry date.

Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their
touched in the House bills are still in furtherance of the intent of the House in initiating the subject sacrifice brief. We would like to assure them that not because there is a light at the end of the tunnel,
revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the this government will keep on making the tunnel long.
floor, which was later substituted by House Bill No. 3555, stated:
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there
to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
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. (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
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
reforms to the VAT system, as these sections would cushion the effects of VAT on consumers. by the seller or transferor: provided, that the President, upon the recommendation of the Secretary of
Considering that certain goods and services which were subject to percentage tax and excise tax would Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in any of the following conditions has been satisfied.
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: (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
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. (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
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, SEC. 107. Value-Added Tax on Importation of Goods. –
fuel and kerosene.
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-
... added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such
What do all these exercises point to? These are not contortions of giving to the left hand what was taken tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That
from the right. Rather, these sprang from our concern of softening the impact of VAT, so that the people where the customs duties are determined on the basis of the quantity or volume of the goods, the value-
can cushion the blow of higher prices they will have to pay as a result of VAT.36 added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
The other sections amended by the Senate pertained to matters of tax administration which are the rate of value-added tax to twelve percent (12%) after any of the following conditions has been
necessary for the implementation of the changes in the VAT system. satisfied.

To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of (i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
the house bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate acted exceeds two and four-fifth percent (2 4/5%) or
within its power to propose those amendments.
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
SUBSTANTIVE ISSUES percent (1 ½%).

I. SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:

Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
the following provisions of the Constitution:
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to
a. Article VI, Section 28(1), and ten percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the
President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
b. Article VI, Section 28(2) the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied.
A. No Undue Delegation of Legislative Power
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common exceeds two and four-fifth percent (2 4/5%) or
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 (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half
condition is met, constitutes undue delegation of the legislative power to tax. percent (1 ½%). (Emphasis supplied)

The assailed provisions read as follows: Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
virtual abdication by Congress of its exclusive power to tax because such delegation is not within the
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows: purview of Section 28 (2), Article VI of the Constitution, which provides:
 Nonetheless, the general rule barring delegation of legislative powers is subject to the following
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff recognized limitations or exceptions:
rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the
framework of the national development program of the government. (1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;

They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as (2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
on the sale or exchange of services, which cannot be included within the purview of tariffs under the Constitution;
exempted delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to
the government and usually imposed on goods or merchandise imported or exported. (3) Delegation to the people at large;

Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the (4) Delegation to local governments; and
legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not pass to the President the (5) Delegation to administrative bodies.
decision to impose taxes. They also argue that the law also effectively nullified the President’s power of
control, which includes the authority to set aside and nullify the acts of her subordinates like the In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is
Secretary of Finance, by mandating the fixing of the tax rate by the President upon the recommendation valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
of the Secretary of Finance. implemented by the delegate;41 and (b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must conform in the performance of his
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the functions.42 A sufficient standard is one which defines legislative policy, marks its limits, maps out its
conditions provided by the law to bring about either or both the conditions precedent. boundaries and specifies the public agency to apply it. It indicates the circumstances under which the
legislative command is to be effected.43 Both tests are intended to prevent a total transference of
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and
of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, exercise a power essentially legislative.44
contrary to the principle of no taxation without representation. They submit that the Secretary of
Finance is not mandated to give a favorable recommendation and he may not even give his In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and
recommendation. Moreover, they allege that no guiding standards are provided in the law on what basis extent of delegation of power in this wise:
and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of
the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to
of the latter, such that, ultimately, it is the President who decides whether to impose the increased tax inquire whether the statute was complete in all its terms and provisions when it left the hands of the
rate or not. legislature so that nothing was left to the judgment of any other appointee or delegate of the legislature.

A brief discourse on the principle of non-delegation of powers is instructive. ...

The principle of separation of powers ordains that each of the three great branches of government has ‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which
exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
sphere.37 A logical execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no
valid objection can be made.’
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as
expressed in the Latin maxim: potestas delegata non delegari potest which means "what has been ...
delegated, cannot be delegated."38 This doctrine is based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed by the delegate through the It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands
instrumentality of his own judgment and not through the intervening mind of another.39 of the legislature. It is true that laws may be made effective on certain contingencies, as by proclamation
of the executive or the adoption by the people of a particular community. In Wayman vs. Southard, the
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative Supreme Court of the United States ruled that the legislature may delegate a power not legislative which
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of it may itself rightfully exercise. The power to ascertain facts is such a power which may be delegated.
Representatives." The powers which Congress is prohibited from delegating are those which are strictly, There is nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of
or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has the taking into effect of a law. That is a mental process common to all branches of the government.
been described as the authority to make a complete law – complete as to the time when it shall take Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative
effect and as to whom it shall be applicable – and to determine the expediency of its enactment.40 Thus, authority on account of the complexity arising from social and economic forces at work in this modern
the rule is that in order that a court may be justified in holding a statute unconstitutional as a delegation industrial age, the orthodox pronouncement of Judge Cooley in his work on Constitutional Limitations
of legislative power, it must appear that the power involved is purely legislative in nature – that is, one finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following
appertaining exclusively to the legislative department. It is the nature of the power, and not the liability language — speaking of declaration of legislative power to administrative agencies: The principle which
of its use or the manner of its exercise, which determines the validity of its delegation. permits the legislature to provide that the administrative agent may determine when the circumstances
are such as require the application of a law is defended upon the ground that at the time this authority is
granted, the rule of public policy, which is the essence of the legislative act, is determined by the
legislature. In other words, the legislature, as it is its duty to do, determines that, under given (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
circumstances, certain executive or administrative action is to be taken, and that, under other percent (1 ½%).
circumstances, different or no action at all is to be taken. What is thus left to the administrative official is
not the legislative determination of what public policy demands, but simply the ascertainment of what The case before the Court is not a delegation of legislative power. It is simply a delegation of
the facts of the case require to be done according to the terms of the law by which he is governed. The ascertainment of facts upon which enforcement and administration of the increase rate under the law is
efficiency of an Act as a declaration of legislative will must, of course, come from Congress, but the contingent. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent
ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon
may designate. The legislature, then, may provide that a law shall take effect upon the happening of factual matters outside of the control of the executive.
future specified contingencies leaving to some other person or body the power to determine when the
specified contingency has arisen. (Emphasis supplied).46 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
In Edu vs. Ericta,47 the Court reiterated: use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where
the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal choice but to see to it that the mandate is obeyed.54
them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands
of the legislature. To determine whether or not there is an undue delegation of legislative power, the Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of
inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does not any of the conditions specified by Congress. This is a duty which cannot be evaded by the President.
abdicate its functions when it describes what job must be done, who is to do it, and what is the scope of Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not
his authority. For a complex economy, that may be the only way in which the legislative process can go come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are
forward. A distinction has rightfully been made between delegation of power to make the laws which present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain
necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other
delegation of authority or discretion as to its execution to be exercised under and in pursuance of the than the legislature itself.
law, to which no valid objection can be made. The Constitution is thus not to be regarded as denying the
legislature the necessary resources of flexibility and practicability. (Emphasis supplied).48 The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the Secretary of Finance by mandating the
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. The Court
or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, cannot also subscribe to the position of petitioners
made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their
authority.49 While the power to tax cannot be delegated to executive agencies, details as to the Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
enforcement and administration of an exercise of such power may be left to them, including the power recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
to determine the existence of facts on which its operation depends.50 petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed
aside by the President since the former is a mere alter ego of the latter.
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 When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as
correlating information and making recommendations is the kind of subsidiary activity which the head of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious
legislature may perform through its members, or which it may delegate to others to perform. Intelligent executive and administrative functions of the Chief Executive are performed by and through the
legislation on the complicated problems of modern society is impossible in the absence of accurate executive departments, and the acts of the secretaries of such departments, such as the Department of
information on the part of the legislators, and any reasonable method of securing such information is Finance, performed and promulgated in the regular course of business, are, unless disapproved or
proper.51 The Constitution as a continuously operative charter of government does not require that reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of
Congress find for itself 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
every fact upon which it desires to base legislative action or that it make for itself detailed Attorney-General Cushing, is "subject to the direction of the President."55
determinations which it has declared to be prerequisite to application of legislative policy to particular
facts and circumstances impossible for Congress itself properly to investigate.52 In the present case, 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
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 subordinate. In such instance, he is not subject to the power of control and direction of the President. He
which reads as follows: is acting as the agent of the legislative department, to determine and declare the event upon which its
expressed will is to take effect.56 The Secretary of Finance becomes the means or tool by which
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, legislative policy is determined and implemented, considering that he possesses all the facilities to gather
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has data and information and has a much broader perspective to properly evaluate them. His function is to
been satisfied: 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
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or
exceeds two and four-fifth percent (2 4/5%); 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.
 Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, another condition, i.e., the national government deficit as a percentage of GDP of the previous year
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross exceeds one and one-half percent (1 ½%).
Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½ Respondents explained the philosophy behind these alternative conditions:
%). 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 1. VAT/GDP Ratio > 2.8%
effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally permissible.57 Congress does not abdicate its functions The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than
or unduly delegate power when it describes what job must be done, who must do it, and what is the 2.8%, it means that government has weak or no capability of implementing the VAT or that VAT is not
scope of his authority; in our complex economy that is frequently the only way in which the legislative effective in the function of the tax collection. Therefore, there is no value to increase it to 12% because
process can go forward.58 such action will also be ineffectual.

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the 2. Nat’l Gov’t Deficit/GDP >1.5%
legislative power to tax is contrary to the principle of republicanism, the same deserves scant
consideration. Congress did not delegate the power to tax but the mere implementation of the law. The The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of
intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to government has reached a relatively sound position or is towards the direction of a balanced budget
simply execute the legislative policy. That Congress chose to do so in such a manner is not within the position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
province of the Court to inquire into, its task being to interpret the law.59 healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the
VAT rate.62
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 That the first condition amounts to an incentive to the President to increase the VAT collection does not
as this argument is highly speculative. The Court does not rule on allegations which are manifestly render it unconstitutional so long as there is a public purpose for which the law was passed, which in this
conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
appearances. When the Court acts on appearances instead of realities, justice and law will be short-lived.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden Smith in his Canons of Taxation (1776), as:

Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as
tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 little as possible over and above what it brings into the public treasury of the state.63
conditions set forth in the contested provisions, is ambiguous because it does not state if the VAT rate
would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such It simply means that sources of revenues must be adequate to meet government expenditures and their
rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year. variations.64

Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the
therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the
It does not provide for a return to the 10% rate nor does it empower the President to so revert if, after country’s gloomy state of economic affairs, thus:
the rate is increased to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or
that the national government deficit as a percentage of GDP of the previous year does not exceed 1½%. First, let me explain the position that the Philippines finds itself in right now. We are in a position where
90 percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise,
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be 90 goes to debt service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may situation. That’s the first fact.
tread upon.60
The second fact is that our debt to GDP level is way out of line compared to other peer countries that
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court borrow money from that international financial markets. Our debt to GDP is approximately equal to our
finds none, petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a GDP. Again, that shows you that this is not a sustainable situation.
fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the
conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of The third thing that I’d like to point out is the environment that we are presently operating in is not as
the law is clear and unambiguous, so that there is no occasion for the court's seeking the legislative benign as what it used to be the past five years.
intent, the law must be taken as it is, devoid of judicial addition or subtraction.61
What do I mean by that?
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on In the past five years, we’ve been lucky because we were operating in a period of basically global growth
fiscal adequacy. and low interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the
interest rates in the leading economies of the world. And, therefore, our ability to borrow at reasonable
prices is going to be challenged. In fact, ultimately, the question is our ability to access the financial Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of
markets. the law.

When the President made her speech in July last year, the environment was not as bad as it is now, at The doctrine is that where the due process and equal protection clauses are invoked, considering that
least based on the forecast of most financial institutions. So, we were assuming that raising 80 billion they are not fixed rules but rather broad standards, there is a need for proof of such persuasive
would put us in a position where we can then convince them to improve our ability to borrow at lower character as would lead to such a conclusion. Absent such a showing, the presumption of validity must
rates. But conditions have changed on us because the interest rates have gone up. In fact, just within this prevail.68
room, we tried to access the market for a billion dollars because for this year alone, the Philippines will
have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of
25-year bond at 9.7 percent cost. We were trying to access last week and the market was not as input tax that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax
favorable and up to now we have not accessed and we might pull back because the conditions are not inclusive of the input VAT carried over from the previous quarter that may be credited in every quarter
very good. shall not exceed seventy percent (70%) of the output VAT: …"

So given this situation, we at the Department of Finance believe that we really need to front-end our Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or
deficit reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a paid by a VAT-registered person on the importation of goods or local purchase of good and services,
debt spiral. The more debt you have, the more deficit you have because interest and debt service eats including lease or use of property, in the course of trade or business, from a VAT-registered person, and
and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we can Output Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by
get out of this debt spiral is really have a front-end adjustment in our revenue base.65 any person registered or required to register under the law.

The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable Petitioners claim that the contested sections impose limitations on the amount of input tax that may be
catastrophe. Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against
Court to judge. In the Fariñas case, the Court refused to consider the various arguments raised therein the output tax.
that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is
of the political branches of the government. It is not for this Court to look into the wisdom or propriety less than 70% of the output tax, then 100% of such input tax is still creditable.
of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based on
sound economic theory, whether it is the best means to achieve the desired results, whether, in short, More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains
the legislative discretion within its prescribed limits should be exercised in a particular manner are creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if
matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to bring the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
them within the range of judicial cognizance.66 quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax
credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive applied against the output taxes. Such unused input tax may be used in payment of his other internal
policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of revenue taxes.
legislation."67
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners
II. exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It
ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent
of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the periods as allowed by the carry-over provision of Section 110(B) or that it may later on be refunded
Constitution: through a tax credit certificate under Section 112(B).

a. Article VI, Section 28(1), and Therefore, petitioners’ argument must be rejected.

b. Article III, Section 1 On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70%
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect
A. Due Process and Equal Protection Clauses allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys
NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
constitutional right against deprivation of life, liberty of property without due process of law, as payable, three possible scenarios may arise:
embodied in Article III, Section 1 of the Constitution.
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes
that he paid and passed on by the suppliers, then no payment is required;
 The foregoing section imposes a 60-month period within which to amortize the creditable input tax on
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which purchase or importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the VAT
has to be paid to the Bureau of Internal Revenue (BIR);69 and component. Such spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is
without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
any excess over the output taxes shall instead be refunded to the taxpayer or credited against other amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified
internal revenue taxes, at the taxpayer’s option.70 its move by saying that the provision was designed to raise an annual revenue of 22.6 billion.77 The
legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit investors have other tax incentives provided by law, and citing the case of China, where despite a 17.5%
his input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that non-creditable VAT, foreign investments were not deterred.78 Again, for whatever is the purpose of the
a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value- 60-month amortization, this involves executive economic policy and legislative wisdom in which the
added taxes that is due to him on a taxable transaction. There is no retention of any tax collection Court cannot intervene.
because the person/taxpayer has already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the With regard to the 5% creditable withholding tax imposed on payments made by the government for
seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
evidenced by receipts, against his output taxes.
SEC. 114. Return and Payment of Value-added Tax. –
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or limited without due process of law. (C) Withholding of Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall,
The input tax is not a property or a property right within the constitutional purview of the due process before making payment on account of each purchase of goods and services which are subject to the
clause. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege. value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added
tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or
The distinction between statutory privileges and vested rights must be borne in mind for persons have use of properties or property rights to nonresident owners shall be subject to ten percent (10%)
no vested rights in statutory privileges. The state may change or take away rights, which were created by withholding tax at the time of payment. For purposes of this Section, the payor or person in control of
the law of the state, although it may not take away property, which was vested by virtue of such the payment shall be considered as the withholding agent.
rights.72
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not of the month the withholding was made.
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 Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
then that the crediting of the input tax paid on purchase or importation of goods and services by VAT- VAT withholding system. The government in this case is constituted as a withholding agent with respect
registered persons against the output tax was introduced.73 This was adopted by the Expanded VAT Law to their payments for goods and services.
(R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld --
this case, limit. 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
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, contractors; or 10% on payment for the lease or use of properties or property rights to nonresident
amending Section 110(A) of the NIRC, which provides: 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.
SEC. 110. Tax Credits. –
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
(A) Creditable Input Tax. – … creditable, means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the
month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such concept of final withholding tax on income was explained, to wit:
goods, excluding the VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided,
however, That if the estimated useful life of the capital goods is less than five (5) years, as used for SECTION 2.57. Withholding of Tax at Source
depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the (A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld
purchaser, lessee or license upon payment of the compensation, rental, royalty or fee. by the withholding agent is constituted as full and final payment of the income tax due from the payee
on the said income. The liability for payment of the tax rests primarily on the payor as a withholding
agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax
shall be collected from the payor/withholding agent. … 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
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain goods or services without profit or value-added. It cannot be overstressed that a business is created
income payments are intended to equal or at least approximate the tax due of the payee on said income. precisely for profit.
… 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) The equal protection clause under the Constitution means that "no person or class of persons shall be
are creditable in nature. deprived of the same protection of laws which is enjoyed by other persons or other classes in the same
place and in like circumstances."83
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 The power of the State to make reasonable and natural classifications for the purposes of taxation has
VAT payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction.79 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
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat absent a clear showing of unreasonableness, discrimination, or arbitrariness.84
differently taxable transactions with the government.80 This is supported by the fact that under the old
provision, the 5% tax withheld by the government remains creditable against the tax liability of the seller Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
or contractor, to wit: 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.
SEC. 114. Return and Payment of Value-added Tax. –
The argument is pedantic, if not outright baseless. The law does not make any classification in the
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions, subject of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, of assessment, valuation and collection. Petitioners’ alleged distinctions are based on variables that bear
before making payment on account of each purchase of goods from sellers and services rendered by different consequences. While the implementation of the law may yield varying end results depending
contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, on one’s profit margin and value-added, the Court cannot go beyond what the legislature has laid down
deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for and interfere with the affairs of business.
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 The equal protection clause does not require the universal application of the laws on all persons or
seller or contractor: Provided, however, That in the case of government public works contractors, the things without distinction. This might in fact sometimes result in unequal protection. What the clause
withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for requires is equality among equals as determined according to a valid classification. By classification is
lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) meant the grouping of persons or things similar to each other in certain particulars and different from all
withholding tax at the time of payment. For this purpose, the payor or person in control of the payment others in these same particulars.85
shall be considered as the withholding agent.
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric
end of the month the withholding was made. (Emphasis supplied) D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to 90%.
This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory.
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s On this score, suffice it to say that these are still proposed legislations. Until Congress amends the law,
intention to treat transactions with the government differently. Since it has not been shown that the and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
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% B. Uniformity and Equitability of Taxation
final withholding tax. It applies to all those who deal with the government.
Article VI, Section 28(1) of the Constitution reads:
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of
provides that should the actual input tax exceed 5% of gross payments, the excess may form part of the taxation.
cost. Equally, should the actual input tax be less than 5%, the difference is treated as income.81
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform
tax a profit or value-added even if there is no profit or value-added. on the same class everywhere with all people at all times.86

Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale
fury, signifying nothing."
of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales
and transaction. Taxation is progressive when its rate goes up depending on the resources of the person affected.98

Neither does the law make any distinction as to the type of industry or trade that will bear the 70% The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or
or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation business for every goods bought or services enjoyed is the same regardless of income. In
does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity
within the particular class.87 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
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the
(or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is
₱1,500,000.00.88 Also, basic marine and agricultural food products in their original state are still not really the lower income group or businesses with low-profit margins that is always hardest hit.
subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was
stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90 Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons in the Tolentino case, thus:
engaged in business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-sari
stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
marine products, so that the costs of basic food and other necessities, spared as they are from the regressive. What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The
incidence of the VAT, are expected to be relatively lower and within the reach of the general public. 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
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect
burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt taxes, would have been prohibited with the proclamation of Art. VIII, §17 (1) of the 1973 Constitution
persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding from which the present Art. VI, §28 (1) was taken. Sales taxes are also regressive.
₱1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for VAT coverage
and VAT-exempt taxpayers stand on equal-footing. 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
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain
those previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other
Percentage tax on domestic carriers was removed.93 Power producers are now exempt from paying transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99
franchise tax.94
CONCLUSION
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
tax rate, from a previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on
subject to 15% final withholding tax but the tax credit allowed on the corporation’s domicile was the plight of the masses. But it does not have the panacea for the malady that the law seeks to remedy.
increased to 20%.96 The Philippine Amusement and Gaming Corporation (PAGCOR) is not exempt from As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
income taxes anymore.97 Even the sale by an artist of his works or services performed for the
production of such works was not spared. 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,
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise for instance, those involving political questions. . . .
rest largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all
C. Progressivity of Taxation 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
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the preservation of the independence of the three, and a zealous regard of the prerogatives of each,
the smaller business with higher input tax-output tax ratio that will suffer the consequences. knowing full well that one is not the guardian of the others and that, for official wrong-doing, each may
be brought to account, either by impeachment, trial or by the ballot box.100
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted
from Adam Smith’s Canons of Taxation, and it states: The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things
considered, there is no raison d'être for the unconstitutionality of R.A. No. 9337.
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 WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
respectively enjoy under the protection of the state. 168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.

SO ORDERED.