ABAKADA vs. Ermita

G.R. No.
168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE
CESAR PURISIMA; and HONORABLE COMMISSIONER OF
INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all,
should be borne by everyone, and the more man enjoys the advantages
of society, the more he ought to hold himself honored in contributing to
those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation
for education, increased emoluments for health workers, and wider
coverage for full value-added tax benefits these are the reasons why
Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the
wisdom of which, the Court even with its extensive constitutional power
of review, cannot probe. The petitioners in these cases, however,
question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their
arguments notwithstanding, petitioners failed to justify their call for the
invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House
Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7,
2005. The House Committee on Ways and Means approved the bill, in
substitution of House Bill No. 1468, which Representative (Rep.) Eric D.
Singson introduced on August 8, 2004. The President certified the bill on

January 7, 2005 for immediate enactment. On January 27, 2005, the
House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No.
3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381
introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No.
3555. The House Committee on Ways and Means approved the bill on
February 2, 2005. The President also certified it as urgent on February
8, 2005. The House of Representatives approved the bill on second and
third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved
Senate Bill No. 19504 on March 7, 2005, "in substitution of Senate Bill
Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos.
3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No.
1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by
Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The
President certified the bill on March 11, 2005, and was approved by the
Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of
the House of Representatives for a committee conference on the
disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of
House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950,
"after having met and discussed in full free and conference,"
recommended the approval of its report, which the Senate did on May
10, 2005, and with the House of Representatives agreeing thereto the
next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and
Senate version was transmitted to the President, who signed the same
into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date
came, the Court issued a temporary restraining order, effective
immediately and continuing until further orders, enjoining respondents
from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the
hearing, the Court speaking through Mr. Justice Artemio V. Panganiban,
voiced the rationale for its issuance of the temporary restraining order
on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your
presentation, let me just tell you a little background. You know when
the law took effect on July 1, 2005, the Court issued a TRO at about 5
oclock in the afternoon. But before that, there was a lot of complaints
aired on television and on radio. Some people in a gas station were
complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people
riding in domestic air carrier were complaining that the prices that
theyll have to pay would have to go up by 10%. While all that was
being aired, per your presentation and per our own understanding of
the law, thats not true. Its not true that the e-vat law necessarily
increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive
Order that granted the Petroleum companies some subsidy . . .
interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the
impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures
would be the elimination of the Excise Tax and the import duties. That is
why, it is not correct to say that the VAT as to petroleum dealers
increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing
the retail price by 10% to cover the E-Vat tax. If you consider the excise
tax and the import duties, the Net Tax would probably be in the
neighborhood of 7%? We are not going into exact figures I am just
trying to deliver a point that different industries, different products,

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

and Section 6 imposes a 10% VAT on sale of services and use or lease
of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after
any of the following conditions have been satisfied, to wit:
Petitioners further claim that the inclusion of a stand-by authority

granted to the President by the Bicameral Conference Committee is a
violation of the "no-amendment rule" upon last reading of a bill laid
down in Article VI, Section 26(2) of the Constitution.
. . . That the President, upon the recommendation of the Secretary of

Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has
been satisfied:
Thereafter, a petition for prohibition was filed on June 29, 2005, by the
Association of Pilipinas Shell Dealers, Inc., et al., assailing the following
provisions of R.A. No. 9337:
(i) Value-added tax collection as a percentage of Gross Domestic

Product (GDP) of the previous year exceeds two and four-fifth percent
(2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the rate of
taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for
certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of
R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President
to increase the VAT rate to 12%, on the ground that it amounts to an
undue delegation of legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the two conditions
being satisfied violates the due process clause embodied in Article III,
Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original
10% if the conditions are no longer satisfied; (2) the rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from
year to year; and (3) the increase in the VAT rate, which is supposed to
be an incentive to the President to raise the VAT collection to at least 2
4
/5 of the GDP of the previous year, should only be based on fiscal
adequacy.
G.R. No. 168461
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that

the input tax on depreciable goods shall be amortized over a 60-month
period, if the acquisition, excluding the VAT components, exceeds One
Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70%
limit on the amount of input tax to be credited against the output tax;
and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the
Government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs, to deduct a 5% final withholding tax on
gross payments of goods and services, which are subject to 10% VAT
under Sections 106 (sale of goods and properties) and 108 (sale of
services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being
arbitrary, oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of nondeprivation of life, liberty or property without due process of law under
Article III, Section 1 of the Constitution. According to petitioners, the
contested sections impose limitations on the amount of input tax that
may be claimed. Petitioners also argue that the input tax partakes the
nature of a property that may not be confiscated, appropriated, or
limited without due process of law. Petitioners further contend that like
any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit
or value-added.
Petitioners also believe that these provisions violate the constitutional

guarantee of equal protection of the law under Article III, Section 1 of
the Constitution, as the limitation on the creditable input tax if: (1) the
entity has a high ratio of input tax; or (2) invests in capital equipment;
or (3) has several transactions with the government, is not based on
real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the Constitution,
and that it is the smaller businesses with higher input tax to output tax
ratio that will suffer the consequences thereof for it wipes out whatever
meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis
Joseph G. Escudero filed this petition for certiorari on June 30, 2005.
They question the constitutionality of R.A. No. 9337 on the following
grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation
of legislative power, in violation of Article VI, Section 28(2) of the
Constitution;
pass on the tax to the consumers is inequitable, in violation of Article

VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of
respondents. Preliminarily, respondents contend that R.A. No. 9337
enjoys the presumption of constitutionality and petitioners failed to cast
doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by
petitioners, i.e., legality of the bicameral proceedings, exclusive
origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the
issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion
to the President but to increase the rate to 12% once any of the two
conditions provided therein arise.
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
Respondents also refute petitioners argument that the increase to 12%,

as well as the 70% limitation on the creditable input tax, the 60-month
amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government
agencies, is arbitrary, oppressive, and confiscatory, and that it violates
the constitutional principle on progressive taxation, among others.
3) Insertion by the Bicameral Conference Committee of Sections 27, 28,

34, 116, 117, 119, 121, 125,7 148, 151, 236, 237 and 288, which were
present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills
shall originate exclusively in the House of Representatives
Finally, respondents manifest that R.A. No. 9337 is the anchor of the
governments fiscal reform agenda. A reform in the value-added system
of taxation is the core revenue measure that will tilt the balance towards
a sustainable macroeconomic environment necessary for economic
growth.
G.R. No. 168730
ISSUES
On the eleventh hour, Governor Enrique T. Garcia filed a petition for

certiorari and prohibition on July 20, 2005, alleging unconstitutionality
of the law on the ground that the limitation on the creditable input tax
in effect allows VAT-registered establishments to retain a portion of the
taxes they collect, thus violating the principle that tax collection and
revenue should be solely allocated for public purposes and expenditures.
Petitioner Garcia further claims that allowing these establishments to
The Court defined the issues, as follows:

PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108 of the NIRC, violate the following provisions of the
Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2)
and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending
Section 114(C) of the NIRC, violate the following provisions of the
Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles
and concepts of value-added tax (VAT), as the confusion and inevitably,
litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale,
barter, exchange or lease of goods or properties and services. 8 Being an
indirect tax on expenditure, the seller of goods or services may pass on
the amount of tax paid to the buyer,9 with the seller acting merely as a
tax collector.10 The burden of VAT is intended to fall on the immediate
buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on
the transaction or business it engages in, without transferring the
burden to someone else.11 Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long
been in existence, albeit in a different mode. Prior to 1978, the system
was a single-stage tax computed under the "cost deduction method"
and was payable only by the original sellers. The single-stage system
was subsequently modified, and a mixture of the "cost deduction
method" and "tax credit method" was used to determine the valueadded tax payable.13 Under the "tax credit method," an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive
Order No. 273, that the VAT system was rationalized by imposing a
multi-stage tax rate of 0% or 10% on all sales using the "tax credit
method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16
R.A. No. 8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax
Reform Act of 1997,18 and finally, the presently beleaguered R.A. No.
9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the
Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections
4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House
and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input
tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950
regarding other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral
Conference Committee.
It should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body for, as unerringly
elucidated by Justice Story, "[i]f the power did not exist, it would
be utterly impracticable to transact the business of the nation,
either at all, or at least with decency, deliberation, and order."19
Thus, Article VI, Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings." Pursuant to this
inherent constitutional power to promulgate and implement its own
rules of procedure, the respective rules of each house of Congress
provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not
agree with the Senate on the amendment to any bill or joint resolution,
the differences may be settled by the conference committees of both
chambers.
In resolving the differences with the Senate, the House panel shall, as
much as possible, adhere to and support the House Bill. If the
differences with the Senate are so substantial that they materially
impair the House Bill, the panel shall report such fact to the House for
the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain
a detailed, sufficiently explicit statement of the changes in or
amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the
Conference Committee Report prior to the voting thereon. The House
shall vote on the Conference Committee Report in the same manner and
procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the
differences shall be settled by a conference committee of both Houses

which shall meet within ten (10) days after their composition. The
President shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in, or amendments to the
subject measure, and shall be signed by a majority of the members of
each House panel, voting separately.
A comparative presentation of the conflicting House and Senate
provisions and a reconciled version thereof with the explanatory
statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response
to a problem, not addressed by any constitutional provision, where the
two houses of Congress find themselves in disagreement over changes
or amendments introduced by the other house in a legislative bill. Given
that one of the most basic powers of the legislative branch is to
formulate and implement its own rules of proceedings and to discipline
its members, may the Court then delve into the details of how Congress
complies with its internal rules or how it conducts its business of passing
legislation? Note that in the present petitions, the issue is not whether
provisions of the rules of both houses creating the bicameral conference
committee are unconstitutional, but whether the bicameral
conference committee has strictly complied with the rules of
both houses, thereby remaining within the jurisdiction conferred
upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court
En Banc, unanimously reiterated and emphasized its adherence to the
"enrolled bill doctrine," thus, declining therein petitioners plea for the
Court to go behind the enrolled copy of the bill. Assailed in said case
was Congresss creation of two sets of bicameral conference
committees, the lack of records of said committees proceedings, the
alleged violation of said committees of the rules of both houses, and the
disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that
such irregularities in the passage of the law nullified R.A. No. 9006, or
the Fair Election Act.
Striking down such argument, the Court held thus:

Under the "enrolled bill doctrine," the signing of a bill by the Speaker of
the House and the Senate President and the certification of the
Secretaries of both Houses of Congress that it was passed are
conclusive of its due enactment. A review of cases reveals the Courts
consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the
irregularities alleged by the petitioners mostly involved the
internal rules of Congress, e.g., creation of the 2nd or 3 rd
Bicameral Conference Committee by the House. This Court is not
the proper forum for the enforcement of these internal rules of
Congress, whether House or Senate. Parliamentary rules are
merely procedural and with their observance the courts have no
concern. Whatever doubts there may be as to the formal validity
of Rep. Act No. 9006 must be resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of
expression, all deny to the courts the power to inquire into
allegations that, in enacting a law, a House of Congress failed to
comply with its own rules, in the absence of showing that there
was a violation of a constitutional provision or the rights of
private individuals. In Osmea v. Pendatun, it was held: "At any rate,
courts have declared that the rules adopted by deliberative bodies are
subject to revocation, modification or waiver at the pleasure of the body
adopting them. And it has been said that "Parliamentary rules are
merely procedural, and with their observance, the courts have
no concern. They may be waived or disregarded by the
legislative body." Consequently, "mere failure to conform to
parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have
agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases,
where petitioners allege irregularities committed by the conference
committee in introducing changes or deleting provisions in the House
and Senate bills. Akin to the Farias case,22 the present petitions also
raise an issue regarding the actions taken by the conference committee
on matters regarding Congress compliance with its own internal rules.
As stated earlier, one of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and the
discipline of its members. Congress is the best judge of how it should
conduct its own business expeditiously and in the most orderly manner.
It is also the sole
concern of Congress to instill discipline among the members of its
conference committee if it believes that said members violated any of its
rules of proceedings. Even the expanded jurisdiction of this Court
cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case
of Tolentino vs. Secretary of Finance, 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 any constitutional provision
but is only an internal rule of each house." 24 To date, Congress has
not seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient
legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities
tainted the proceedings of the bicameral conference committees, the
Court deems it necessary to dwell on the issue. The Court observes that
there was a necessity for a conference committee because a comparison
of the provisions of House Bill Nos. 3555 and 3705 on one hand, and
Senate Bill No. 1950 on the other, reveals that there were indeed
disagreements. As pointed out in the petitions, said disagreements were
as follows:
House Bill No. 3555
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every sale of goods or properties (amending Sec. 1
services and use or lease of properties (amending Sec. 108 of NIRC)
With regard to the "no pass-on" provision
No similar provision
compromise whereby the present 10% VAT rate would be retained until
certain conditions arise, i.e., the value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a percentage of GDP
With regard to 70% limit on input tax credit
of the previous year exceeds 1%, when the President, upon
Provides that the input tax credit for capital goods on which a VAT has been paid
recommendation
shall be equallyof
distributed
the Secretary
over of
5 years
Finance
or the
shalldepreciable
raise the rate
life of
of such
VAT capital
for goods and services other than capital goods shall not exceed 5% of the totalto
amount
12% effective
of such goods
January
and
1, services;
2006.
and for persons engaged in retail trading o
tax credit shall not exceed 11% of the total amount of goods purchased.
2. With regard to the disagreement on whether only the VAT imposed on
electricity
generation, transmission and distribution companies should
With regard to amendments to be made to NIRC provisions regarding income
and
not be passed on to consumers or whether both the VAT imposed on
excise taxes
electricity generation, transmission and distribution companies and the
Provided for amendments
VAT imposed on sale of petroleum products may be passed on to
to several NIRC
provisions the Bicameral Conference Committee chose to settle such
consumers,
regarding
corporate by altogether deleting from its Report any no pass-on
disagreement
income,
percentage,
provision.
franchise and excise taxes
3. With regard to the disagreement on whether input tax credits should
The disagreements between the provisions in the House bills and the
be limited or not, the Bicameral Conference Committee decided to adopt
Senate bill were with regard to (1) what rate of VAT is to be imposed;
the position of the House by putting a limitation on the amount of input
(2) whether only the VAT imposed on electricity generation,
tax that may be credited against the output tax, although it crafted its
transmission and distribution companies should not be passed on to
own language as to the amount of the limitation on input tax credits and
consumers, as proposed in the Senate bill, or both the VAT imposed on
the manner of computing the same by providing thus:
electricity generation, transmission and distribution companies and the
(A) Creditable Input Tax. . . .
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
Provided, The input tax on goods purchased or imported in a calendar
be amended.
month for use in trade or business for which deduction for depreciation
is allowed under this Code, shall be spread evenly over the month of
There being differences and/or disagreements on the foregoing
acquisition and the fifty-nine (59) succeeding months if the aggregate
provisions of the House and Senate bills, the Bicameral Conference
acquisition cost for such goods, excluding the VAT component thereof,
Committee was mandated by the rules of both houses of Congress to
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if
act on the same by settling said differences and/or disagreements. The
the estimated useful life of the capital good is less than five (5) years,
Bicameral Conference Committee acted on the disagreeing provisions by
as used for depreciation purposes, then the input VAT shall be spread
making the following changes:
over such shorter period: . . .
1. With regard to the disagreement on the rate of VAT to be imposed, it
(B) Excess Output or Input Tax. If at the end of any taxable quarter
would appear from the Conference Committee Report that the Bicameral
the output tax exceeds the input tax, the excess shall be paid by the
Conference Committee tried to bridge the gap in the difference between
VAT-registered person. If the input tax exceeds the output tax, the
the 10% VAT rate proposed by the Senate, and the various rates with
excess shall be carried over to the succeeding quarter or quarters:
12% as the highest VAT rate proposed by the House, by striking a
PROVIDED that the input tax inclusive of input VAT carried over from
the previous quarter that may be credited in every quarter shall not
exceed seventy percent (70%) of the output VAT: PROVIDED,
HOWEVER, THAT any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited against
other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on
corporate income tax, franchise, percentage and excise taxes, the
conference committee decided to include such amendments and
basically adopted the provisions found in Senate Bill No. 1950, with
some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives
and Senate Rules, the Bicameral Conference Committee is mandated to
settle the differences between the disagreeing provisions in the House
bill and the Senate bill. The term "settle" is synonymous to "reconcile"
and "harmonize."25 To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to
reconcile and harmonize the disagreeing provisions for it did not inject
any idea or intent that is wholly foreign to the subject embraced by the
original provisions.
The so-called stand-by authority in favor of the President, whereby the
rate of 10% VAT wanted by the Senate is retained until such time that
certain conditions arise when the 12% VAT wanted by the House shall
be imposed, appears to be a compromise to try to bridge the difference
in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what
rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of
the proceedings of the Bicameral Conference Committee held on May
10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained
the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple.
And we were thinking that no sector should be a beneficiary of
legislative grace, neither should any sector be discriminated on. The VAT
is an indirect tax. It is a pass on-tax. And lets keep it plain and
simple. Lets not confuse the bill and put a no pass-on provision. Twothirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the
thinking of the Senate is basically simple, lets keep the VAT simple. 26
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on
provision "never really enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output
tax, the Bicameral Conference Committee came to a compromise on the
percentage rate of the limitation or cap on such input tax credit, but
again, the change introduced by the Bicameral Conference Committee
was totally within the intent of both houses to put a cap on input tax
that may be
credited against the output tax. From the inception of the subject
revenue bill in the House of Representatives, one of the major
objectives was to "plug a glaring loophole in the tax policy and
administration by creating vital restrictions on the claiming of input VAT
tax credits . . ." and "[b]y introducing limitations on the claiming of tax
credit, we are capping a major leakage that has placed our collection
efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the
value-added tax proposed in Senate Bill No. 1950, since said provisions
were among those referred to it, the conference committee had to act
on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the provisions
referred
to it for reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. In the earlier cases
of Philippine Judges Association vs. Prado 29 and Tolentino vs. Secretary

of Finance,30 the Court recognized the long-standing legislative practice
of giving said conference committee ample latitude for compromising
differences between the Senate and the House. Thus, in the Tolentino
case, it was held that:
. . . it is within the power of a conference committee to include in its
report an entirely new provision that is not found either in the House bill
or in the Senate bill. If the committee can propose an amendment
consisting of one or two provisions, there is no reason why it cannot
propose several provisions, collectively considered as an "amendment in
the nature of a substitute," so long as such amendment is germane to
the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become
valid as an act of the legislative department. The charge that in this
case the Conference Committee acted as a third legislative
chamber is thus without any basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the
Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
houses. If that be the case, there would be no end to negotiation since

each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only
to bills introduced for the first time in either house of Congress,
not to the conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only
to the procedure to be followed by each house of Congress with
regard to bills initiated in each of said respective houses, before
said bill is transmitted to the other house for its concurrence or
amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead
to absurdity as this would mean that the other house of Congress would
be deprived of its constitutional power to amend or introduce changes to
said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken
to mean that the introduction by the Bicameral Conference Committee
of amendments and modifications to disagreeing provisions in bills that
have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the
Constitution on Exclusive Origination of Revenue Bills
No bill passed by either House shall become a law unless it has passed
three readings on separate days, and printed copies thereof in its final
form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.
Coming to the issue of the validity of the amendments made regarding

the NIRC provisions on corporate income taxes and percentage, excise
taxes. Petitioners refer to the following provisions, to wit:
Section 27
Rates of Income Tax on Domestic Corporation
28(A)(1)
Tax on Resident Foreign Corporation
28(B)(1)
Inter-corporate Dividends
Petitioners argument that the practice where a bicameral conference

committee is allowed to add or delete provisions in the House bill and
the Senate bill after these had passed three readings is in effect a
circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the
1987 Constitution), fails to convince the Court to deviate from its ruling
in the Tolentino case that:
34(B)(1)
Inter-corporate Dividends
116
Tax on Persons Exempt from VAT
117
Percentage Tax on domestic carriers and keepers of Garage
119
Tax on franchises
Nor is there any reason for requiring that the Committees Report in
these cases must have undergone three readings in each of the two
121
Tax on banks and Non-Bank Financial Intermediaries
148
Excise Tax on manufactured oils and other fuels
151
Excise Tax on mineral products
236
Registration requirements
237
Issuance of receipts or sales or commercial invoices
288
Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC

did not at all originate from the House. They aver that House Bill No.
3555 proposed amendments only regarding Sections 106, 107, 108,
110 and 114 of the NIRC, while House Bill No. 3705 proposed
amendments only to Sections 106, 107,108, 109, 110 and 111 of the
NIRC; thus, the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills are not
intended to be amended by the House of Representatives. Hence, they
argue that since the proposed amendments did not originate from the
House, such amendments are a violation of Article VI, Section 24 of the
Constitution.
. . . To begin with, it is not the law but the revenue bill which is
required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole. . . . At this
point, what is important to note is that, as a result of the Senate action,
a distinct bill may be produced. To insist that a revenue statute
and not only the bill which initiated the legislative process
culminating in the enactment of the law must substantially be
the same as the House bill would be to deny the Senates power
not only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of legislative
power of the two houses of Congress and in fact make the House
superior to the Senate.
The argument does not hold water.
Given, then, the power of the Senate to propose amendments,

the Senate can propose its own version even with respect to bills
which are required by the Constitution to originate in the House.
Article VI, Section 24 of the Constitution reads:
...
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

increase of the public debt, bills of local application, and private bills
shall originate exclusively in the House of Representatives but the
Senate may propose or concur with amendments.
Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from
the House of Representatives on the theory that, elected as they are
from the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the other
hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both
views are thereby made to bear on the enactment of such laws.33
(Emphasis supplied)
In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions of
the NIRC dealing mainly with the value-added tax. Upon transmittal of
said House bills to the Senate, the Senate came out with Senate Bill No.
1950 proposing amendments not only to NIRC provisions on the valueadded tax but also amendments to NIRC provisions on other kinds of
taxes. Is the introduction by the Senate of provisions not dealing
directly with the value- added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the constitutional
provision authorizing the Senate to propose or concur with amendments
to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino
case, wherein the Court held, thus:
Since there is no question that the revenue bill exclusively originated in

the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes. Verily, Article VI, Section
24 of the Constitution does not contain any prohibition or limitation on
the extent of the amendments that may be introduced by the Senate to

the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC
provisions that had not been touched in the House bills are still in
furtherance of the intent of the House in initiating the subject revenue
bills. The Explanatory Note of House Bill No. 1468, the very first House
bill introduced on the floor, which was later substituted by House Bill No.
3555, stated:
One of the challenges faced by the present administration is the urgent
and daunting task of solving the countrys serious financial problems. To
do this, government expenditures must be strictly monitored and
controlled and revenues must be significantly increased. This may be
easier said than done, but our fiscal authorities are still optimistic the
government will be operating on a balanced budget by the year 2009. In
fact, several measures that will result to significant expenditure savings
have been identified by the administration. It is supported with a
credible package of revenue measures that include measures to
improve tax administration and control the leakages in revenues
from income taxes and the value-added tax (VAT). (Emphasis
supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555,
declared that:
In the budget message of our President in the year 2005, she reiterated
that we all acknowledged that on top of our agenda must be the
restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and
eventually achieve a balanced budget by the year 2009, we need to
seize windows of opportunities which might seem poignant in
the beginning, but in the long run prove effective and beneficial
to the overall status of our economy. One such opportunity is a
review of existing tax rates, evaluating the relevance given our
present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the
House of Representatives is to bring in sizeable revenues for the
government
to supplement our countrys serious financial problems, and improve tax

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

raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and
excise taxes germane to the reforms to the VAT system, as these
sections would cushion the effects of VAT on consumers. Considering
that certain goods and services which were subject to percentage tax
and excise tax would no longer be VAT-exempt, the consumer would be
burdened more as they would be paying the VAT in addition to these
taxes. Thus, there is a need to amend these sections to soften the
impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the
present excise tax on bunker fuel, to lessen the effect of a VAT on this
product.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,

107 and 108 of the NIRC, violate the following provisions of the
Constitution:
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and
Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC
giving the President the stand-by authority to raise the VAT rate from
10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.
For electric utilities like Meralco, we will wipe out the franchise tax in
exchange for a VAT.
The assailed provisions 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, fuel and
kerosene.
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
...
What do all these exercises point to? These are not contortions of giving
to the left hand what was taken from the right. Rather, these sprang
from our concern of softening the impact of VAT, so that the people can
cushion the blow of higher prices they will have to pay as a result of
VAT.36
The other sections amended by the Senate pertained to matters of tax
administration which are necessary for the implementation of the
changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the
subject matter and purposes of the house bills, which is to supplement
our countrys fiscal deficit, among others. Thus, the Senate acted within
its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further

amended to read as follows:
(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered
or exchanged, such tax to be paid by the seller or transferor: provided,
that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further
SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release
of such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: provided, further, that the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve
percent (12%) after any of the following conditions has been
satisfied.
percent (2 4/5%) or
SEC. 6. Section 108 of the same Code, as amended, is hereby further
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties
(A) Rate and Base of Tax. There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services: provided, that
the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the following
conditions has been satisfied.
percent (2 4/5%) or

(Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the
President to increase the VAT rate is a virtual abdication by Congress of
its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified
limits, and may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of
the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services,
which cannot be included within the purview of tariffs under the
exempted delegation as the latter refers to customs duties, tolls or
tribute payable upon merchandise to the government and usually
imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that
delegating to the President the legislative power to tax is contrary to
republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not
pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the Presidents power of control, which
includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the fixing of
the tax rate by the President upon the recommendation of the Secretary
of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to
cause, influence or create the conditions provided by the law to bring
about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting
the situation that the imposition of the 12% rate would be subject to the
whim of the Secretary of Finance, an unelected bureaucrat, contrary to
the principle of no taxation without representation. They submit that the
Secretary of Finance is not mandated to give a favorable
recommendation and he may not even give his recommendation.
Moreover, they allege that no guiding standards are provided in the law
on what basis and as to how he will make his recommendation. They
claim, nonetheless, that any recommendation of the Secretary of
Finance can easily be brushed aside by the President since the former is
a mere alter ego of the latter, such that, ultimately, it is the President
who decides whether to impose the increased tax rate or not.
(1) Delegation of tariff powers to the President under Section 28 (2) of

Article VI of the Constitution;
A brief discourse on the principle of non-delegation of powers is

instructive.
(4) Delegation to local governments; and
The principle of separation of powers ordains that each of the three

great branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of nondelegation of powers, as expressed in the Latin maxim: potestas
delegata non delegari potest which means "what has been delegated,
cannot be delegated."38 This doctrine is based on the ethical principle
that such as delegated power constitutes not only a right but a duty to
be performed by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the
Constitution provides that "the Legislative power shall be vested in the
Congress of the Philippines which shall consist of a Senate and a House
of Representatives." The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has
been described as the authority to make a complete law
complete as to the time when it shall take effect and as to whom
it shall be applicable and to determine the expediency of its
enactment.40 Thus, the rule is that in order that a court may be
justified in holding a statute unconstitutional as a delegation of
legislative power, it must appear that the power involved is purely
legislative in nature that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability
of its use or the manner of its exercise, which determines the validity of
its delegation.
Nonetheless, the general rule barring delegation of legislative powers is
subject to the following recognized limitations or exceptions:
(2) Delegation of emergency powers to the President under Section 23

(2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing that
the delegation itself is valid. It is valid only if the law (a) is complete in
itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate;41 and (b) fixes a standard the limits of
which are sufficiently determinate and determinable to which the
delegate must conform in the performance of his functions. 42 A sufficient
standard is one which defines legislative policy, marks its limits, maps
out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to
be effected.43 Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the
shoes of the legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel,
expounded on the concept and extent of delegation of power in this
wise:
In testing whether a statute constitutes an undue delegation of
legislative power or not, it is usual to inquire whether the statute was
complete in all its terms and provisions when it left the hands of the
legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the
delegation of power to make the law, which necessarily involves
a discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in
pursuance of the law. The first cannot be done; to the latter no
valid objection can be made.
...
It is contended, however, that a legislative act may be made to the
effect as law after it leaves the hands of the legislature. It is true that
laws may be made effective on certain contingencies, as by
proclamation of the executive or the adoption by the people of a
particular community. In Wayman vs. Southard, the Supreme Court of
the United States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power to
ascertain facts is such a power which may be delegated. There is
nothing essentially legislative in ascertaining the existence of
facts or conditions as the basis of the taking into effect of a law.
That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to
relax the rule prohibiting delegation of legislative authority on account
of the complexity arising from social and economic forces at work in this
modern industrial age, the orthodox pronouncement of Judge Cooley in
his work on Constitutional Limitations finds restatement in Prof.
Willoughby's treatise on the Constitution of the United States in the
following language speaking of declaration of legislative power to
administrative agencies: The principle which permits the
legislature to provide that the administrative agent may
determine when the circumstances are such as require the
application of a law is defended upon the ground that at the time
this authority is granted, the rule of public policy, which is the
essence of the legislative act, is determined by the legislature.
In other words, the legislature, as it is its duty to do, determines
that, under given circumstances, certain executive or
administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What
is thus left to the administrative official is not the legislative
determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done
according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of
course, come from Congress, but the ascertainment of the
contingency upon which the Act shall take effect may be left to
such agencies as it may designate. The legislature, then, may
provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the
power to determine when the specified contingency has arisen.

(Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to
make laws and to alter and repeal them; the test is the completeness of
the statute in all its terms and provisions when it leaves the hands of
the legislature. To determine whether or not there is an undue
delegation of legislative power, the inquiry must be directed to the scope
and definiteness of the measure enacted. The legislative does not
abdicate its functions when it describes what job must be done,
who is to do it, and what is the scope of his authority. For a
complex economy, that may be the only way in which the legislative
process can go forward. A distinction has rightfully been made
between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which
constitutionally may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in
pursuance of the law, to which no valid objection can be made.
The Constitution is thus not to be regarded as denying the legislature
the necessary resources of flexibility and practicability. (Emphasis
supplied).48
Clearly, the legislature may delegate to executive officers or bodies the
power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made
to depend, but the legislature must prescribe sufficient standards,
policies or limitations on their authority.49 While the power to tax cannot
be delegated to executive agencies, details as to the enforcement and
administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its
operation depends.50
The rationale for this is that the preliminary ascertainment of facts as
basis for the enactment of legislation is not of itself a legislative
function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of
subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is impossible
in the absence of accurate information on the part of the legislators, and

any reasonable method of securing such information is proper.51 The
Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make
for itself detailed determinations which it has declared to be prerequisite
to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has
been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
(2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
The case before the Court is not a delegation of legislative power. It is
simply a delegation of ascertainment of facts upon which enforcement
and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the
absence of discretion is the fact that the word shall is used in the
common proviso. The use of the word shall connotes a mandatory order.
Its use in a statute denotes an imperative obligation and is inconsistent
with the idea of discretion. 53 Where the law is clear and unambiguous, it
must be taken to mean exactly what it says, and courts have no choice
but to see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose
the 12% rate upon the existence of any of the conditions specified by
Congress. This is a duty which cannot be evaded by the President.

Inasmuch as the law specifically uses the word shall, the exercise of
discretion by the President does not come into play. It is a clear
directive to impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is based on
the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other
than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA
GURO Party List, et al. that the law effectively nullified the Presidents
power of control over the Secretary of Finance by mandating the fixing
of the tax rate by the President upon the recommendation of the
Secretary of Finance. The Court cannot also subscribe to the position of
petitioners
Pimentel, et al. that the word shall should be interpreted to mean may
in view of the phrase "upon the recommendation of the Secretary of
Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary
of Finance can easily be brushed aside by the President since the former
is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the
President, it simply means that as head of the Department of Finance he
is the assistant and agent of the Chief Executive. The multifarious
executive and administrative functions of the Chief Executive are
performed by and through the executive departments, and the acts of
the secretaries of such departments, such as the Department of
Finance, performed and promulgated in the regular course of business,
are, unless disapproved or reprobated by the Chief Executive,
presumptively the acts of the Chief Executive. The Secretary of Finance,
as such, occupies a political position and holds office in an advisory
capacity, and, in the language of Thomas Jefferson, "should be of the
President's bosom confidence" and, in the language of Attorney-General
Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on
the existence of either of the two conditions, the Secretary of Finance is
not acting as the alter ego of the President or even her subordinate. In
such instance, he is not subject to the power of control and direction of
the President. He is acting as the agent of the legislative department, to

determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to
gather and collate statistical data and other pertinent information and
verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President,
the President cannot alter or modify or nullify, or set aside the findings
of the Secretary of Finance and to substitute the judgment of the former
for that of the latter.
Congress simply granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by December 31,
2005, the value-added tax collection as a percentage of Gross Domestic
(24/5%) or the national government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1%). If either of
these two instances has occurred, the Secretary of Finance, by
legislative mandate, must submit such information to the President.
Then the 12% VAT rate must be imposed by the President effective
January 1, 2006. There is no undue delegation of legislative power
but only of the discretion as to the execution of a law. This is
constitutionally permissible.57 Congress does not abdicate its
functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative
process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that
delegating to the President the legislative power to tax is contrary to the
principle of republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate
to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a
manner is not within the province of the Court to inquire into, its task
being to interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has

ample powers to cause, influence or create the conditions to bring about
either or both the conditions precedent does not deserve any merit as
this argument is highly speculative. The Court does not rule on
allegations which are manifestly conjectural, as these may not exist at
all. The Court deals with facts, not fancies; on realities, not
appearances. When the Court acts on appearances instead of realities,
justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and
Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate
imposes an unfair and additional tax burden on the people. Petitioners
also argue that the 12% increase, dependent on any of the 2 conditions
set forth in the contested provisions, is ambiguous because it does not
state if the VAT rate would be returned to the original 10% if the rates
are no longer satisfied. Petitioners also argue that such rate is unfair
and unreasonable, as the people are unsure of the applicable VAT rate
from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if
any of the two conditions set forth therein are satisfied, the President
shall increase the VAT rate to 12%. The provisions of the law are clear.
It does not provide for a return to the 10% rate nor does it empower
the President to so revert if, after the rate is increased to 12%, the VAT
collection goes below the 2 4/5 of the GDP of the previous year or that
the national government deficit as a percentage of GDP of the previous
year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither
can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a return to the 10%
rate, which in this case the Court finds none, petitioners argument is, at
best, purely speculative. There is no basis for petitioners fear of a
fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6
are no longer present. The rule is that where the provision of the law is
clear and unambiguous, so that there is no occasion for the court's
seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was
allegedly an incentive to the President to raise the VAT collection to at
least 2 4/5 of the GDP of the previous year, should be based on fiscal
adequacy.
Petitioners obviously overlooked that increase in VAT collection is not
the only condition. There is another condition, i.e., the national
government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %).
IV. Every tax ought to be so contrived as both to take out and to keep
out of the pockets of the people as little as possible over and above
what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet
government expenditures and their variations.64
The dire need for revenue cannot be ignored. Our country is in a
quagmire of financial woe. During the Bicameral Conference Committee
hearing, then Finance Secretary Purisima bluntly depicted the countrys
gloomy state of economic affairs, thus:
1. VAT/GDP Ratio > 2.8%
First, let me explain the position that the Philippines finds itself in right
now. We are in a position where 90 percent of our revenue is used for
debt service. So, for every peso of revenue that we currently raise, 90
goes to debt service. Thats interest plus amortization of our debt. So
clearly, this is not a sustainable situation. Thats the first fact.
The condition set for increasing VAT rate to 12% have economic or fiscal
meaning. If VAT/GDP is less than 2.8%, it means that government has
weak or no capability of implementing the VAT or that VAT is not
effective in the function of the tax collection. Therefore, there is no
value to increase it to 12% because such action will also be ineffectual.
The second fact is that our debt to GDP level is way out of line
compared to other peer countries that borrow money from that
international financial markets. Our debt to GDP is approximately equal
to our GDP. Again, that shows you that this is not a sustainable
situation.
2. Natl Govt Deficit/GDP >1.5%
The third thing that Id like to point out is the environment that we are
presently operating in is not as benign as what it used to be the past
five years.
Respondents
conditions:
explained
the
philosophy
behind
these
alternative
The condition set for increasing VAT when deficit/GDP is 1.5% or less
means the fiscal condition of government has reached a relatively sound
position or is towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the fiscal
house is in a relatively healthy position. Otherwise stated, if the ratio is
more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to
increase the VAT collection does not render it unconstitutional so long as
there is a public purpose for which the law was passed, which in this
case, is mainly to raise revenue. In fact, fiscal adequacy dictated the
need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax
system was originally stated by Adam Smith in his Canons of Taxation
(1776), as:
What do I mean by that?

In the past five years, weve been lucky because we were operating in a
period of basically global growth and low interest rates. The past few
months, we have seen an inching up, in fact, a rapid increase in the
interest rates in the leading economies of the world. And, therefore, our
ability to borrow at reasonable prices is going to be challenged. In fact,
ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment
was not as bad as it is now, at least based on the forecast of most
financial institutions. So, we were assuming that raising 80 billion would
put us in a position where we can then convince them to improve our
ability to borrow at lower rates. But conditions have changed on us
because the interest rates have gone up. In fact, just within this room,
we tried to access the market for a billion dollars because for this year
alone, the Philippines will have to borrow 4 billion dollars. Of that
amount, we have borrowed 1.5 billion. We issued last January a 25-year
bond at 9.7 percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not accessed and
we might pull back because the conditions are not very good.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and

110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
So given this situation, we at the Department of Finance believe that we

really need to front-end our deficit reduction. Because it is deficit that is
causing the increase of the debt and we are in what we call a debt
spiral. The more debt you have, the more deficit you have because
interest and debt service eats and eats more of your revenue. We need
to get out of this debt spiral. And the only way, I think, we can get out
of this debt spiral is really have a front-end adjustment in our revenue
base.65
A. Due Process and Equal Protection Clauses
The image portrayed is chilling. Congress passed the law hoping for
rescue from an inevitable catastrophe. Whether the law is indeed
sufficient to answer the states economic dilemma is not for the Court to
judge. In the Farias case, the Court refused to consider the various
arguments raised therein that dwelt on the wisdom of Section 14 of R.A.
No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy
is within the exclusive dominion of the political branches of the
government. It is not for this Court to look into the wisdom or propriety
of legislative determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory, whether it is the
best means to achieve the desired results, whether, in short, the
legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and
the serious conflict of opinions does not suffice to bring them within the
range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose
of Congress or the executive policy, given that it is not for the judiciary
to "pass upon questions of wisdom, justice or expediency of
legislation."67
II.

b. Article III, Section 1
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that

Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and
Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and confiscatory. Their argument is
premised on the constitutional right against deprivation of life, liberty of
property without due process of law, as embodied in Article III, Section
1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional
guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses
are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC
imposes a limitation on the amount of input tax that may be credited
against the output tax. It states, in part: "[P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as
the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including
lease or use of property, in the course of trade or business, from a VATregistered person, and Output Tax is the value-added tax due on the
sale or lease of taxable goods or properties or services by any person
registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the

amount of input tax that may be claimed. In effect, a portion of the
input tax that has already been paid cannot now be credited against the
output tax.
Petitioners argument is not absolute. It assumes that the input tax
exceeds 70% of the output tax, and therefore, the input tax in excess of
70% remains uncredited. However, to the extent that the input tax is
less than 70% of the output tax, then 100% of such input tax is still
creditable.
More importantly, the excess input tax, if any, is retained in a businesss
books of accounts and remains creditable in the succeeding quarter/s.
This is explicitly allowed by Section 110(B), which provides that "if the
input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters." In addition, Section 112(B) allows a
VAT-registered person to apply for the issuance of a tax credit certificate
or refund for any unused input taxes, to the extent that such input
taxes have not been applied against the output taxes. Such unused
input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not
ad infinitum, as petitioners exaggeratedly contend. Their analysis of the
effect of the 70% limitation is incomplete and one-sided. It ends at the
net effect that there will be unapplied/unutilized inputs VAT for a given
quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that
it may later on be refunded through a tax credit certificate under
Section 112(B).
due to the person when he sells goods. In computing the VAT payable,
three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the
seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall
be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be
carried over to the succeeding quarter or quarters. Should the input
taxes result from zero-rated or effectively zero-rated transactions, any
excess over the output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes, at the taxpayers
option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the
input tax. Thus, a person can credit his input tax only up to the extent
of 70% of the output tax. In laymans term, the value-added taxes that
a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a
taxable transaction. There is no retention of any tax collection because
the person/taxpayer has already previously paid the input tax to a
seller, and the seller will subsequently remit such input tax to the BIR.
The party directly liable for the payment of the tax is the seller.71 What
only needs to be done is for the person/taxpayer to apply or credit
these input taxes, as evidenced by receipts, against his output taxes.
Therefore, petitioners argument must be rejected.
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.
On the other hand, it appears that petitioner Garcia failed to

comprehend the operation of the 70% limitation on the input tax.
According to petitioner, the limitation on the creditable input tax in
effect allows VAT-registered establishments to retain a portion of the
taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
The input tax is not a property or a property right within the

constitutional purview of the due process clause. A VAT-registered
persons entitlement to the creditable input tax is a mere statutory
privilege.
As earlier stated, the input tax is the tax paid by a person, passed on to
him by the seller, when he buys goods. Output tax meanwhile is the tax
The distinction between statutory privileges and vested rights must be

borne in mind for persons have no vested rights in statutory privileges.
The state may change or take away rights, which were created by the
law of the state, although it may not take away property, which was
vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every
level of distribution are not recoverable from the taxes payable,
although it becomes part of the cost, which is deductible from the gross
revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multistage tax on all sales, it was then that the crediting of the input tax paid
on purchase or importation of goods and services by VAT-registered
persons against the output tax was introduced.73 This was adopted by
the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of
1997 (R.A. No. 8424).75 The right to credit input tax as against the
output tax is clearly a privilege created by law, a privilege that also the
law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of
the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds One million pesos (P1,000,000.00): Provided, however,
That if the estimated useful life of the capital goods is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, finally, That in the case of
purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to
amortize the creditable input tax on purchase or importation of capital
goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the
input tax. Petitioners argument is without basis because the taxpayer is
not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of

the creditable input tax in this case amounts to a 4-year interest-free
loan to the government.76 In the same breath, Congress also justified its
move by saying that the provision was designed to raise an annual
revenue of 22.6 billion.77 The legislature also dispelled the fear that the
provision will fend off foreign investments, saying that foreign investors
have other tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments were
not deterred.78 Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments
made by the government for taxable transactions, Section 12 of R.A.
No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its
political
subdivisions,
instrumentalities
or
agencies,
including
government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment. For purposes of this Section, the payor or
person in control of the payment shall be considered as the withholding
agent.
The value-added tax withheld under this Section shall be remitted within
ten (10) days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by
respondents, a more simplified VAT withholding system. The
government in this case is constituted as a withholding agent with
respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of
value-added taxes to be withheld -- 3% on gross payments for
purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross

payments for services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different
rates, except for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In
tax usage, final, as opposed to creditable, means full. Thus, it is
provided in Section 114(C): "final value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The
Tax Reform Act of 1997), the concept of final withholding tax on income
was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the
amount of income tax withheld by the withholding agent is constituted
as full and final payment of the income tax due from the payee on
the said income. The liability for payment of the tax rests primarily on
the payor as a withholding agent. Thus, in case of his failure to withhold
the tax or in case of underwithholding, the deficiency tax shall be
collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax
system, taxes withheld on certain income payments are intended to
equal or at least approximate the tax due of the payee on said income.
Taxes withheld on income payments covered by the expanded
withholding tax (referred to in Sec. 2.57.2 of these regulations) and
compensation income (referred to in Sec. 2.78 also of these regulations)
are creditable in nature.
As applied to value-added tax, this means that taxable transactions with
the government are subject to a 5% rate, which constitutes as full
payment of the tax payable on the transaction. This represents the net
VAT payable of the seller. The other 5% effectively accounts for the
standard input VAT (deemed input VAT), in lieu of the actual input VAT
directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear
that Congress intended to treat differently taxable transactions with the
government.80 This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the
tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government
or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods from
sellers and services rendered by contractors which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct
and withhold the value-added tax due at the rate of three percent (3%)
of the gross payment for the purchase of goods and six percent (6%) on
gross receipts for services rendered by contractors on every sale or
installment payment which shall be creditable against the valueadded tax liability of the seller or contractor: Provided, however,
That in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property
rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this purpose, the payor or
person in control of the payment shall be considered as the withholding
agent.
The valued-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding was
made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word
creditable exhibits Congresss intention to treat transactions with the
government differently. Since it has not been shown that the class
subject to the 5% final withholding tax has been unreasonably
narrowed, there is no reason to invalidate the provision. Petitioners, as
petroleum dealers, are not the only ones subjected to the 5% final
withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as
petitioners believe. Revenue Regulations No. 14-2005 or the
Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments,
the excess may form part of the cost. Equally, should the actual input
tax be less than 5%, the difference is treated as income.81
ones profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.
Petitioners also argue that by imposing a limitation on the creditable

input tax, the government gets to tax a profit or value-added even if
there is no profit or value-added.
The equal protection clause does not require the universal application of
the laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification.
By classification is meant the grouping of persons or things similar to
each other in certain particulars and different from all others in these
same particulars.85
Petitioners stance is purely hypothetical, argumentative, and again,

one-sided. The Court will not engage in a legal joust where premises are
what ifs, arguments, theoretical and facts, uncertain. Any disquisition by
the Court on this point will only be, as Shakespeare describes life in
Macbeth,82 "full of sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there
is no profit or value-added. It need not take an astute businessman to
know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.
The equal protection clause under the Constitution means that "no
person or class of persons shall be deprived of the same protection of
laws which is enjoyed by other persons or other classes in the same
place and in like circumstances."83
The power of the State to make reasonable and natural classifications
for the purposes of taxation has long been established. Whether it
relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the States power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such power absent
a clear showing of unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the
entity has a high ratio of input tax, or invests in capital equipment, or
has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not
make any classification in the subject of taxation, the kind of property,
the rates to be levied or the amounts to be raised, the methods of
assessment, valuation and collection. Petitioners alleged distinctions are
based on variables that bear different consequences. While the
implementation of the law may yield varying end results depending on
Petitioners brought to the Courts attention the introduction of Senate

Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S.
Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D.
Singson. The proposed legislation seeks to amend the 70% limitation by
increasing the same to 90%. This, according to petitioners, supports
their stance that the 70% limitation is arbitrary and confiscatory. On this
score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. Different
articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0%
or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the
NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or lease
of properties. These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of industry or
trade that will bear the 70% limitation on the creditable input tax, 5-
year amortization of input tax paid on purchase of capital goods or the

5% final withholding tax by the government. It must be stressed that
the rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity within the
particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold
margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of
goods or services with gross annual sales or receipts not exceeding
P1,500,000.00.88 Also, basic marine and agricultural food products in
their original state are still not subject to the tax, 89 thus ensuring that
prices at the grassroots level will remain accessible. As was stated in
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs.
Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an aggregate
gross annual sales exceeding P200,000.00. Small corner sari-sari stores
are consequently exempt from its application. Likewise exempt from the
tax are sales of farm and marine products, so that the costs of basic
food and other necessities, spared as they are from the incidence of the
VAT, are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with
low profit margins, and unduly favors those with high profit margins.
Congress was not oblivious to this. Thus, to equalize the weighty burden
the law entails, the law, under Section 116, imposed a 3% percentage
tax on VAT-exempt persons under Section 109(v), i.e., transactions with
gross annual sales and/or receipts not exceeding P1.5 Million. This acts
as a equalizer because in effect, bigger businesses that qualify for VAT
coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact
of the imposition of the tax on those previously exempt. Excise taxes on
petroleum products91 and natural gas92 were reduced. Percentage tax on
domestic carriers was removed.93 Power producers are now exempt from
paying franchise tax.94
Aside from these, Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. Domestic,
foreign, and non-resident corporations are now subject to a 35%
income tax rate, from a previous 32%.95 Intercorporate dividends of

non-resident foreign corporations are still subject to 15% final
withholding tax but the tax credit allowed on the corporations domicile
was increased to 20%.96 The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes anymore. 97
Even the sale by an artist of his works or services performed for the
production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of
taxation, which would otherwise rest largely on the consumers. It
cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax
is anything but regressive. It is the smaller business with higher input
tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to
pay. This principle was also lifted from Adam Smiths Canons of
Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of
the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is
regressive. The principle of progressive taxation has no relation with the
VAT system inasmuch as the VAT paid by the consumer or business for
every goods bought or services enjoyed is the same regardless of
income. In
other words, the VAT paid eats the same portion of an income, whether
big or small. The disparity lies in the income earned by a person or
profit margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that is
eaten by VAT. A converso, the lower the income or profit margin, the
bigger the part that the VAT eats away. At the end of the day, it is really
the lower income group or businesses with low-profit margins that is

always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of
indirect taxes, like the VAT. What it simply provides is that Congress
shall "evolve a progressive system of taxation." The Court stated in the
Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that
Congress shall evolve a progressive system of taxation. The
constitutional provision has been interpreted to mean simply that direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized. (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, 17 (1) of the
1973 Constitution from which the present Art. VI, 28 (1) was taken.
Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT,
the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, 3, amending
102 (b) of the NIRC), while granting exemptions to other transactions.
(R.A. No. 7716, 4 amending 103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this
case, it is just an enema, a first-aid measure to resuscitate an economy
in distress. The Court is neither blind nor is it turning a deaf ear on the
plight of the masses. But it does not have the panacea for the malady
that the law seeks to remedy. As in other cases, the Court cannot strike
down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is
a remedy, and that the judiciary should stand ready to afford relief.
There are undoubtedly many wrongs the judicature may not correct, for
instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is
the repository of remedies for all political or social ills; We should not
forget that the Constitution has judiciously allocated the powers of
government to three distinct and separate compartments; and that
judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of
each, knowing full well that one is not the guardian of the others and
that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still
holds true now. All things considered, there is no raison d'tre for the
unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the
petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730,
are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and
implementation of R.A. No. 9337, the temporary restraining order
issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.
SO ORDERED.

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G.R. No.

168056 September 1, 2005

Singson introduced on August 8, 2004. The President certified the bill on

trying to deliver a point that different industries, different products,

and properties, Section 5 imposes a 10% VAT on importation of goods,

Petitioners further claim that the inclusion of a stand-by authority

. . . That the President, upon the recommendation of the Secretary of

(i) Value-added tax collection as a percentage of Gross Domestic

G.R. No. 168461

1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that

Petitioners also believe that these provisions violate the constitutional

pass on the tax to the consumers is inequitable, in violation of Article

2) The Bicameral Conference Committee acted without jurisdiction in

Respondents also refute petitioners argument that the increase to 12%,

3) Insertion by the Bicameral Conference Committee of Sections 27, 28,

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for

The Court defined the issues, as follows:

b. Article VI, Section 26(2)

differences shall be settled by a conference committee of both Houses

Striking down such argument, the Court held thus:

of Philippine Judges Association vs. Prado 29 and Tolentino vs. Secretary

houses. If that be the case, there would be no end to negotiation since

Coming to the issue of the validity of the amendments made regarding

Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation

Petitioners argument that the practice where a bicameral conference

Tax on Persons Exempt from VAT

Percentage Tax on domestic carriers and keepers of Garage

Tax on banks and Non-Bank Financial Intermediaries

Excise Tax on manufactured oils and other fuels

Excise Tax on mineral products

Issuance of receipts or sales or commercial invoices

Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the NIRC

The argument does not hold water.

Given, then, the power of the Senate to propose amendments,

Article VI, Section 24 of the Constitution reads:

Sec. 24. All appropriation, revenue or tariff bills, bills authorizing

Since there is no question that the revenue bill exclusively originated in

the extent of the amendments that may be introduced by the Senate to

to supplement our countrys serious financial problems, and improve tax

corporations are germane to the purpose of the house bills which is to

Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,

The assailed provisions read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further

SEC. 107. Value-Added Tax on Importation of Goods.

(ii) national government deficit as a percentage of GDP of the

(1) Delegation of tariff powers to the President under Section 28 (2) of

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

(4) Delegation to local governments; and

The principle of separation of powers ordains that each of the three

(2) Delegation of emergency powers to the President under Section 23

(5) Delegation to administrative bodies.

power to determine when the specified contingency has arisen.

in the absence of accurate information on the part of the legislators, and

Congress. This is a duty which cannot be evaded by the President.

the President. He is acting as the agent of the legislative department, to