ABAKADA Guro Party List Vs Ermita

11/18/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 469 11/18/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 469
doing business under the name and style of “NEW LAMUAN

SHELL SERVICE STATION”; EFREN SOTTO doing business
under the name and style of “RED FIELD SHELL SERVICE
STATION”; DONICA CORPORATION represented by its President,
DESI TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of “R&R PETRON STATION”; PETER M. UNGSON
doing business under the name and style of “CLASSIC STAR
14 SUPREME COURT REPORTS ANNOTATED
GASOLINE SERVICE STATION”; MARIAN SHEILA A. LEE doing
Abakada Guro Party List vs. Ermita business under the name and style of “NTE GASOLINE &
SERVICE STATION”; JULIAN CESAR P. POSADAS doing
*
G.R. No. 168056. September 1, 2005. business under the name and style of “STARCARGA
ENTERPRISES”; ADORACION MAÑEBO doing business under
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS the name and style of “CMA MOTORISTS CENTER”; SUSAN M.
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, ENTRATA doing business under the name and style of “LEONA’S
petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY GASOLINE STATION and SERVICE CENTER”; CARMELITA
EDUARDO ERMITA; HONORABLE SECRETARY OF THE BALDONADO doing business under the name and style of “FIRST
DEPARTMENT OF FINANCE CESAR PURISIMA; and CHOICE SERVICE CENTER”; MERCEDITAS A. GARCIA doing
HONORABLE COMMISSIONER OF INTERNAL REVENUE business under the name and style of “LORPED SERVICE
GUILLERMO PARAYNO, JR., respondents. CENTER”; RHEAMAR A. RAMOS doing business under the name
and style of “RJRAM PTT GAS STATION”; MA. ISABEL VIOLAGO
* doing business under the name and style of “VIOLAGO-PTT
G.R. No. 168207. September 1, 2005.
SERVICE CENTER”; MOTORISTS’ HEART CORPORATION
represented by its Vice-President for Operations, JOSELITO F.
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, FLORDELIZA; MOTORISTS’ HARVARD CORPORATION
JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO S. represented by its Vice-President for Operations, JOSELITO F.
LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION
petitioners, vs. EXECUTIVE SECRETARY EDUARDO R. ERMITA, represented by its Vice-President for Operations, JOSELITO F.
CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION
L. PARAYNO, JR., COMMISSIONER OF THE BUREAU OF represented by its Vice-President for Operations, JOSELITO F.
INTERNAL REVENUE, respondents. FLORDELIZA; ROMEO MANUEL doing business under the name
*
and style of “ROMMAN GASOLINE STATION”; ANTHONY
G.R. No. 168461. September 1, 2005. ALBERT CRUZ III doing business under the name and style of
“TRUE SERVICE STATION”, petitioners, vs. CESAR V.
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. PURISIMA, in his capacity as Secretary of the Department of
represented by its President, ROSARIO ANTONIO; PETRON
DEALERS’ ASSOCIATION represented by its President, RUTH E. 16
BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF THE
PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the name and
style of “ANB NORTH SHELL SERVICE STATION”; LOURDES Abakada Guro Party List vs. Ermita
MARTINEZ doing business under the name and style of “SHELL
GATE—N. DOMINGO”; BETH-ZAIDA TAN doing business under
the name and style of “ADVANCE SHELL STATION”; REYNALDO Finance and GUILLERMO L. PARAYNO, JR., in his capacity as
P. MONTOYA Commissioner of Internal Revenue, respondents.
G.R. No. 168463. September 1, 2005.*

_______________
* EN BANC. FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
15
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN,
BENJAMIN C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
VOL. 469, SEPTEMBER 1, 2005 15 JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
Abakada Guro Party List vs. Ermita
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO, petitioners,
vs. CESAR V. PURISIMA, in his capacity as Secretary of Finance,
www.central.com.ph/sfsreader/session/0000016e7bfca3a5e9f51ce2003600fb002c009e/t/?o=False 1/239 www.central.com.ph/sfsreader/session/0000016e7bfca3a5e9f51ce2003600fb002c009e/t/?o=False 2/239
GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner value-added tax payable. Under the “tax credit method,” an entity can
of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as credit against or subtract from the VAT charged on its sales or outputs the
Executive Secretary, respondents. VAT paid on its purchases, inputs and imports. It was only in 1987, when
President Corazon C. Aquino issued Ex-ecutive Order No. 273, that the
G.R. No. 168730. September 1, 2005.* VAT system was rationalized by imposing a multi-stage tax rate of 0% or
10% on all sales using the “tax credit method.” E.O. No. 273 was followed
by R.A. No. 7716 or the Expanded VAT Law, R.A. No. 8241 or the Improved
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR., petitioner, vs.
VAT Law, R.A. No. 8424 or the Tax Reform Act of 1997, and finally, the
HON. EDUARDO R. ERMITA, in his capacity as the Executive
presently beleaguered R.A. No. 9337, also referred to by respondents as the
Secretary; HON. MARGARITO TEVES, in his capacity as Secretary
VAT Reform Act.
of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and HON. 18
ALEXANDER AREVALO, in his capacity as the OIC Commissioner
of the Bureau of Customs, respondents.
Taxation; Value-Added Tax (VAT); Words and Phrases; The VAT is a Abakada Guro Party List vs. Ermita
tax on spending or consumption—it is levied on the sale, barter, exchange or
lease of goods or properties and services; Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax Congress; Bicameral Conference Committee; Legislative Rules; It should
paid to the buyer; In contrast, a direct tax is a tax for which a taxpayer is be borne in mind that the power of internal regulation and discipline are
directly liable on the transaction or business it engages in, without intrinsic in any legislative body, and pursuant to this inherent
transferring the burden to someone else.—As a prelude, the Court deems it constitutional power to promulgate and implement its own rules of
apt to restate the general principles and procedure, the respective rules of each house of Congress provided for the
creation of a Bicameral Conference Committee.— Petitioners now beseech
17 the Court to define the powers of the Bi-cameral Conference Committee. It
should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body for, as unerringly elucidated
by Justice Story, “[i]f the power did not exist, it would be utterly
VOL. 469, SEPTEMBER 1, 2005 17 impracticable to transact the business of the nation, either at all, or at least
with decency, deliberation, and order.” Thus, Article VI, Section 16 (3) of
Abakada Guro Party List vs. Ermita the Constitution provides that “each House may determine the rules of its
proceed-ings.” Pursuant to this inherent constitutional power to
concepts of value-added tax (VAT), as the confusion and inevitably, promulgate and implement its own rules of procedure, the respective rules
litigation, breeds from a fallacious notion of its nature. The VAT is a tax on of each house of Congress provided for the creation of a Bicameral
spending or consumption. It is levied on the sale, barter, exchange or lease Conference Committee.
of goods or properties and services. Being an indirect tax on expenditure, Same; Same; Same; Separation of Powers; Judicial Review; Congress is
the seller of goods or services may pass on the amount of tax paid to the the best judge of how it should conduct its own business expeditiously and in
buyer, with the seller acting merely as a tax collector. The burden of VAT is the most orderly manner; If a change is desired in the practice [of the
intended to fall on the immediate buyers and ultimately, the end- Bicameral Conference Committee] it must be sought in Congress since this
consumers. In contrast, a direct tax is a tax for which a taxpayer is directly question is not covered by any constitutional provision but is only an
liable on the transaction or business it engages in, without transferring the internal rule of each house; Even the expanded jurisdiction of the Supreme
burden to someone else. Examples are individual and corporate income Court cannot apply to questions regarding only the internal operation of
taxes, transfer taxes, and residence taxes. Congress, thus, the Court is wont to deny a review of the internal
Same; Same; Same; In the Philippines, the value-added system of sales proceedings of a co-equal branch of government.—Akin to the Fariñas case,
taxation has long been in existence, albeit in a different mode—prior to the present petitions also raise an issue regarding the actions taken by the
1978, the system was a single-stage tax computed under the “cost deduction conference committee on matters regarding Congress’ compliance with its
method” and was payable only by the original sellers, then the single-stage own internal rules. As stated earlier, one of the most basic and inherent
system was subsequently modified, and a mixture of the “cost deduction power of the legislature is the power to formulate rules for its proceedings
method” and “tax credit method” was used to determine the value-added tax and the discipline of its members. Congress is the best judge of how it
payable; Under the “tax credit method,” an entity can credit against or should conduct its own business expeditiously and in the most orderly
subtract from the VAT charged on its sales or outputs the VAT paid on its manner. It is also the sole concern of Congress to instill discipline among
purchases, inputs and imports.—In the Philippines, the value-added system the members of its conference committee if it believes that said members
of sales taxation has long been in existence, albeit in a different mode. Prior violated any of its rules of proceedings. Even the expanded jurisdiction of
to 1978, the system was a single-stage tax computed under the “cost this Court cannot apply to questions regarding only the internal operation
deduction method” and was payable only by the original sellers. The single- of Congress, thus, the Court is wont to deny a review of the internal
stage system was subsequently modified, and a mixture of the “cost proceedings of a co-equal branch of
deduction method” and “tax credit method” was used to determine the

practice of giving said conference committee ample latitude for

19 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
VOL. 469, SEPTEMBER 1, 2005 19 propose an amendment consisting of one or two provisions, there is no
Abakada Guro Party List vs. Ermita 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
government. Moreover, as far back as 1994 or more than ten years ago, in report was not final but needed the approval of both houses of Congress to
the case of Tolentino vs. Secretary of Finance, the Court already made the become valid as an act of the legislative department. The charge that in
pronouncement that “[i]f a change is desired in the practice [of the this case the Conference Committee acted as a third legislative
Bicameral Conference Committee] it must be sought in Congress since this chamber is thus without any basis.
question is not covered by any constitutional provision but is only an
internal rule of each house.”To date, Congress has not seen it fit to make Same; Same; Same; “No Amendment” Rule; The “no-amend-ment rule”
such changes adverted to by the Court. It seems, therefore, that Congress refers only to the procedure to be followed by each house of Congress with
finds the practices of the bicameral conference committee to be very useful regard to bills initiated in each of said respective houses, before said bill is
for purposes of prompt and efficient legislative action. transmitted to the other house for its concurrence or amendment—Art. VI,
Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction
Same; Same; Same; Words and Phrases; The term “settle” is by the Bicameral Conference Committee of amendments and modifications
synonymous to “reconcile” and “harmonize”; To reconcile or harmonize to disagreeing provisions in bills that have been acted upon by both houses
disagreeing provisions, the Bicameral Conference Committee may then (a) of Congress is prohibited.—The Court reiterates here that the “no-
adopt the specific provisions of either the House bill or Senate bill, (b) decide amendment rule” refers only to the procedure to be followed by each house of
that neither provisions in the House bill or the provisions in the Senate bill Congress with regard to bills initiated in each of said respective houses,
would be carried into the final form of the bill, and/or (c) try to arrive at a before said bill is transmitted to the other house for its concurrence or
compromise between the disagreeing provisions.—Under the provisions of amendment. Verily, to construe said provision in a way as to proscribe any
both the Rules of the House of Representatives and Senate Rules, the further changes to a bill after one house has voted on it would lead to
Bicameral Conference Committee is mandated to settle the differences absurdity as this would mean that the other house of Congress would be
between the disagreeing provisions in the House bill and the Senate bill. deprived of its constitutional power to amend or introduce changes to said
The term “settle” is synonymous to “reconcile” and “harmonize.” To bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean
reconcile or harmonize disagreeing provisions, the Bicameral Conference that the introduction by the Bicameral Conference Committee of
Committee may then (a) adopt the specific provisions of either the House amendments and modifications to disagreeing provisions in bills that have
bill or Senate bill, (b) decide that neither provisions in the House bill or the been acted upon by both houses of Congress is prohibited.
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. 21
Same; Same; Same; It is within the power of a conference committee to
include in its report an entirely new provision that is not found either in the
VOL. 469, SEPTEMBER 1, 2005 21
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 Abakada Guro Party List vs. Ermita
cannot propose several provisions, collectively considered as an “amendment
in the nature of a substitute,” so long as such amendment is germane to the
Same; Origin of Bills; Revenue Bills; Since there is no question that the
subject of the bills before the committee.—All the changes or modifications
revenue bill originated in the House of Representatives, the Senate was
made by the Bicameral Conference Committee were germane to subjects of
acting within its constitutional power to introduce amendments to the House
the provisions referred to it for reconciliation. Such being the case, the
bill when it included provisions in Senate Bill No. 1950 amending corporate
Court does not see any grave abuse of discretion amounting to lack or
income taxes, percentage, excise and franchise taxes—Article VI, Section 24
excess of
of the Constitution does not contain any prohibition or limitation on the
20
extent of the amendments that may be introduced by the Senate to the House
revenue bill.—In the present cases, petitioners admit that it was indeed
House Bill Nos. 3555 and 3705 that initiated the move for amending
provisions of the NIRC dealing mainly with the value-added tax. Upon
20 SUPREME COURT REPORTS ANNOTATED 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
Abakada Guro Party List vs. Ermita the value-added tax but also amendments to NIRC provisions on other
kinds of taxes. Is the introduction by the Senate of provisions not dealing
jurisdiction committed by the Bicameral Conference Committee. In the directly with the value-added tax, which is the only kind of tax being
earlier cases of Philippine Judges Association vs. Prado and Tolentino vs. amended in the House bills, still within the purview of the constitutional
Secretary of Finance, the Court recognized the longstanding legislative provision authorizing the Senate to propose or concur with amendments to

a revenue bill that originated from the House? * * * Since there is no intervening mind of another.—The principle of separation of powers ordains
question that the revenue bill exclusively originated in the House of that each of the three great branches of government has exclusive
Representatives, the Senate was acting within its constitutional power to cognizance of and is supreme in matters falling within its own
introduce amendments to the House bill when it included provisions in constitutionally allocated sphere. A logical corollary to the doctrine of
Senate Bill No. 1950 amending corporate income taxes, percentage, excise separation of powers is the principle of non-delegation of powers, as
and franchise taxes. Verily, Article VI, Section 24 of the Constitution does expressed in the Latin maxim: potestas delegata non delegari potest which
not contain any prohibition or limitation on the extent of the amendments means “what has been delegated, cannot be delegated.” This doctrine is
that may be introduced by the Senate to the House revenue bill. based on the ethical principle that such as delegated power constitutes not
Same; Same; Same; The main purpose of the bills emanating from the only a right but a duty to be performed by the delegate through the
House of Representatives is to bring in sizeable revenues for the government instrumen-
to supplement our country’s serious financial problems, and improve tax
23
administration and control of the leakages in revenues from income taxes
and value-added taxes, and the Senate, approaching the measures from the
point of national perspective, can introduce amendments within the
purposes of those bills, like providing ways that would soften the impact of VOL. 469, SEPTEMBER 1, 2005 23
the VAT measure on the consumer.—The main purpose of the bills
emanating from the House of Representatives is to bring in sizeable Abakada Guro Party List vs. Ermita
revenues for the government to supplement our country’s serious financial
problems, and improve tax administration and control of the leakages in
tality of his own judgment and not through the intervening mind of
revenues
another.
22 Same; Same; Exception to the Non-Delegation of Legislative Powers;

Words and Phrases; The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively,
legislative—appertaining exclusively to the legislative department; Purely
22 SUPREME COURT REPORTS ANNOTATED legislative power has been described as the authority to make a complete law
—complete as to the time when it shall take effect and as to whom it shall be
applicable—and to determine the expediency of its enactment; It is the
nature of the power, and not the liability of its use or the manner of its
from income taxes and value-added taxes. As these house bills were exercise, which determines the validity of its delegation.—With respect to
transmitted to the Senate, the latter, approaching the measures from the the Legislature, Section 1 of Article VI of the Constitution provides that
point of national perspective, can introduce amendments within the “the Legislative power shall be vested in the Congress of the Philippines
purposes of those bills. It can provide for ways that would soften the impact which shall consist of a Senate and a House of Representatives.” The powers
of the VAT measure on the consumer, i.e., by distributing the burden across which Congress is prohibited from delegating are those which are strictly,
all sectors instead of putting it entirely on the shoulders of the consumers. or inherently and exclusively, legislative. Purely legislative power, which
Same; Same; Same; Germaneness Rule; The amendments made on can never be delegated, has been described as the authority to make a
provisions in the tax on income of corporations are germane to the purpose of complete law—complete as to the time when it shall take effect and as to
the house bills which is to raise revenues for the government, and the whom it shall be applicable—and to determine the expediency of its
sections referring to other percentage and excise taxes are germane to the enactment. Thus, the rule is that in order that a court may be justified in
reforms to the VAT system, as these sections would cushion the effects of holding a statute unconstitutional as a delegation of legislative power, it
VAT on consumers.—As the Court has said, the Senate can propose must appear that the power involved is purely legislative in nature—that
amendments and in fact, the amendments made on provisions in the tax on is, one appertaining exclusively to the legislative department. It is the
income of corporations are germane to the purpose of the house bills which nature of the power, and not the liability of its use or the manner of its
is to raise revenues for the government. Likewise, the Court finds the exercise, which determines the validity of its delegation. Nonetheless, the
sections referring to other percentage and excise taxes germane to the general rule barring delegation of legislative powers is subject to the
reforms to the VAT system, as these sections would cushion the effects of following recognized limitations or exceptions: (1) Delegation of tariff
VAT on consumers. Considering that certain goods and services which were powers to the President under Section 28 (2) of Article VI of the
subject to percentage tax and excise tax would no longer be VAT-exempt, Constitution; (2) Delegation of emergency powers to the President under
the consumer would be burdened more as they would be paying the VAT in Section 23 (2) of Article VI of the Constitution; (3) Delegation to the people
addition to these taxes. Thus, there is a need to amend these sections to at large; (4) Delegation to local governments; and (5) Delegation to
soften the impact of VAT. administrative bodies.
Same; Same; Same; Tests of Valid Delegation; A delegation is valid
Separation of Powers; Delegation of Powers; A logical corollary to the
only if the law (a) is complete in itself, setting forth therein the policy to be
doctrine of separation of powers is the principle of non-delegation of powers,
executed, carried out, or implemented by the delegate, and (b) fixes a
a doctrine based on the ethical principle that such as delegated power
standard—the limits of which are sufficiently determinate and determinable
constitutes not only a right but a duty to be performed by the delegate
—to which the delegate must conform in the per-
through the instrumentality of his own judgment and not through the

to others to perform. Intelligent legislation on the complicated problems of

24 modern society is impossible in the absence of accurate information on the
part of the legislators, and any reasonable method of securing such
information is proper. The Constitution as a continuously operative charter
of government does not require that Congress find for itself every fact upon
24 SUPREME COURT REPORTS ANNOTATED which it desires to base legislative action or that it make for itself detailed
Abakada Guro Party List vs. Ermita 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.
formance of his functions; A sufficient standard is one which defines
Same; Same; Same; Statutory Construction; The case before the Court is
legislative policy, marks its limits, maps out its boundaries and specifies the
not a delegation of legislative power—it is simply a delegation of
public agency to apply it.—In every case of permissible delegation, there
ascertainment of facts upon which enforcement and administration of the
must be a showing that the delegation itself is valid. It is valid only if the
increase rate under the law is contingent; No discretion would be exercised
law (a) is complete in itself, setting forth therein the policy to be executed,
by the President; The use of the word “shall” connotes a mandatory order.—
carried out, or implemented by the delegate; and (b) fixes a standard—the
The case before the Court is not a delegation of legislative power. It is
limits of which are sufficiently determinate and determinable—to which
simply a delegation of ascertainment of facts upon which enforcement and
the delegate must conform in the performance of his functions. A sufficient
administration of the increase rate under the law is contingent. The
standard is one which defines legislative policy, marks its limits, maps out
legislature has made the operation of the 12% rate effective January 1,
its boundaries and specifies the public agency to apply it. It indicates the
2006, contingent upon a specified fact or condition. It leaves the entire
circumstances under which the legislative command is to be effected. Both
operation or non-operation of the 12% rate upon factual matters outside of
tests are intended to prevent a total transference of legislative authority to
the control of the executive. No discretion would be exercised by the
the delegate, who is not allowed to step into the shoes of the legislature and
President. Highlighting the absence of discretion is the fact that the word
exercise a power essentially legislative.
shall is used in the common proviso. The use of the word shall connotes a
Same; Same; Taxation; While the power to tax cannot be delegated to mandatory order. Its use in a statute denotes an imperative obligation and
executive agencies, details as to the enforcement and administration of an is inconsistent with the idea of discretion. Where the law is clear and
exercise of such power may be left to them, including the power to determine unambiguous, it must be taken to mean exactly what it says, and courts
the existence of facts on which its operation depends, the rationale being that have no choice but to see to it that the mandate is obeyed. Thus, it is the
the preliminary ascertainment of facts as basis for the enactment of ministerial duty of the President to immediately impose the 12% rate upon
legislation is not of itself a legislative function but is simply ancillary to the existence of any of the conditions specified by Congress. This is a duty
legislation; The Constitution as a continuously operative charter of which cannot be evaded by the President. Inasmuch as the law specifically
government does not require that Congress find for itself every fact upon uses the word shall, the exercise of discretion by the President does not
which it desires to base legislative action or that it make for itself detailed come into play. It is a clear directive to impose the 12% VAT rate when the
determinations which it has declared to be prerequisite to application of specified conditions are present. The time of taking into effect of the 12%
legislative policy to particular facts and circumstances impossible for VAT rate is based on the happening of a certain specified contingency, or
Congress itself properly to investigate.—The legislature may delegate to upon
execu-tive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a 26
statute is, by its terms, made to depend, but the legislature must prescribe
sufficient standards, policies or limitations on their authority. While the
power to tax cannot be delegated to executive agencies, details as to the
enforcement and administration of an exercise of such power may be left to 26 SUPREME COURT REPORTS ANNOTATED
them, including the power to determine the existence of facts on which its
operation depends. The rationale for this is that the preliminary
ascertainment of facts as basis for the enactment of legislation is not of
itself a legislative function, but is simply ancillary to legislation. Thus, the the ascertainment of certain facts or conditions by a person or body other
duty of correlating informa- than the legislature itself.
Same; Same; Presidency; Control Power; Doctrine of Qualified Political
25
Agency; When one speaks of the Secretary of Finance as the alter ego of the
President, it simply means that as head of the Department of Finance he is
the assistant and agent of the Chief Executive—as such, he occupies a
VOL. 469, SEPTEMBER 1, 2005 25 political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, “should be of the President's bosom
Abakada Guro Party List vs. Ermita confidence” and, in the language of Attorney-General Cushing, is “subject to
the direction of the President.”— When one speaks of the Secretary of
Finance as the alter ego of the President, it simply means that as head of
tion and making recommendations is the kind of subsidiary activity which
the Department of Finance he is the assistant and agent of the Chief
the legislature may perform through its members, or which it may delegate
Executive. The multifarious executive and administrative functions of the
Chief Executive are performed by and through the executive departments, not abdicate its functions or unduly delegate power when it describes what
and the acts of the secretaries of such departments, such as the job must be done, who must do it, and what is the scope of his authority; in
Department of Finance, performed and promulgated in the regular course our complex economy that is frequently the only way in which the
of business, are, unless disapproved or reprobated by the Chief Executive, legislative process can go forward.
presumptively the acts of the Chief Executive. The Secretary of Finance, as Same; Same; Taxation; Value-Added Tax; The intent and will to
such, occupies a political position and holds office in an advisory capacity, increase the VAT rate to 12% came from Congress and the task of the
and, in the language of Thomas Jefferson, “should be of the President’s President is to simply execute the legislative policy.—As to the argument of
bosom confidence” and, in the language of Attorney-General Cushing, is petitioners ABAKADA GURO Party List, et al. that delegating to the
“subject to the direction of the President.” President the legislative power to tax is contrary to the principle of
Same; Same; Same; Same; Same; In the present case, in making his republicanism, the same deserves scant consideration. Congress did not
recommendation to the President on the existence of either of the two delegate the power to tax but the mere im-
conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate, and he is not subject to the power of 28
control and direction of the President—he is acting as the agent of the
legislative department, to determine and declare the event upon which its
expressed will is to take effect, becoming the means or tool by which
legislative policy is determined and implemented.—In the present case, in 28 SUPREME COURT REPORTS ANNOTATED
making his recommendation to the President on the existence of either of Abakada Guro Party List vs. Ermita
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 plementation of the law. The intent and will to increase the VAT rate to
agent of the legislative department, to determine and declare the event 12% came from Congress and the task of the President is to simply execute
upon which its expressed will is to take effect. The Secretary of Finance 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
27 the law.
Judicial Review; The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all—the Court deals with
facts, not fancies, on realities, not appearances.—The insinuation by
petitioners Pimentel, et al. that the President has ample powers to cause,
Abakada Guro Party List vs. Ermita 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
becomes the means or tool by which legislative policy is determined and conjectural, as these may not exist at all. The Court deals with facts, not
implemented, considering that he possesses all the facilities to gather data fancies; on realities, not appearances. When the Court acts on appearances
and information and has a much broader perspective to properly evaluate instead of realities, justice and law will be short-lived.
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 Same; Separation of Powers; Statutory Construction; Rewriting the law
Congress is present. His personality in such instance is in reality but a is a forbidden ground that only Congress may tread upon.— Under the
projection of that of Congress. Thus, being the agent of Congress and not of common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two
the President, the President cannot alter or modify or nullify, or set aside conditions set forth therein are satisfied, the President shall increase the
the findings of the Secretary of Finance and to substitute the judgment of VAT rate to 12%. The provisions of the law are clear. It does not provide for
the former for that of the latter. 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
Same; Same; Congress does not abdicate its functions or unduly
the GDP of the previous year or that the national government deficit as a
delegate power when it describes what job must be done, who must do it,
percentage of GDP of the previous year does not exceed 1 1/2%. Therefore,
and what is the scope of his authority—in our complex economy that is
no statutory construction or interpretation is needed. Neither can
frequently the only way in which the legislative process can go forward.—
conditions or limitations be introduced where none is provided for.
Congress simply granted the Secretary of Finance the authority to
Rewriting the law is a forbidden ground that only Congress may tread
ascertain the existence of a fact, namely, whether by December 31, 2005,
upon.
the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or Taxation; Value-Added Tax; Fiscal Adequacy; Words and Phrases; The
the national government deficit as a percentage of GDP of the previous year principle of fiscal adequacy as a characteristic of a sound tax system, which
exceeds one and one-half percent (1 1/2%). If either of these two instances was originally stated by Adam Smith in his Canons of Taxation, simply
has occurred, the Secretary of Finance, by legislative mandate, must means that sources of revenues must be adequate to meet government
submit such information to the President. Then the 12% VAT rate must be expenditures and their variations.— That the first condition amounts to an
imposed by the President effective January 1, 2006. There is no undue incentive to the President to increase the VAT collection does not render it
delegation of legislative power but only of the discretion as to the unconstitutional so long as there is a public purpose for which the law was
execution of a law. This is constitutionally permissible. Congress does passed,

29 rights must be borne in mind for persons have no vested rights in statutory
privileges.—The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered person’s
entitlement to the creditable input tax is a mere statutory privilege. The
VOL. 469, SEPTEMBER 1, 2005 29 distinction between statutory privileges and vested rights must be borne in
Abakada Guro Party List vs. Ermita 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
which in this case, is mainly to raise revenue. In fact, fiscal adequacy of such rights. Under the previous system of single-stage taxation, taxes
dictated the need for a raise in revenue. The principle of fiscal adequacy as paid at every level of distribution are not recoverable from the taxes
a characteristic of a sound tax system was originally stated by Adam Smith payable, although it becomes part of the cost, which is deductible from the
in his Canons of Taxation (1776), as: IV. Every tax ought to be so contrived gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10%
as both to take out and to keep out of the pockets of the people as little as multi-stage tax on all sales, it was then that the crediting of the input tax
possible over and above what it brings into the public treasury of the state. paid on purchase or importation of goods and services by VAT-registered
It simply means that sources of revenues must be adequate to meet persons against the output tax was introduced. This was adopted by the
government expenditures and their variations. Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A.
Same; Same; Due Process; Equal Protection; Where the due process and No. 8424). The right to credit input tax as against the output tax is clearly
equal protection clauses are invoked, considering that they are not fixed a privilege created by law, a privilege that also the law can remove, or in
rules but rather broad standards, there is a need for proof of such persuasive this case, limit.
character as would lead to such a conclusion.—The doctrine is that where Same; Same; Congress admitted that the spread-out of the creditable
the due process and equal protection clauses are invoked, considering that input tax in this case amounts to a 4-year interest-free loan to the
they are not fixed rules but rather broad standards, there is a need for government; For whatever is the purpose of the 60-month amortization, this
proof of such persuasive character as would lead to such a conclusion. involves executive economic policy and legislative wisdom in which the
Absent such a showing, the presumption of validity must prevail. Court cannot intervene.—It is worth mentioning that Congress admitted
Same; Same; Words and Phrases; Input Tax is defined under Section that the spread-out of the creditable input tax in this case amounts to a 4-
110(A) of the NIRC, as amended, as the value-added tax due from or paid by year interest-free loan to the government. In the same breath, Congress
a VAT-registered person on the importation of goods or local purchase of also justified its move by saying that the provision was designed to raise an
good and services, including lease or use of property, in the course of trade annual revenue of 22.6 billion. The legislature also dispelled the fear that
or business, from a VAT-registered person, and Output Tax is the value- the provision will fend off foreign investments, saying that foreign investors
added tax due on the sale or lease of taxable goods or properties or services have other tax incentives provided by law, and citing the case of China,
by any person registered or required to register under the law.—Section 8 of where despite a 17.5% non-creditable VAT, foreign investments were not
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 31
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 Abakada Guro Party List vs. Ermita
importation of goods or local purchase of good and services, including lease
or use of property, in the course of trade or business, from a VAT-registered
deterred. Again, for whatever is the purpose of the 60-month amortization,
person, and Output Tax is the value-added tax due on the sale or lease of
this involves executive economic policy and legislative wisdom in which the
taxable goods or properties or services by any person registered or required
Court cannot intervene.
to register under the law.
Same; Same; With regard to the 5% creditable withholding tax imposed
30 on payments made by the government for taxable transactions, Section 114
(C) of the National Internal Revenue Code merely provides a method of
collection, or as stated by respondents, a more simplified VAT withholding
30 SUPREME COURT REPORTS ANNOTATED system—the government in this case is constituted as a withholding agent
Abakada Guro Party List vs. Ermita with respect to their payments for goods and services.—With regard to the
5% creditable withholding tax imposed on payments made by the
government for taxable transactions, Section 12 of R.A. No. 9337, which
Same; Same; Due Process; Vested Rights; The input tax is not a amended Section 114 of the NIRC, reads: * * * Section 114(C) merely
property or a property right within the constitutional purview of the due provides a method of collection, or as stated by respondents, a more
process clause—a VAT-registered person’s entitlement to the creditable input simplified VAT withholding system. The government in this case is
tax is a mere statutory privilege; The right to credit input tax as against the constituted as a withholding agent with respect to their payments for goods
output tax is clearly a privilege created by law, a privilege that also the law and services. Prior to its amendment, Section 114(C) provided for different
can remove or limit; The distinction between statutory privileges and vested rates of value-added taxes to be withheld—3% on gross payments for
purchases of goods; 6% on gross payments for services supplied by shall, before making payment on account of each purchase of goods from
contractors other than by public works contractors; 8.5% on gross payments sellers and services rendered by contractors which are subject to the value-
for services supplied by public work contractors; or 10% on payment for the added tax imposed in Sections 106 and 108 of this Code, deduct and
lease or use of properties or property rights to nonresident owners. Under withhold the value-added tax due at the rate of three percent (3%) of the
the present Section 114(C), these different rates, except for the 10% on gross payment for the purchase of goods and six percent (6%) on gross
lease or property rights payment to nonresidents, were deleted, and a receipts for services rendered by contractors on every sale or installment
uniform rate of 5% is applied. payment which shall be creditable against the value-added tax
Same; Same; Words and Phrases; In tax usage, “final,” as opposed to liability of the seller or contractor: Provided, however, That in the case
creditable, means full; As applied to value-added tax, taxable transactions of government public works
with the government are subject to a 5% tax rate, which constitutes as full
33
payment of the tax payable on the transaction.—The Court observes,
however, that the law used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): “final value-
added tax at the rate of five percent (5%).” In Revenue Regulations No. 02- VOL. 469, SEPTEMBER 1, 2005 33
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. Abakada Guro Party List vs. Ermita
Withholding of Tax at Source. (A) Final Withholding Tax.—Under the final
withholding tax system the amount of income tax withheld by the
contractors, the withholding rate shall be eight and one-half percent (8.5%):
withholding agent is constituted as full and final payment
Provided, further, That the payment for lease or use of properties or
property rights to nonresident owners shall be subject to ten percent (10%)
32
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
32 SUPREME COURT REPORTS ANNOTATED 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
Abakada Guro Party List vs. Ermita deletion of the word creditable exhibits Congress’s intention to treat
transactions with the government differently. Since it has not been shown
of the income tax due from the payee on the said income. The liability for that the class subject to the 5% final withholding tax has been
payment of the tax rests primarily on the payor as a withholding agent. unreasonably narrowed, there is no reason to invalidate the provision.
Thus, in case of his failure to withhold the tax or in case of Petitioners, as petroleum dealers, are not the only ones subjected to the 5%
underwithholding, the deficiency tax shall be collected from the final withholding tax. It applies to all those who deal with the government.
payor/withholding agent. . . . (B) Creditable Withholding Tax.—Under the Same; Same; Judicial Review; The Court will not engage in a legal
creditable withholding tax system, taxes withheld on certain income joust where premises are what ifs, arguments, theoretical and facts,
payments are intended to equal or at least approximate the tax due of the uncertain—any disquisition by the Court on this point will only be, as
payee on said income. . . . Taxes withheld on income payments covered by Shakespeare describes life in Macbeth, “full of sound and fury, signifying
the expanded withholding tax (referred to in Sec. 2.57.2 of these nothing”; It need not take an astute businessman to know that it is a matter
regulations) and compensation income (referred to in Sec. 2.78 also of these of exception that a business will sell goods or services without profit or
regulations) are creditable in nature. As applied to value-added tax, this value-added.—Petitioners also argue that by imposing a limitation on the
means that taxable transactions with the government are subject to a 5% creditable input tax, the government gets to tax a profit or value-added
rate, which constitutes as full payment of the tax payable on the even if there is no profit or value-added. Petitioners’ stance is purely
transaction. This represents the net VAT payable of the seller. The other hypothetical, argumentative, and again, one-sided. The Court will not
5% effectively accounts for the standard input VAT (deemed input VAT), in engage in a legal joust where premises are what ifs, arguments, theoretical
lieu of the actual input VAT directly or attributable to the taxable and facts, uncertain. Any disquisition by the Court on this point will only
transaction. be, as Shake-speare describes life in Macbeth, “full of sound and fury,
Same; Same; It is clear that Congress intended to treat differently signifying nothing.” What’s more, petitioners’ contention assumes the
transactions with the government; Since it has not been shown that the class proposition that there is no profit or value-added. It need not take an astute
subject to the final 5% final withholding tax has been unreasonably businessman to know that it is a matter of exception that a business will
narrowed, there is no reason to invalidate the provision.—The Court need sell goods or services without profit or value-added. It cannot be
not explore the rationale behind the provision. It is clear that Congress overstressed that a business is created precisely for profit.
intended to treat differently taxable transactions with the government. Same; Same; Equal Protection; The power of the State to make
This is supported by the fact that under the old provision, the 5% tax reasonable and natural classifications for the purposes of taxation has long
withheld by the government remains creditable against the tax liability of been established.—The equal protection clause under the Constitution
the seller or contractor, to wit: SEC. 114. Return and Payment of Value- means that “no person or class of persons shall be de-
added Tax.—(C) Withholding of Creditable Value-added Tax.—The
Government or any of its political subdivisions, instrumentalities or 34
agencies, including government-owned or controlled corporations (GOCCs)
a rate of 10% (or 12%) on sale of goods and properties, importation of goods,
34 SUPREME COURT REPORTS ANNOTATED 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
Abakada Guro Party List vs. Ermita 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
prived of the same protection of laws which is enjoyed by other persons or
government. It must be stressed that the rule of uniform taxation does not
other classes in the same place and in like circumstances.” The power of the
deprive Congress of the power to classify subjects of taxation, and only
State to make reasonable and natural classifications for the purposes of
demands uniformity within the particular class.
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 Same; Same; Equitable Taxation; R.A. No. 9337 is equitable.— R.A. No.
raised, the methods of assessment, valuation and collection, the State’s 9337 is also equitable. The law is equipped with a threshold margin. The
power is entitled to presumption of validity. As a rule, the judiciary will not VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services
interfere with such power absent a clear showing of unreasonableness, with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic
discrimination, or arbitrariness. marine and agricultural food products in their original state are still not
subject to the tax, thus ensuring that prices at the grassroots level will
Same; Same; Same; The equal protection clause does not require the
remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa
universal application of the laws on all persons or things without
Pamahalaan ng Pilipinas, Inc. vs. Tan: The disputed sales tax is also
distinction; While the implementation of the law may yield varying end
equitable. It is imposed only on sales of goods or services by persons
results depending on one’s profit margin and value-added, the Court cannot
engaged in business with an aggregate gross annual sales exceeding
go beyond what the legislature has laid down and interfere with the affairs
P200,000.00. Small corner sari-sari stores are consequently exempt from its
of business.—Petitioners point out that the limitation on the creditable
application. Likewise exempt from the tax are sales of farm and marine
input tax if the entity has a high ratio of input tax, or invests in capital
products, so that the costs of basic food and other necessities, spared as
equipment, or has several transactions with the government, is not based
they are from the incidence of the VAT, are expected to be relatively lower
on real and substantial differences to meet a valid classification. The
and within the reach of the general public.
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 Same; Same; Progressive Taxation; Progressive taxation is built on the
levied or the amounts to be raised, the methods of assessment, valuation principle of the taxpayer’s ability to pay—taxation is progressive when its
and collection. Petitioners’ alleged distinctions are based on variables that rate goes up depending on the resources of the person affected.—Petitioners
bear different consequences. While the implementation of the law may contend that the limitation on the creditable input tax is anything but
yield varying end results depending on one’s profit margin and value- regressive. It is the smaller business with higher input tax-output tax ratio
added, the Court cannot go beyond what the legislature has laid down and that will suffer the consequences. Progressive taxation is built on the
interfere with the affairs of business. The equal protection clause does not principle of the taxpayer’s ability
require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal 36
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. 36 SUPREME COURT REPORTS ANNOTATED
Same; Same; Same; Uniformity of Taxation; The rule of uniform Abakada Guro Party List vs. Ermita
taxation does not deprive Congress of the power to classify subjects of
taxation, and only demands uniformity within the particular class.— to pay. This principle was also lifted from Adam Smith’s Canons of
Uniformity in taxation means that all taxable articles or 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
35
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.
VOL. 469, SEPTEMBER 1, 2005 35 Same; Same; Same; The VAT is an antithesis of progressive taxation—
by its very nature, it is regressive; The principle of progressive taxation has
no relation with the VAT system inasmuch as the VAT paid by the consumer
or business for every goods bought or services enjoyed is the same regardless
kinds of property of the same class shall be taxed at the same rate. of income.—The VAT is an antithesis of progressive taxation. By its very
Different articles may be taxed at different amounts provided that the rate nature, it is regressive. The principle of progressive taxation has no
is uniform on the same class everywhere with all people at all times. In this relation with the VAT system inasmuch as the VAT paid by the consumer
case, the tax law is uniform as it provides a standard rate of 0% or 10% (or or business for every goods bought or services enjoyed is the same
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, regardless of income. In other words, the VAT paid eats the same portion of
amending Sections 106, 107 and 108, respectively, of the NIRC, provide for 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 DAVIDE, JR., C.J., Separate Concurring and Dissenting Opinion:
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
Congress; Origin of Bills; Revenue Bills; Taxation; Value-Added Tax; It was
bigger the part that the VAT eats away. At the end of the day, it is really
beyond the ambit of the authority of the Senate to propose amendments to provisions
the lower income group or businesses with low-profit margins that is
not covered by the House Bills or not related to the subject matter of the House Bills,
always hardest hit.
which is VAT.— Obviously, these provisions do not deal with VAT. It must be noted
Same; Same; Same; The Constitution does not really prohibit the that the House Bills initiated amendments to provisions pertaining to VAT only.
imposition of indirect taxes, like the VAT.—The Constitution does not really Doubtless, the Senate has the constitutional power to
prohibit the imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall “evolve a progressive system of taxation.” 38
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] Abakada Guro Party List vs. Ermita
as much as possible, indirect taxes should be minimized.’ (E. FERNANDO,
THE CONSTITUTION OF THE PHILIPPINES 221 [Second ed. 1977]) concur with the amendments to the VAT provisions introduced in the House Bills or
Indeed, the mandate to Congress is not to prescribe, but to evolve, a even to propose its own version of VAT measure. But that power does not extend to
progressive tax system. Otherwise, sales taxes, which perhaps are the initiation of other tax measures, such as introducing amendments to provisions on
oldest form of indirect taxes, would have been prohibited with the procla- corporate income taxes, percentage taxes, franchise taxes, and excise taxes like
what the Senate did in these cases. It was beyond the ambit of the authority of the
37 Senate to propose amendments to provisions not covered by the House Bills or not
related to the subject matter of the House Bills, which is VAT. To allow the Senate
to do so would be tantamount to vesting in it the power to initiate revenue bills—a
power that exclusively pertains to the House of Representatives under Section 24,
Article VI of the Constitution, which provides: Sec. 24. All appropriation, revenue or
Abakada Guro Party List vs. Ermita 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.
mation of Art. VIII, §17 (1) of the 1973 Constitution from which the present
Art. VI, §28 (1) was taken. Sales taxes are also regressive. Resort to
PUNO, J., Concurring and Dissenting Opinion:
indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according
Judicial Review; Requisites; Ripeness Doctrine; The power of judicial review
to the taxpayers' ability to pay. In the case of the VAT, the law minimizes
under Article VIII, Section 5(2) of the 1987 Constitution is limited to the review of
the regressive effects of this imposition by providing for zero rating of
“actual cases and controversies;” The basic rationale of the doctrine of ripeness is “to
certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC),
prevent the courts, through premature adjudication, from entangling themselves in
while granting exemptions to other transactions. (R.A. No. 7716, §4
abstract disagreements.”—The power of judicial review under Article VIII, section
amending §103 of the NIRC)
5(2) of the 1987 Constitution is limited to the review of “actual cases and
Same; Same; Judicial Review; The Court cannot strike down a law as controversies.” As rightly stressed by retired Justice Vicente V. Mendoza, this
unconstitutional simply because of its yokes.—It has been said that taxes requirement gives the judiciary “the opportunity, denied to the legislature, of seeing
are the lifeblood of the government. In this case, it is just an enema, a first- the actual operation of the statute as it is applied to actual facts and thus enables it
aid measure to resuscitate an economy in distress. The Court is neither to reach sounder judgment” and “enhances public acceptance of its role in our
blind nor is it turning a deaf ear on the plight of the masses. But it does not system of government.” It also assures that the judiciary does not intrude on areas
have the panacea for the malady that the law seeks to remedy. As in other committed to the other branches of government and is confined to its role as defined
cases, the Court cannot strike down a law as unconstitutional simply by the Constitution. Apposite thereto is the doctrine of ripeness whose basic
because of its yokes. Let us not be overly influenced by the plea that for rationale is “to prevent the courts, through premature adjudication, from entangling
every wrong there is a remedy, and that the judiciary should stand ready to themselves in abstract disagreements.” Central to the doctrine is the determination
afford relief. There are undoubtedly many wrongs the judicature may not of “whether the case involves uncertain or contingent future events that may not
correct, for instance, those involving political questions. . . . Let us likewise occur as anticipated, or indeed may not occur at all.” The ripeness requirement
disabuse our minds from the notion that the judiciary is the repository of must be satisfied for each challenged legal provision and parts of a statute so that
remedies for all political or social ills; We should not forget that the those which
Constitution has judiciously allocated the powers of government to three
distinct and separate compartments; and that judicial interpretation has 39
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.
Abakada Guro Party List vs. Ermita discussed in either chamber of Congress. Its parameters of power are not porous, for
they are hedged by the clear limitation that its only power is to settle differences in
are “not immediately involved are not thereby thrown open for a judicial bills and joint resolutions of the two chambers of Congress.
determination of constitutionality.” Same; Same; Amendments which did not harmonize conflicting provisions
Same; Same; Same; Taxation; The power to adjust the tax rate given to the between the constituent bills of R.A. No. 9337 but are entirely new and extraneous
President is futuristic and may or may not be exercised—the Court is therefore concepts which fall beyond the median thereof transgress the limits of the Bicameral
beseeched to render a conjectural judgment based on hypothetical facts.—It is Conference Committee’s authority and must be struck down.—These amendments
manifest that the constitutional challenge to sections 4 to 6 of R.A. No. 9337 cannot did not harmonize conflicting provisions between the constituent bills of R.A. No.
hurdle the requirement of ripeness. These sections give the President the power to 9337 but are entirely new and extraneous concepts which fall beyond the median
raise the VAT rate to 12% on January 1, 2006 upon satisfaction of certain fact-based thereof. They transgress the limits of the Bicameral Conference Committee’s
conditions. We are not endowed with the infallible gift of prophesy to know whether authority and must be struck down. I cannot therefore subscribe to the thesis of the
these conditions are certain to happen. The power to adjust the tax rate given to the majority that “the changes introduced by the Bicameral Conference Committee on
President is futuristic and may or may not be exercised. The Court is therefore disagreeing provisions were meant only to reconcile and harmonize the disagreeing
beseeched to render a conjectural judgment based on hypothetical facts. Such a provisions for it did not inject any idea or intent that is wholly foreign to the subject
supplication has to be rejected. embraced by the original provisions.” Same; Same; Germaneness Rule; It is high
time to re-examine the test of germaneness proffered in Tolentino v. Secretary of
Congress; Bicameral Conference Committee; A Bicameral Conference Committee
Finance, 235 SCRA 630 (1994)—the test of germaneness is overly broad and is the
has limited powers and cannot be allowed to act as if it were a “third house” of
fountainhead of mischief for it allows the Bicameral Conference Committee to change
Congress.—With due respect, I submit that the most important constitutional issue
provisions in the bills of the House and the
posed by the petitions at bar relates to the parameters of power of a Bicameral
Conference Committee. Most of the issues in the petitions at bar arose because the 41
Bicameral Conference Committee concerned exercised powers that went beyond
reconciling the differences between Senate Bill No. 1950 and House Bill Nos. 3705
and 3555. In Tolentino v. Secretary of Finance, I ventured the view that a Bicameral
Conference Committee has limited powers and cannot be allowed to act as if it were VOL. 469, SEPTEMBER 1, 2005 41
a “third house” of Congress. I further warned that unless its roving powers are Abakada Guro Party List vs. Ermita
reigned in, a Bicameral Conference Committee can wreck the lawmaking process
which is a cornerstone of the democratic, republican regime established in our
Senate when they are not even in disagreement; The Constitution did not establish a
Constitution. The passage of time fortifies my faith that there ought to be no legal
Bicameral Conference Committee that can act as a “third house” of Congress with
u-turn on this preeminent principle.
super veto power over bills passed by the Senate and the House.—The majority
Same; Same; It is only by strictly following the contours of powers of a further defends the constitutionality of the above provisions by holding that “all the
Bicameral Conference Committee, as delineated by the rules of the House and the changes or modifications were germane to subjects of the provisions referred to it for
Senate, that we can prevent said Committee from acting as a “third” chamber of reconciliation.” With due respect, it is high time to re-examine the test of
Congress.—I respectfully submit that it is only by strictly following the contours of germaneness proffered in Tolentino. The test of germaneness is overly broad and is
powers of a Bicameral Conference Committee, as delineated by the rules of the the fountainhead of mischief for it allows the Bicameral Conference Committee to
House and the Senate, that we can prevent said Committee from acting as a change provisions in the bills of the House and the Senate when they are not even
in disagreement. Worse still, it enables the Committee to introduce amendments
40
which are entirely new and have not previously passed through the coils of scrutiny
of the members of both houses. The Constitution did not establish a Bicameral
Conference Committee that can act as a “third house” of Congress with super veto
40 SUPREME COURT REPORTS ANNOTATED power over bills passed by the Senate and the House. We cannot concede that super
veto power without wrecking the delicate architecture of legislative power so
carefully laid down in our Constitution. The clear intent of our fundamental law is
to install a lawmaking structure composed only of two houses whose members would
“third” chamber of Congress. Under the clear rules of both the Senate and House, thoroughly debate proposed legislations in representation of the will of their
its power can go no further than settling differences in their bills or joint resolutions. respective constituents. The institution of this lawmaking structure is unmistakable
Sections 88 and 89, Rule XIV of the Rules of the House of Representatives provide as from the following provisions: (1) requiring that legislative power shall be vested in
follows: * * * Under both rules, it is obvious that a Bicameral Conference Committee a bicameral legislature; (2) providing for quorum requirements; (3) requiring that
is a mere agent of the House or the Senate with limited powers. The House appropriation, revenue or tariff bills, bills authorizing increase of public debt, bills
contingent in the Committee cannot, on its own, settle differences which are of local application, and private bills originate exclusively in the House of
substantial in character. If it is confronted with substantial differences, it has to go Representatives; (4) requiring that bills embrace one subject expressed in the title
back to the chamber that created it “for the latter’s appropriate action.” In other thereof; and (5) mandating that bills undergo three readings on separate days in
words, it must take the proper instructions from the chambers that created it. It each House prior to passage into law and prohibiting amendments on the last
cannot exercise its unbridled discretion. Where there is no difference between the reading thereof. A Bicameral Conference Committee with untrammeled powers will
bills, it cannot make any change. Where the difference is substantial, it has to destroy this lawmaking structure. At the very least, it will diminish the free and
return to the chamber of its origin and ask for appropriate instructions. It ought to open debate of proposed legislations and facilitate the smuggling of what purports to
be indubitable that it cannot create a new law, i.e., that which has never been be laws.
Same; Same; Republicanism; It cannot be overemphasized that in a republican rules and processes followed by Congress in its principal duty of lawmaking.
form of government, laws can only be enacted by all the duly elected representatives However, when the Constitution imposes certain conditions, restrictions or
of the people—it cuts against conventional wisdom in democracy to lodge this power limitations on the exercise of congressional prerogatives, the judiciary has both the
in the hands of a few power and the duty to strike down congressional actions that are done in plain
contravention of such conditions, restrictions or limitations. Insofar as the present
42 case is concerned, the three most important restrictions or limitations to the
enrolled bill doctrine are the “origination,” “no-amend-ment” and “three-reading”
rules which I will discuss later.
42 SUPREME COURT REPORTS ANNOTATED Same; Bicameral Conference Committee (BCC); The Bicameral Conference
Committee created by Congress to iron out differences between the Senate and the
House of Representatives versions of the E-VAT bills is one such “branch or
instrumentality of the govern-ment,” over which this Court may exercise certiorari
or in the claws of a committee.—It cannot be overemphasized that in a republican review to determine whether or not grave abuse of discretion has been committed;
form of government, laws can only be enacted by all the duly elected and, specifically, to find out whether the constitutional conditions, restrictions and
representatives of the people. It cuts against conventional wisdom in democracy to limitations on law-making have been violated.—The Bicameral Conference
lodge this power in the hands of a few or in the claws of a committee. It is for these Committee (BCC) created by Congress to iron out differences between the Senate
reasons that the argument that we should overlook the excesses of the Bicameral and the House of Representatives versions of the E-VAT bills is one such “branch or
Conference Committee because its report is anyway approved by both houses is a instrumentality of the government,” over which this Court may exercise certiorari
futile attempt to square the circle for an unconstitutional act is void and cannot be review to determine whether or not grave abuse of discretion has been committed;
redeemed by any subsequent ratification. and, specifically, to find out whether the constitutional conditions, restrictions and
Same; Same; Same; No doomsday scenario will ever justify the thrashing of the limitations on law-making have been violated. In general, the BCC has at least five
Constitution—the Constitution is meant to be our rule both in good times as in bad options in performing its functions: (1) adopt the House version in part or in toto, (2)
times.—In conclusion, I wish to stress that this is not the first time nor will it be adopt the Senate version in part or in toto, (3) consolidate the two versions, (4)
last that arguments will be foisted for the Court to merely wink at assaults on the reject non-conflicting provisions, and (5) adopt completely new provisions not found
Constitution on the ground of some national interest, sometimes clear and at other in either version. This, therefore, is the simple question: In the performance of its
times inchoate. To be sure, it cannot be gainsaid that the country is in the vortex of function of reconciling conflicting provisions, has the Committee blatantly violated
a financial crisis. The broadsheets scream the disconcerting news that our debt the Constitution?
payments for the year 2006 will exceed Pph1 billion daily for interest alone. Experts Same; Presidency; Separation of Powers; Control Power; Doctrine of Qualified
underscore some factors that will further drive up the debt service expenses such as Political Agency; I respectfully disagree with the statements that, first, the Secretary
the devaluation of the peso, credit downgrades and a spike in interest rates. But no of Finance is “acting as the agent of the legislative department” or an “agent of
doomsday scenario will ever justify the thrashing of the Constitution. The Congress” in determining and declaring the event upon which its expressed will is to
Constitution is meant to be our rule both in good times as in bad times. It is the take effect; and, second, that the Secretary’s personality “is in reality but a projection
Court’s uncompromising obligation to defend the Constitution at all times lest it be of that of Congress”—the Secretary of Finance is not an
condemned as an irrelevant relic.
44
PANGANIBAN, J., Separate Opinion:
Congress; Enrolled Bill Doctrine; The enrolled bill doctrine may be all-
encompassing in some countries like Great Britain, but as applied to our
jurisdiction, it must yield to mandatory provisions of our 1987 Constitution.—I Abakada Guro Party List vs. Ermita
believe, however, that the enrolled bill doctrine is not absolute. It may be all-
encompassing in some countries like Great Britain, but as applied to our alter ego of Congress, but of the President.—I concur with the ponencia in that there
jurisdiction, it must yield to mandatory provisions of our 1987 Constitution. The was no undue delegation of legislative power in the increase from 10 percent to 12
Court can take judicial notice of the form of government in Great Britain. It is percent of the VAT rate. I respectfully disagree, however, with the statements
unlike that in our country and, therefore, the doctrine from which it originated therein that, first, the secretary of finance is “acting as the agent of the legislative
could be modified accordingly by our Constitution. In fine, the enrolled bill doctrine department” or an “agent of Congress” in determining and declaring the event upon
applies mainly to the internal which its expressed will is to take effect; and, second, that the secretary’s
personality “is in reality but a projection of that of Con-gress.” The secretary of
43
finance is not an alter ego of Congress, but of the President. The mandate given by
RA 9337 to the secretary is not equipollent to an authority to make laws. In passing
this law, Congress did not restrict or curtail the constitutional power of the
VOL. 469, SEPTEMBER 1, 2005 43 President to retain control and supervision over the entire Executive Department.
The law should be construed to be merely asking the President, with a
recommendation from the President’s alter ego in finance matters, to determine the
factual bases for making the increase in VAT rate operative. Indeed, as I have

mentioned earlier, the fact-finding condition is a mere administrative, not Moreover, the proper congressional procedure for its enactment was followed;
legislative, function. neither public notice nor public hearings were denied.
Same; Bicameral Conference Committee; I respectfully submit that the

46
amendments made by the BCC (that were culled from the Senate version) regarding
income taxes are not legally germane to the subject matter of the House bills.—I
respectfully submit that the amendments made by the BCC (that were culled from 46 SUPREME COURT REPORTS ANNOTATED
the Senate version) regarding income taxes are not legally germane to the subject
matter of the House bills. Revising the income tax rates on domestic, resident
foreign and nonresident foreign corporations; increasing the tax credit against taxes
due from nonresident foreign corporations on intercorporate dividends; and Same; Same; Unlike the laws of physical science, the VAT system can always be
reducing the allowable deduction for interest expense are legally unrelated and not modified to suit modern fiscal demands.—It is contended that the VAT should be
germane to the subject matter contained in the House bills; they violate the proportional in nature. I submit that this proportionality pertains to the rate
origination principle. imposable, not the credit allowable. Private enterprises are subjected to a
proportional VAT rate, but VAT credits need not be. The VAT is, after all, a human
Taxation; Value-Added Tax (VAT); It was Maurice Lauré, a French engineer,
concept that is neither immutable nor invariable. In fact, it has changed after it was
who invented the VAT.—It was Maurice Lauré, a French engineer, who invented the
adopted as a system of indirect taxation by other countries. Again unlike the laws of
VAT. In 1954, he had the idea of imposing an indirect tax on consumption, called
physical science, the VAT system can always be modified to suit modern fiscal
taxe sur la valeur ajoutée, which was quickly adopted by the Direction Générale des
demands. The State, through the Legislative Department, may even choose to do
Impost, the new French tax authority of which he became joint director.
away with it and revert to our previous system of turnover taxes, sales taxes and
Consequently, taxpayers at all levels in the production process,
compensating taxes, in which credits may be disallowed altogether.
45
YNARES-SANTIAGO, J., Concurring and Dissenting Opinion:
Congress; Bicameral Conference Committee; Judicial Review; If in the exercise of

VOL. 469, SEPTEMBER 1, 2005 45 this rule-making power, Congress failed to set parameters in the functions of the
Abakada Guro Party List vs. Ermita Bicameral Conference Committee and allowed the latter unbridled authority to
perform acts which Congress itself is prohibited, like the passage of a law without
undergoing the requisite three-reading and the so-called no-amendment rule, then
rather than retailers or tax authorities, were forced to administer and account for
the same amount to grave abuse of discretion which this Court is empowered to
the tax themselves.
correct under its expanded certiorari jurisdiction.— Section 16(3), Article VI of the
Same; Same; Due Process; Vested Rights; There is no vested right in a deferred 1987 Constitution explicitly allows each House to determine the rules of its
input tax—it is a mere statutory privilege which the State may modify or withdraw, proceedings. However, the rules must not contravene constitutional provisions. The
being merely an asset granted by operation of law.—There is no vested right in a rule-making power of Congress should take its bearings from the Constitution. If in
deferred input tax account; it is a mere statutory privilege. The State may modify or the exercise of this rule-making power, Congress failed to set parameters in the
withdraw such privilege, which is merely an asset granted by operation of law. functions of the committee and allowed the latter unbridled authority to perform
Moreover, there is no vested right in generally accepted accounting principles. acts which Congress itself is prohibited, like the passage of a law without
These refer to accounting concepts, measurement techniques, and standards of undergoing the requisite three-reading and the so-called no-amendment rule, then
presentation in a company’s financial statements, and are not rooted in laws of the same amount to grave abuse of discretion which this Court is empowered to
nature, as are the laws of physical science, for these are merely developed and correct under its expanded certiorari jurisdiction. Notwithstanding the doctrine of
continually modified by local and international regulatory accounting bodies. To separation of powers, therefore, it is the duty of the Court to declare as void a
state otherwise and recognize such asset account as a vested right is to limit the legislative enactment, either from want of constitutional power to enact or because
taxing power of the State. Unlimited, plenary, comprehensive and supreme, this the constitutional forms or conditions have not been observed.
power cannot be unduly restricted by mere creations of the State.
47
Same; Same; Same; Same; In the exercise of its inherent power to tax, the State
validly interferes with the right to property of persons, natural or artificial; The
reduction of tax credits is a question of economic policy, not of legal perlustration.— VOL. 469, SEPTEMBER 1, 2005 47
Petitioners have not been denied due process or, as I have illustrated earlier, equal
protection. In the exercise of its inherent power to tax, the State validly interferes
with the right to property of persons, natural or artificial. Those similarly situated
are affected in the same way and treated alike, “both as to privileges conferred and Same; Same; I fully subscribe to the theory advanced in the Dissenting Opinion
liabilities enforced.” RA 9337 was enacted precisely to achieve the objective of of Chief Justice Hilario G. Davide, Jr. in Tolentino v. Secretary of Finance that the
raising revenues to defray the necessary expenses of government. The means that authority of the bicameral conference committee was limited to the reconciliation of
this law employs are reasonably related to the accomplishment of such objective, disagreeing provisions or the resolution of differences or inconsistencies—the
and not unduly oppressive. The reduction of tax credits is a question of economic Bicameral Conference Committee is authorized only to adopt either the version of the
policy, not of legal perlustration. Its determination is vested in Congress, not in this House bill or the Senate bill, or adopt neither.—The Rules of the House of
Court. Since the purpose of the law is to raise revenues, it cannot be denied that the Representatives and the Rules of the Senate provide that in the event there is
means employed is reasonably related to the achievement of that purpose. disagreement between the provisions of the House and Senate bills, the differences

shall be settled by a bicameral conference committee. By this, I fully subscribe to delegate either to the executive or judicial department of government without
the theory advanced in the Dissenting Opinion of Chief Justice Hilario G. Davide, infringing upon the theory of separation of powers.—Taxation is an inherent
Jr. in Tolentino v. Secretary of Finance that the authority of the bicameral attribute of sovereignty. It is a power that is purely legislative and which the
conference committee was limited to the reconciliation of disagreeing provisions or central legislative body cannot delegate either to the executive or judicial
the resolution of differences or inconsistencies. Thus, it could only either (a) restore, department of government without infringing upon the theory of separation of
wholly or partly, the specific provisions of the House bill amended by the Senate bill, powers. The rationale of this doctrine may be traced from the democratic principle
(b) sustain, wholly or partly, the Senate’s amendments, or (c) by way of a of “no taxation without representation.” The power of taxation being so pervasive, it
compromise, to agree that neither provisions in the House bill amended by the Senate is in the best interest of the people that such power be lodged only in the
nor the latter’s amendments thereto be carried into the final form of the former. Legislature. Composed of the people’s representatives, it is “closer to the pulse of
Otherwise stated, the Bicameral Conference Committee is authorized only to adopt the people and . . . are therefore in a better position to determine both the extent of
either the version of the House bill or the Senate bill, or adopt neither. It cannot, as the legal burden the people are capable of
the ponencia proposed, “try to arrive at a compromise,” such as introducing
provisions not included in either the House or Senate bill, as it would allow a mere 49
ad hoc committee to substitute the will of the entire Congress and without
undergoing the requisite three-reading, which are both constitutionally proscribed.
To allow the committee unbridled discretion to overturn the collective will of the
whole Congress defies logic considering that the bills are passed presumably after
study, deliberation and debate in both houses. A lesser body like the Bicameral Abakada Guro Party List vs. Ermita
Conference Committee should not be allowed to substitute its judgment for that of
the entire Congress, whose will is expressed collectively through the passed bills. bearing and the benefits they need.” Also, this set-up provides security against the
Same; Same; No-Amendment Rule; The ponencia’s submission that despite its abuse of power. As Chief Justice Marshall said: “In imposing a tax, the legislature
limited authority, the Bicameral Conference Committee could “compromise the acts upon its constituents. The power may be abused; but the interest, wisdom, and
disagreeing provisions” by substituting it with its own version clearly violates the justice of the representative body, and its relations with its constituents, furnish a
three-reading requirement, as the committee’s version would no longer undergo the sufficient security.” Consequently, Section 24, Article VI of our Constitution
same since it would be immediately put into vote by the respective houses.—Before enshrined the principle of “no taxation without representation” by providing that “all
. . . revenue bills . . . shall originate exclusively in the House of Representatives, but
48 the Senate may propose or concur with amendments.” This provision generally
confines the power of taxation to the Legislature.
Same; Same; Same; Same; Value-Added Tax; R.A. No. 9337, in granting to the
48 SUPREME COURT REPORTS ANNOTATED President the stand-by authority to increase the VAT rate from 10% to 12%, the
Legislature abdicated its power by delegating it to the President.—R.A. No. 9337, in
Abakada Guro Party List vs. Ermita granting to the President the stand-by authority to increase the VAT rate from 10%
to 12%, the Legislature abdicated its power by delegating it to the President. This is
a bill becomes a law, it must pass three readings. Hence, the ponencia’s submission constitutionally impermissible. The Legislature may not escape its duties and
that despite its limited authority, the Bicameral Conference Committee could responsibilities by delegating its power to any other body or authority. Any attempt
“compromise the disagreeing provisions” by substituting it with its own version— to abdicate the power is unconstitutional and void, on the principle that potestas
clearly violate the three-reading requirement, as the committee’s version would no delegata non delegare potest. As Judge Cooley enunciated: “One of the settled
longer undergo the same since it would be immediately put into vote by the maxims in constitutional law is, that the power conferred upon the legislature to
respective houses. In effect, it is not a bill that was passed by the entire Congress make laws cannot be delegated by that department to any other body or authority.
but by the members of the ad hoc committee only, which of course is Where the sovereign power of the state has located the authority, there it must
constitutionally infirm. I disagree that the no-amendment rule referred only to “the remain; and by the constitutional agency alone the laws must be made until the
procedure to be followed by each house of Congress with regard to bills initiated in Constitution itself is changed. The power to whose judgment, wisdom, and
each of said respective houses” because it would relegate the no-amendment rule to patriotism this high prerogative has been entrusted cannot relieve itself of the
a mere rule of procedure. To my mind, the no-amendment rule should be construed responsibility by choosing other agencies upon which the power shall be devolved,
as prohibiting the Bicameral Conference Committee from introducing amendments nor can it substitute the judgment, wisdom, and patriotism of any other body for
and modifications to non-disagreeing provisions of the House and Senate bills. In those to which alone the people have seen fit to confide this sovereign trust.”
sum, the committee could only either adopt the version of the House bill or the Same; Same; Same; Same; Same; Tariff Powers; If the intention of the Framers
Senate bill, or adopt neither. As Justice Reynato S. Puno said in his Dissenting of the Constitution is to permit the delegation of the power to fix tax rates or VAT
Opinion in Tolentino v. Secretary of Finance, there is absolutely no legal warrant for rates to the President, such could have been easily achieved by the mere inclusion of
the bold submission that a Bicameral Conference Committee possesses the power to the term “tax rates” or “VAT rates” in the enumeration.—Noteworthy is the absence
add/delete provisions in bills already approved on third reading by both Houses or of tax rates or VAT rates in the enumeration. If the intention of the Fram-
an ex post veto power.
50
SANDOVAL-GUTIERREZ, J., Concurring and Dissenting Opinion:
Congress; Taxation; Separation of Powers; Delegation of Powers; Taxation is a

power that is purely legislative and which the central legislative body cannot
Abakada Guro Party List vs. Ermita a studious son that comes from the pocket of the granting parent alone, the increase
in the VAT rate would be shouldered by the masses. Indeed, mandating them to pay
ers of the Constitution is to permit the delegation of the power to fix tax rates or the increased rate as an award to the President is arbitrary and unduly oppressive.
VAT rates to the President, such could have been easily achieved by the mere Taxation is not a power to be exercised at one’s whim.
inclusion of the term “tax rates” or “VAT rates” in the enumeration. It is a dictum in Same; Origination Rule; Words and Phrases; It can be reasonably concluded
statutory construction that what is expressed puts an end to what is implied. that when Section 24, Article VI provides that revenue bills shall originate
Expressium facit cessare tacitum. This is a derivative of the more familiar exclusively from the House of Representatives, what the Constitution mandates is
maxim express mention is implied exclusion or expressio unius est exclusio that any revenue statute must begin or start solely and only in the House.—The
alterius. Considering that Section 28 (2), Article VI expressly speaks only of “tariff adverb “exclusively” means “in an exclusive manner.” The term “exclusive” is
rates, import and export quotas, tonnage and wharfage dues and other duties and defined as “excluding or having power to exclude; limiting to or limited to; single,
imposts,” by no stretch of imagination can this enumeration be extended to include sole, undivided, whole.” In one case, this Court define the term “exclusive” as
the VAT. “possessed to the exclusion of others; appertaining to the subject alone, not
Same; Same; Same; Same; Same; Control Power; The two conditions set forth by including, admitting, or pertaining to another or others.” As for the term
law would have been sufficient had it not been for the fact that the President, being “originate,” its meaning are “to cause the beginning of; to give rise to; to initiate; to
at the helm of the entire officialdom, has more than enough power of control to bring start on a course or journey; to take or have origin; to be deprived; arise; begin or
about the existence of such conditions—that the President’s exercise of an authority is start.” With the foregoing definitions in mind, it can be reasonably concluded that
practically within her control is tantamount to giving no conditions at all.—At first when Section 24, Article VI provides that revenue bills shall originate exclusively
glance, the two conditions may appear to be definite standards sufficient to guide from the House of Representatives, what the Constitution mandates is that any
the President. However, to my mind, they are ineffectual and malleable as they give revenue statute must
the President ample opportunity to exercise her authority in arbitrary and
52
discretionary fashion. The two conditions set forth by law would have been
sufficient had it not been for the fact that the President, being at the helm of the
entire officialdom, has more than enough power of control to bring about the
existence of such conditions. Obviously, R.A. No. 9337 allows the President to 52 SUPREME COURT REPORTS ANNOTATED
determine for herself whether the VAT rate shall be increased or not at all. The
fulfillment of the conditions is entirely placed in her hands. If she wishes to increase
the VAT rate, all she has to do is to strictly enforce the VAT collection so as to
exceed the 2 4/5% ceiling. The same holds true with the national government deficit. begin or start solely and only in the House. Not the Senate. Not both Chambers of
She will just limit government expenses so as not to exceed the 1 1/2% ceiling. On Congress. But there is more to it than that. It also means that “an act for taxation
the other hand, if she does not wish to increase the VAT rate, she may discourage must pass the House first.” It is no consequence what amendments the Senate adds.
the Secretary of Finance from making the recommendation. That the President’s A perusal of the legislative history of R.A. No. 9337 shows that it did not
exercise of an authority is practically within her control is tantamount to giving no “exclusively originate” from the House of Representatives.
conditions at all. I believe this amounts to a virtual surrender of legislative power to Same; Same; The Senate in passing Senate Bill No. 1950, a tax measure, merely
her. It must be stressed that the validity of a law is not tested by what has been took into account House Bills No. 3555 and 3705, but did not concur with or amend
done but by what may be done under its provisions. either or both bills.—Senate Bill No. 1950 is not based on any bill passed by the
House of Representatives. It has a legislative identity and existence separate and
51
apart from House Bills No. 3555 and 3705. Instead of concurring or proposing
amendments, Senate Bill No. 1950 merely “takes into consideration” the two House
VOL. 469, SEPTEMBER 1, 2005 51 Bills. To take into consideration means “to take into account.” Consideration, in this
sense, means “deliberation, attention, observation or contemplation. Simply put, the
Senate in passing Senate Bill No. 1950, a tax measure, merely took into account
House Bills No. 3555 and 3705, but did not concur with or amend either or both
Same; Taxation; One of the principles of sound taxation is fiscal adequacy— bills. As a matter of fact, it did not even take these two House Bills as a frame of
neither an excess nor a deficiency of revenue vis-à-vis the needs of government would reference. In Tolentino, the majority subscribed to the view that Senate may amend
be in keeping with the principle; Our Senators must have forgotten that for every the House revenue bill by substitution or by presenting its own version of the bill.
increase of taxes, the burden always redounds to the people; Taxation is not a power In either case, the result is “two bills on the same subject.” This is the source of the
to be exercised at one’s whim.—Why authorize the President to increase the VAT “germaneness” rule which states that the Senate bill must be germane to the bill
rate on the premise alone that she deserves an “incentive” or “reward”? Indeed, why originally passed by the House of Representatives. In Tolentino, this was not really
should she be rewarded for performing a duty reposed upon her by law? The an issue as both the House and Senate Bills in question had one subject—the VAT.
rationale stated by Senator Recto is flawed. One of the principles of sound taxation
Same; Same; Germaneness Rule; The Senate could not, without violating the
is fiscal adequacy. The proceeds of tax revenue should coincide with, and
germaneness rule and the principle of “exclusive origination,” propose tax matters
approximate the needs of, government expenditures. Neither an excess nor a
not included in the House Bills.—The facts obtaining here is very much different
deficiency of revenue vis-à–-vis the needs of government would be in keeping with
from Tolentino. It is very apparent that House Bills No. 3555 and 3705 merely
the principle. Equating the grant of authority to the President to increase the VAT
intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of the NIRC of
rate with the grant of additional allowance to a studious son is highly
1997, pertaining to the VAT provisions. On the other hand, Senate Bill No. 1950
inappropriate. Our Senators must have forgotten that for every increase of taxes,
intended to amend Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, 114, 116, 117,
the burden always redounds to the people. Unlike the additional allowance given to
119, 121, 125, 148, 151, 236, 237 and 288 of the NIRC, pertaining to matters outside on amendments upon the last reading is intended to subject all bills and their
of VAT, such as income tax, percentage tax, franchise tax, taxes on banks and other amendments to intensive deliberation by the legislators and the ample ventilation
financial intermediaries, excise taxes, etc. Thus, I am of the position of issues to afford the public an opportunity to express their opinions or objections
thereon. Analogously, it is said that the “three-reading rule” operates “as a self-
53 binding mechanism that allows the legislature to guard against the consequences of
its own future passions, myopia, or herd behavior. By requiring that bills be read
and debated on successive days, legislature may anticipate and forestall future
occasions on which it will be seized by deliberative pathologies.” As Jeremy
Bentham, a noted political analyst, put it: “[t]he more susceptible a people are of
Abakada Guro Party List vs. Ermita excitement and being led astray, so much the more ought they to place themselves
under the protection of forms which impose the necessity of reflection, and prevent
that the Senate could not, without violating the germaneness rule and the principle surprises.”
of “exclusive origination,” propose tax matters not included in the House Bills.
AZCUNA, J., Concurring and Dissenting Opinion:
CALLEJO, SR., J., Concurring and Dissenting Opinion:
Congress; Separation of Powers; Delegation of Powers; There is here no
Congress; Bicameral Conference Committee; Foreign Jurisprudence; There are abdication by Congress of its power to fix the rate of the tax since the rate increase
significant textual differences between the US Federal Constitution’s and our provided under the law, from 10% to 12%, is definite and certain to occur, effective 1
Constitution’s prescribed congressional procedure for enacting laws—the degree of January 2006.—The Gross Domestic Product for 2005 is estimated at P5.3 Trillion
freedom accorded by the US Federal Constitution to the US Congress markedly pesos. The tax effort of the present VAT is now at 1.5%. The national budgetary
differ from that accorded by our Constitution to the Philippine Congress.—To my deficit against the GDP is now at 3%. So to reduce the deficit to 1.5% from 3%, one
mind, this unqualified adherence by the majority opinion in Tolentino, and now by has to increase the tax effort from VAT, now at 1.5%, to at least 3%, thereby
the ponencia, to the practice of the US Congress and its conference committee exceeding the 2 4/5 percent ceiling in condition (i), making condition (i) happen. If,
system ought to be re-examined. There are significant textual differences between on the other hand, this is not done, then condition (ii) happens—the budget deficit
the US Federal Constitution’s and our Constitution’s prescribed congressional remains over 1.5%. What is the result of this? The result is that in reality, the law
procedure for enacting laws. Accordingly, the degree of freedom accorded by the US does not impose any condition, or the rate increase thereunder, from 10% to 12%,
Federal Constitution to the US Congress markedly differ from that accorded by our effective January 1, 2006, is unconditional. For a condition is an event that may or
Constitution to the Philippine Congress. may not happen, or one whose occurrence is uncertain. Now while condition (i) is
indeed uncertain and condition (ii) is likewise uncertain, the combination of both
Same; Three-Reading Rule; No-Amendment Rule; The “three-reading” and “no-
makes the occurrence of one of them certain. Accordingly, there is here no abdication
amendment” rules, absent in the US Federal Constitution, but expressly mandated
by Congress of its power to fix the rate of the tax since the rate increase provided
by Article VI, Section 26(2) of our Constitution are mechanisms instituted to remedy
under the law, from 10% to 12%, is definite
the “evils” inherent in a bicameral system of legislature, including the conference
committee system.—The “three-reading” and “no-amendment” rules, absent in the
55
US Federal Constitution, but expressly mandated by Article VI, Section 26(2) of our
Constitution are mechanisms instituted to remedy the “evils” inherent in a
bicameral system of legislature, including the conference committee system. Sadly,
the ponencia’s refusal to apply Article VI, Section 26(2) of the Constitution on the VOL. 469, SEPTEMBER 1, 2005 55
Bicameral Conference Committee and the amendments it introduced to R.A. No.
9337 has “effectively dismantled” the “three-reading rule” and “no-amendment
rule.”
and certain to occur, effective January 1, 2006. All that the President will do is state
Same; Same; Same; The proscription on amendments upon the last reading is which of the two conditions occurred and thereupon implement the rate increase.
intended to subject all bills and their amendments to intensive deliberation by the
Same; Germaneness Rule; I would rather give the necessary leeway to Congress,
legislators and the ample ventilation of issues to afford the public an opportunity to
as long as the changes are germane to the bill being changed, the bill which
express their opinions or objections thereon; Analogously, it is said that the “three-
originated from the House of Representatives, and these are so, since these were
reading rule” operates “as a self-binding mechanism that allows the legisla-
precisely the mitigating measures that go hand-on-hand with E-VAT, and are,
54 therefore, essential—and hopefully sufficient—means to enable our people to bear the
sacrifices they are being asked to make; The provisions on corporate income taxes,
which are not germane to the E-VAT law, are not found in the Senate and House
bills.—The introduction of the mitigating or cushioning measures through the
Senate or through the Bicameral Conference Committee, is also being questioned by
Abakada Guro Party List vs. Ermita petitioners as unconstitutional for violating the rule against amendments after
third reading and the rule that tax measures must originate exclusively in the
House of Representatives (Art. VI, Secs. 24 and 26 [2], Constitution). For my part, I
ture to guard against the consequences of its own future passions, myopia, or herd
would rather give the necessary leeway to Congress, as long as the changes are
behavior.—It is well to recall the rationale for the “no-amendment rule” and the
germane to the bill being changed, the bill which originated from the House of
“three-reading rule” in Article VI, Section 26(2) of the Constitution. The proscription
Representatives, and these are so, since these were precisely the mitigating
measures that go hand-on-hand with the E-VAT, and are, therefore, essential—and 1913. Hence, the rule assured the British and American people that tax legislation
hopefully sufficient—means to enable our people to bear the sacrifices they are arises with the consent of the sovereign people,
being asked to make. Such an approach is in accordance with the Enrolled Bill
Doctrine that is the prevailing rule in this jurisdiction. (Tolentino v. Secretary of 57
Finance, 249 SCRA 628 [1994]). The exceptions I find are the provisions on
corporate income taxes, which are not germane to the E-VAT law, and are not found
in the Senate and House bills.
TINGA, J., Dissenting and Concurring Opinion: Abakada Guro Party List vs. Ermita
Taxation; Value-Added Tax; Judicial Review; Due Process; Taxes may be through their directly elected representatives. In our country though, both members
inherently punitive, but when the fine line between damage and destruction is of the House and Senate are directly elected by the people, hence the vitality of the
crossed, the courts must step forth and cut the hangman’s noose.—The E-VAT Law, original conception of the rule has somewhat lost luster.
as it stands, will exterminate our country’s small to medium enterprises. This will be Same; Same; Bicameral Conference Committee; Germaneness Rule; I agree that
the net effect of affirming Section 8 of the law, which amends Sections 110 of the any amendment made by the Bicameral Conference Committee that is not germane
National Internal Revenue Code (NIRC) by imposing a seventy percent (70%) cap to the subject matter of the House or Senate Bills is not valid.—Tolentino adduced
on the creditable input tax a VAT-registered person may apply every quarter and a the principle, adopted from American practice, that the version as approved by the
mandatory sixty (60)-month Bicameral Conference Committee need only be germane to the subject of the House
and Senate bills in order to be valid. The majority, in applying the test of
56
germaneness, upholds the contested provisions of the E-VAT Law. Even the
members of the Court who prepared to strike down provisions of the law applying
germaneness nonetheless accept the basic premise that such test is controlling. I
56 SUPREME COURT REPORTS ANNOTATED agree that any amendment made by the Bicameral Conference Committee that is
not germane to the subject matter of the House or Senate Bills is not valid. It is the
only valid ground by which an amendment introduced by the Bicameral Conference
Committee may be judicially stricken.
amortization period on the input tax on goods purchased or imported in a calendar
Same; Same; Same; Same; I deem it unduly restrictive on the plenary powers of
month if the acquisition cost of such goods exceeds One Million Pesos
Congress to legislate, to coerce the body to adhere to judge-made standards, such as a
(P1,000,000.00). Taxes may be inherently punitive, but when the fine line between
standard of “legal germaneness.”— The germaneness standard which should guide
damage and destruction is crossed, the courts must step forth and cut the hangman’s
Congress or the Bicameral Conference Committee should be appreciated in its
noose. Justice Holmes once confidently asserted that “the power to tax is not the
normal but total sense. In that regard, my views contrast with that of Justice
power to destroy while this Court sits,” and we should very well live up to this
Panganiban, who asserts that provisions that are not “legally germane” should be
expectation not only of the revered Holmes, but of the Filipino people who rely on
stricken down. The legal notion of germaneness is just but one component, along
this Court as the guardian of their rights. At stake is the right to exist and subsist
with other factors such as economics and politics, which guides the Bicameral
despite taxes, which is encompassed in the due process clause.
Conference Committee, or the legislature for that matter, in the enactment of laws.
Same; Same; Origination Rule; Article VI, Section 24 of the Constitution, also After all, factors such as economics or politics are expected to cast a pervasive
known as the origination clause, derives origin from British practice—from the influence on the legislative process in the first place, and it is essential as well to
assertion that the power to tax the public at large must reside in the representatives allow such “non-legal” elements to be considered in ascertaining whether Congress
of the people, the principle evolved that money bills must originate in the House of has complied with the criteria of germaneness. Congress is a political body, and its
Commons and may not be amended by the House of Lords; In our country though, rationale for legislating may be guided by factors other than established legal
both members of the House and Senate are directly elected by the people, hence the standards. I deem it unduly restrictive on the plenary powers of Congress to legislate,
vitality of the original conception of the rule has somewhat lost luster.—Section 24 is to coerce the body to adhere to judge-made standards,
also known as the origination clause, which derives origin from British practice.
From the assertion that the power to tax the public at large must reside in the 58
representatives of the people, the principle evolved that money bills must originate
in the House of Commons and may not be amended by the House of Lords. The
principle was adopted across the shores in the United States, and was famously
described by James Madison in The Federalist Papers as follows: This power over
the purse, may in fact be regarded as the most complete and effectual weapon with Abakada Guro Party List vs. Ermita
which any constitution can arm the immediate representatives of the people, for
obtaining a redress of every grievance, and for carrying into effect every just and such as a standard of “legal germaneness.” The Constitution is the only legal
salutary measure. There is an eminent difference from the British system from standard that Congress is required to abide by in its enactment of laws.
which the principle emerged, and from our own polity. To this day, only members of
Same; Same; Same; Same; It would be myopic to consider that the subject
the British House of Commons are directly elected by the people, with the members
matter of the House Bill is solely the VAT system, rather than the generation of
of the House of Lords deriving their seats from hereditary peerage. Even in the
revenue—the mere fact that the law is popularly known as the E-VAT Law, or that
United States, members of the Senate were not directly elected by the people, but
most of its provisions pertain to the VAT, or indirect taxes, does not mean that any
chosen by state legislatures, until the adoption of the Seventeenth Amendment in
and all amendments which are introduced by the Bicameral Conference Committee deletion of the two disparate “no pass on” provisions which were approved by the
must pertain to the VAT system.—I cannot agree with the position maintained by House in one instance, and only by the Senate in the other, remains in the sphere of
the Chief Justice, Justices Panganiban and Azcuna that the provisions of the law compromise that ultimately guides the approval of the final version. Again, I point
that do not pertain to VAT should be stricken as unconstitutional. These would out that even while the two provisions may have been originally approved by the
include, for example, the provisions raising corporate income taxes. The Bicameral House and Senate respectively, their subsequent deletion by the Bicameral
Conference Committee, in evaluating the proposed amendments, necessarily takes Conference Committee is still subject to approval by both chambers of Congress
into account not just the provisions relating to the VAT, but the entire revenue when the final version is submitted for deliberation and voting.
generating mechanism in place. If, for example, amendments to non-VAT related
Same; Same; Same; An outright declaration that the deletion of the two
provisions of the NIRC were intended to offset the expanded coverage for the VAT,
elementally different “no-pass on” provisions is unconstitutional, is of dubious
then such amendments are germane to the purpose of the House and Senate Bills.
efficacy in this case.—An outright declaration that the deletion of the two
Moreover, it would be myopic to consider that the subject matter of the House Bill is
elementally different “no-pass on” provi-
solely the VAT system, rather than the generation of revenue. The majority has
sufficiently demonstrated that the legislative intent behind the bills that led to the 60
E-VAT Law was the generation of revenue to counter the country’s dire fiscal
situation. The mere fact that the law is popularly known as the E-VAT Law, or that
most of its provisions pertain to the VAT, or indirect taxes, does not mean that any
and all amendments which are introduced by the Bicameral Conference Committee
must pertain to the VAT system. Abakada Guro Party List vs. Ermita
Same; Same; Same; Same; Municipal Corporations; Local Government Units;
Section 21 of the law, which was not contained in either the House or Senate Bills, sions is unconstitutional, is of dubious efficacy in this case. Had such
imposes restrictions on the use by local government units of their incremental pronouncement gained endorsement of a majority of the Court, it could not result in
revenue from the VAT—these restrictions are alien to the principal purposes of the ipso facto restoration of the provision, the omission of which was ultimately
revenue generation, or the purposes of restructuring the VAT system.—I do believe approved in both the House and Senate. Moreover, since the House version of the
that the test of germaneness was violated by the E-VAT Law in one regard. Section “no pass on” is quite different from that of the Senate, there would be a question as
21 of the law, which was not contained in either the House or Senate Bills, imposes to whether the House version, the Senate version, or both versions would be
restrictions on the use by local reinstated. And of course, if it were the Court which would be called upon to choose,
such would be way beyond the bounds of judicial power. Indeed, to intimate that the
59
Court may require Congress to reinstate a provision that failed to meet legislative
approval would result in a blatant violation of the principle of separation of powers,
with the Court effectively dictating to Congress the content of its legislation. The
VOL. 469, SEPTEMBER 1, 2005 59 Court cannot simply decree to Congress what laws or provisions to enact, but is
limited to reviewing those enactments which are actually ratified by the legislature.
Same; Same; Due Process; It is difficult though to put into quantifiable terms
how onerous a taxation statute must be before it contravenes the due process clause.
government units of their incremental revenue from the VAT. These restrictions are —Sison pronounces more concretely how a tax statute may contravene the due
alien to the principal purposes of revenue generation, or the purposes of process clause. Arbitrariness, confiscation, overstepping the state’s jurisdiction, and
restructuring the VAT system. I could not see how the provision, which relates to lack of a public purpose are all grounds for nullity encompassed under the due
budgetary allocations, is germane to the E-VAT Law. Since it was introduced only process invocation. Yet even these more particular standards as enunciated in Sison
in the Bicam-eral Conference Committee, the test of germaneness is essential, and are quite exacting, and difficult to reach. Even the constitutional challenge posed in
the provision does not pass muster. I join Justice Puno and the Chief Justice in Sison failed to pass muster. The majority cites Sison in asserting that due process
voting to declare Section 21 as unconstitutional. and equal protection are broad standards which need proof of such persuasive
Same; Same; Same; The deletion of the two disparate “no pass on” provisions character to lead to such a conclusion. It is difficult though to put into quantifiable
which were approved by the House in one instance, and only by the Senate in the terms how onerous a taxation statute must be before it contravenes the due process
other, remains in the sphere of compromise that ultimately guides the approval of the clause. After all, the inherent nature of taxation is to cause pain and injury to the
final version.—I also offer this brief comment regarding the deletion of the so-called taxpayer, albeit for the greater good of society. Perhaps whatever collective notion
“no pass on” provisions, which several of my colleagues deem unconstitutional. Both there may be of what constitutes an arbitrary, confiscatory, and unreasonable tax
the House and Senate Bills contained these provisions that would prohibit the might draw more from the fairy tale/legend traditions of absolute monarchs and the
seller/producer from passing on the cost of the VAT payments to the consumers. oppressed peasants they tax. Indeed, it is easier to jump to the conclusion that a tax
However, an examination of the said bills reveal that the “no pass on” provisions in is oppressive and unfair if it is imposed by a tyrant or an authoritarian state.
the House Bill affects a different subject of taxation from that of the Senate Bill. In
the House Bill No. 3705, the taxpayers who are prohibited from passing on the VAT 61
payments are the sellers of petroleum products and electricity/power generation

companies. In Senate Bill No. 1950, no prohibition was adopted as to sellers of
petroleum products, but enjoined therein are electricity/power generation
companies but also transmission and distribution companies. I consider such Abakada Guro Party List vs. Ermita
deletions as valid, for the same reason that I deem the amendments valid. The

a fatal wound” would be conjectural. Some people are lucky enough to survive
Same; Same; Same; In testing the validity of a tax statute as against the due
gunshot wounds to the head, while many others are not. Yet just because the fear of
process clause, the Court should go beyond a facial examination of the statute, and
mortality would be merely speculative, it does not mean that there should be less
seek to understand how exactly it would operate.—Could an arbitrary, confiscatory
compulsion to avoid a situation of getting shot in the head.
or unreasonable tax actually be enacted by a democratic state such as ours? Of
course it could, but these would exist in more palatable guises. In a democratic Same; Same; Same; Clear and Present Danger Doctrine; One of the most
society wherein statutes are enacted by a representative legislature only after significant legal principles of the last century, the “clear and present danger”
debate and deliberation, tax statutes will most likely, on their face, seem fair and doctrine in free speech cases, in fact emanates from the prospectivity, and not the
even-handed. After all, if Congress passes a tax law that on facial examination is actuality of danger.—The Court has long responded to strike down prospective
obviously harsh and unfair, it faces the wrath of the voting public, to say nothing of actions, even if the injury has not yet even occurred. One of the most significant
the media. In testing the validity of a tax statute as against the due process clause, legal principles of the last century, the “clear and present danger” doctrine in free
I think that the Court should go beyond a facial examination of the statute, and speech cases, in fact emanates from the prospectivity, and not the actuality of danger.
seek to understand how exactly it would operate. The express terms of a statute, The Court has not been hesitant to nullify acts which might cause injury, owing to
especially tax laws, are usually inadequate in spelling out the practical effects of its the presence of a clear and present danger of a substantive evil which the State has
implementation. The devil is usually in the details. the right to prevent. It has even extended the “clear and present danger rule”
Same; Same; Same; We should not cede ground to those transgressions of the beyond the confines of freedom of expression to the realm of freedom
people’s fundamental rights simply because the mechanism employed to violate
63
constitutional guarantees is steeped in disciplines not normally associated with the
legal profession.—The degree of difficulty involved of judicial review of tax laws has
increased with the growing complexities of business, economic and accounting
practices. These are sciences which laymen are not normally equipped by their VOL. 469, SEPTEMBER 1, 2005 63
general education to fully grasp, hence the possible insecurity on their part when
confronted with such questions on these fields. However, we should not cede ground
to those transgressions of the people’s fundamental rights simply because the
mechanism employed to violate constitutional guarantees is steeped in disciplines of religion, as noted by Justice Puno in his ponencia in Estrada v. Escritor.
not normally associated with the legal profession. Venality cannot be allowed to Same; Same; Same; Same; Not every unwise law is unconstitutional, but every
triumph simply due to its sophistication. This petition imputes in the E-VAT Law unconstitutional law is unwise, for an unconstitutional law contravenes a
unconstitutional oppression of the fatal variety, but in order to comprehend exactly primordial principle or guarantee on which our polity is founded.—In the same vein,
how and why that is so, one has to delve into the complex milieu of the VAT system. the claim that my arguments strike at the wisdom, rather than the constitutionality
The party alleging the law’s unconstitutionality of course has the burden to of the law are misplaced. Concededly, the assailed provisions of the E-VAT law are
demonstrate the violations in understandable terms, but if such proof is presented, basically unwise. But any provision of law that directly contradicts the
the Court’s duty is to engage accordingly. Constitution, especially the Bill of Rights, are similarly unwise, as they run
inconsistent with the fundamental law of the land, the enunciated state policies and
62 the elemental guarantees assured by the State to its people. Not every unwise law is
unconstitutional, but every unconstitutional law is unwise, for an unconstitutional
62 SUPREME COURT REPORTS ANNOTATED law contravenes a primordial principle or guarantee on which our polity is founded.
Same; Same; Same; Same; If our society can take cold comfort in the ability of
the legislature to amend its enactments as the defense against unconstitutional laws,
what remains then as the function of judicial review? The long-standing tradition
Same; Same; Same; Judicial Review; I do not see as an impediment to the
has been reliance on the judicial branch, and not the legislative branch, for salvation
annulment of a tax law the fact that it has yet to be implemented, or the fear that
from unconstitutional laws.—It is also asserted that if the implementation of the
doing so constitutes an undue attack on the wisdom, rather than the legality of a
70% cap imposes an unequal effect on different types of businesses with varying
statute.—I do not see as an impediment to the annulment of a tax law the fact that
profit margins and capital requirements, then the remedy would be an amendment
it has yet to be implemented, or the fear that doing so constitutes an undue attack
of the law. Of course, the remedy of legislative amendment applies to even the most
on the wisdom, rather than the legality of a statute. However, my position in this
unconstitutional of laws. But if our society can take cold comfort in the ability of the
petition has been challenged on those grounds, and I see it fit to refute these
legislature to amend its enactments as the defense against unconstitutional laws,
preemptive allegations before delving into the operative aspect of the E-VAT Law. If
what remains then as the function of judicial review? This legislative capacity to
there is cause to characterize my arguments as speculative, it is only because the E-
amend unconstitutional laws runs concurrently with the judicial capacity to strike
VAT Law has yet to be implemented. No person as of yet can claim to have sustained
down unconstitutional laws. In fact, the long-standing tradition has been reliance
actual injury by reason of the implementation of the assailed provisions in G.R. No.
on the judicial branch, and not the legislative branch, for salvation from
168461. Yet this should not mean that the Court is impotent from declaring a
unconstitutional laws.
provision of law as violative of the due process clause if it is clear that its
implementation will cause the illegal deprivation of life, liberty or property without Same; Same; VAT is distinguishable from the standard excise or percentage
due process of law. This is especially so if, as in this case, the injury is of taxes in that it is imposable not only on the final transaction involving the end user,
mathematical certainty, and the extent of the loss quantifiable through easy but on previous stages as well so long as there was a sale involved.—VAT is
reference to the most basic of business practices. These arguments are conjectural distinguishable from the standard excise or percentage taxes in that it is imposable
for the same reason that the bare statement “firing a gunshot into the head will cause not only on

difference between life and death of the business. The possibility of profit is further
64 diminished by the fact that businesses have to shoulder the input VAT in the
purchase of their capital expenses. Yet the erstwhile VAT system was not tainted by
the label of oppressiveness and neither did it bear the confiscatory mode. This was
because of the immediate relief afforded from the input taxes paid by the crediting
system. In theory, VAT is not supposed to affect the profit margin. If such margin is
Abakada Guro Party List vs. Ermita affected, it is only because of the prepayment of the input taxes, and this should be
remedied by the immediate recovery through the crediting system of the settled input
the final transaction involving the end user, but on previous stages as well so long taxes. The new E-VAT law changes all that, and puts in jeopardy the survival of
as there was a sale involved. Thus, VAT does not simply pertain to the extra small to medium enterprises.
percentage paid by the buyer of a fast-food meal, but also that paid by restaurant Same; Same; The majority fails to consider one of the most important concepts
itself to its suppliers of raw food products. This multi-stage system is more in finance, time value for money—the longer the amount remains unutilized, the
acclimated to the vagaries of the modern industrial climate, which has long higher the degree of its depreciation in value, in accordance with the concept of time
surpassed the stage when there was only one level of transfer between the farmer value of money.—The majority fails to consider one of the most important concepts
who harvests the crop and the person who eats the crop. Indeed, from the extraction in finance, time value for money. Simply put, the value of one peso is worth more
or production of the raw material to its final consumption by a user, several today than in 2006. Money that you hold today is worth more because you can
transactions or sales materialize. The VAT system assures that the government invest it and earn interest. By reason of the 70% cap, the amount of input VAT
shall reap income for every transaction that is had, and not just on the final sale or credit that remains unutilized would continue accumulate for months and years.
transfer. The longer the amount remains unutilized, the higher the degree of its depreciation
Same; Same; There is another key characteristic of the VAT—that no matter in value, in accordance with the concept of time value of money. Even assuming
how many the taxable transactions that precede the final purchase or sale, it is the that the business eventually recovers the input VAT credit, the sum recovered
end-user, or the consumer, that ultimately shoulders the tax—despite its name, VAT would have decreased in practical value.
is generally not intended to be a tax on value added, but rather as a tax on Same; Same; The raison d’etre of this 70% cap is to make it appear on paper that
consumption.—There is another key characteristic of the VAT—that no matter how the government is more solvent than it actually is; If the 70% cap was designed in
many the taxable transactions that precede the final purchase or sale, it is the end- order to enhance revenue collection, then I submit that the means employed stand
user, or the consumer, that ultimately shoulders the tax. Despite its name, VAT is beyond reason.—It would be sad, but fair, if a business ceases because of its inability
generally not intended to be a tax on value added, but rather as a tax on to
consumption. Hence, there is a mechanism in the VAT system that enables firms to
offset the tax they have paid on their own purchases of goods and services against 66
the tax they charge on their sales of goods and services. Section 105 of the NIRC
assures that “the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services.” The assailed provisions of the E-VAT
law strike at the heart of this accepted principle.
Same; Same; In theory, VAT is not supposed to affect the profit margin—if such Abakada Guro Party List vs. Ermita
margin is affected, it is only because of the prepayment of the input taxes, and this
should be remedied by the immediate recovery through the crediting system of the compete with other businesses. It would be utter malevolence to condemn an
settled input taxes; The new E-VAT law changes all that, and puts in jeopardy the enterprise to death solely through the employment of a deceptive accounting
survival of small to medium enterprises.—Profit is a chancy matter, and in cases of wizardry. For the raison d’etre of this 70% cap is to make it appear on paper that the
small to medium enterprises, usually small if any. It is quite common for retail and government is more solvent than it actually is. Conceding for the nonce, there is a
distribution enterprises to incur profits of less than 1% of their gross revenues. Low temporary advantage gained by the government by this 70% cap, as the steady
profitability is not an remittance by businesses of the 30% output VAT would assure a cash flow. Such
collection may only momentarily resolve an endemic problem in our local tax
65 system, the problem of collection itself. If the 70% cap was designed in order to
enhance revenue collection, then I submit that the means employed stand beyond
reason. If sheer will proves insufficient in assuring that the State all taxes due it,
there should be allowable discretion for the government to formulate creative
means to enhance collection. But to do so by depriving low profit enterprises of
Abakada Guro Party List vs. Ermita whatever meager income earned and consequently assuring the death of these
industries goes beyond any valid State purpose.
automatic badge of poor business skills, but a reality dictated by the laws of the Same; Same; The effect of the 70% cap is to effectively impose a tax amounting to
marketplace. The probability of profit is lower than that of capital expenditures, 3% of gross revenue.—Only stable businesses with substantial cash flows, or
and ultimately, many business establishments end up with a higher input tax than extraordinarily successful enterprises will be able to remain in operation should the
output tax in a given quarter. This would be especially true for small to medium 70% cap be retained. The effect of the 70% cap is to effectively impose a tax
enterprises who do not reap sufficient profits from its business in the first place, amounting to 3% of gross revenue. The amount may seem insignificant to those
and for those firms that opt to also invest in capital expenses in addition to the without working knowledge of the ways of business, but anybody who is actually
overhead. Whatever miniscule profit margins that can be obtained usually spell the familiar with business would be well aware the profit margins of the retailing and

distribution sectors typically amount to less than 1% of the gross revenues. A

Same; Same; Sadly, the majority refuses to confront the figures or engage in a
taxpayer has to earn a margin of at least 3% on gross revenue in order to recoup the
meaningful demonstration of how these assailed provisions truly operate—instead, it
losses sustained due to the 70% cap. But as stated earlier, profits are chancy, and
counters with platitudes and bromides that do not intellectually satisfy.—The
the entrepreneur does not have full control of the conditions that lead to profit.
burden of proof was on the Pilipinas Shell Dealers’ to prove their allegations, and
Same; Same; Due Process; The standard of “deprivation of life” of juridical accordingly, these figures have been duly presented to the Court for appreciation
persons employs different variables than that of natural persons.—In analyzing the and evaluation. Instead, the majority has shunted aside these presentations as
effects of the 70% cap, and appreciating how it violates the due process clause, we being merely theoretical, despite the fact that they present a clear and present
should not focus solely on the end consumers. Undoubtedly, consumers will face danger to the very life of our nation’s enterprises. The majority’s position would
hardships due to the increased prices, but their threshold of physical survival, as have been more credible had it faced the issue squarely, and endeavored to
individual people, is significantly less than that of enterprises. Somehow, I do not demonstrate in like numerical fashion why the 70% cap is not oppressive,
think the new E-VAT would generally deprive confiscatory, or otherwise violative of the due process clause. Sadly, the majority
refuses to confront the figures or engage in a meaningful demonstration of how
67 these assailed provisions truly operate. Instead, it counters with platitudes and
bromides that do not intellectually satisfy. Considering that the very vitality, if not
life of our domestic economy is at stake, I think it derelict to our duty to block out
VOL. 469, SEPTEMBER 1, 2005 67 these urgent concerns presented to the Court with blind faith tinged with irrational
Panglossian optimism.
Same; Same; The 70% cap is not merely an unwise imposition—it is a burden
designed, either through sheer heedlessness or cruel calculation, to kill off the small
consumers of the bare necessities such as food, water, shelter and clothing. There and medium enterprises that are the soul, if not the heart, of our economy, and it is
may be significant deprivation of comfort as a result, but not of life. The same does not merely an undue taking of property, but constitutes an unjustified taking of life
not hold true for businesses. The standard of “deprivation of life” of juridical as well; The illusion of wealth is hardly a legitimate state purpose, especially if
persons employs different variables than that of natural persons. What food and projected at the expense of the very business life of the country.— The 70% cap is not
water may be for persons, profit is for an enterprise—the bare necessity for merely an unwise imposition. It is a burden designed, either through sheer
survival. For businesses, the implementation of the same law, with the 70% cap and heedlessness or cruel calculation, to kill off the small and medium enterprises that
60-month amortization period, would mean the deprivation of profit, which is the are the soul, if not the heart, of our economy. It is not merely an undue taking of
determinative necessity for the survival of a business. property, but constitutes an unjustified taking of life as well. And what legitimate,
Same; Same; Same; Catch-22; This is your basic Catch-22 situation—no matter germane purposes does this lethal 70% cap serve? It certainly does not increase the
which means the enterprise employs to recover from the E-VAT Law, it will still go government’s revenue since the unutilized creditable input VAT should be entered
down in flames.—Reduction of expenditures is not the exclusive antidote to these in the government books as a debt payable as it is supposed to be eventually repaid
impositions under the E-VAT Law, as there must also be a corresponding increase to the taxpayer, and so on the contrary it increases the government’s debts. I do see
in the amount of gross sales. To do so though, would require an increase in the that the 70% cap temporarily allows the government to brag to the world of an
selling price, dampening consumer enthusiasm, and further impairing the ability of increased cash flow. But this situation would be akin to the provincial man who
the enterprise to recover from the E-VAT Law. This is your basic Catch-22 situation borrows from everybody in the barrio
—no matter which means the enterprise employs to recover from the E-VAT Law, it
will still go down in flames. 69
Same; Same; In essentially prohibiting the recovery of small profit margins, the
E-VAT law effectively sends the message that only high margin businesses are
welcome to do business in the Philip-pines—it stifles any entrepreneurial ambitions VOL. 469, SEPTEMBER 1, 2005 69
of Filipinos unfortunate enough to have been born poor yet seek a better life by
sacrificing all to start a small business.—Section 8 of the E-VAT law, while
ostensibly even-handed in application, fails to appreciate valid substantial
in order to show off money and maintain the pretense of prosperity to visiting city
distinctions between large scale enterprises and small and medium enterprises. The
relatives. The illusion of wealth is hardly a legitimate state purpose, especially if
latter group, owing to the limited capability for capital investment, subsists on
projected at the expense of the very business life of the country.
modest profit margins, whereas the former expects, by reason of its substantial
capital investments, a high margin. In essentially prohibiting the recovery of small Same; Same; What the majority fails to mention is that under Section 10 of the
profit margins, the E-VAT law effectively sends the message that only high margin E-VAT Law, which amends Section 112 of the NIRC, the tax credit or refund may
businesses are welcome to do business in the Philippines. It stifles any not be done while the enterprise remains operational.—Nonetheless, the majority
entrepreneurial ambitions of Filipinos unfortunate enough to have been born poor yet notes that the excess creditable input tax may be the subject of a tax credit
seek a better life by sacrificing all to start a small business. certificate, which then could be used in payment of internal revenue taxes, or a
refund to the extent that such input taxes have not been applied against output
68 taxes. What the majority fails to mention is that under Section 10 of the E-VAT Law,
which amends Section 112 of the NIRC, such credit or refund may not be done while
the enterprise remains operational.
Same; Same; The inability to immediately credit or otherwise recover the
unutilized input VAT could cause such prepaid amount to actually be recognized in
the accounting books as a loss; What heretofore was recognized as an asset would Constitution is the recognition of the indispensable role of the private sector, the
now, with the imposition of the 70% cap, be now considered as a loss, enhancing the encouragement of private enterprise, and the provision of incentives to needed
view that the 70% cap is ultimately confiscatory in nature.—The inability to investments. Moreover, the Constitution also requires the State to recognize the right
immediately credit or otherwise recover the unutilized input VAT could cause such of
prepaid amount to actually be recognized in the accounting books as a loss. Under
international accounting practices, the unutilized input VAT due to the 70% cap 71
would not even be recognized as a deferred asset. The same would not hold true if
the 70% cap were eliminated. Under the International Accounting Standards, the
unutilized input VAT credit is recognized as an asset “to the extent that it is
probable that future taxable profit will be available against which the unused tax
losses and unused tax credits can be utili[z]ed” Thus, if the immediate accreditation Abakada Guro Party List vs. Ermita
of the input VAT credit can be obtained, as it would without the 70% cap, the asset
could be recognized. However, the same Standards hold that “[t]o the extent that it enterprises to reasonable returns on investments, and to expansion and growth. This,
is not probable that taxable profit will be available against which the unused tax I believe, encompasses profit.
losses or unused tax credits can be utilised, the deferred tax asset is not
Same; Same; The amortization over a five-year period of the input VAT on these
recognised.” As demonstrated, the continuous operation of the 70% cap precludes
capital goods would definitely eat up into the profit margin of enterprises.—Again,
the recovery of input VAT prepaid months or years prior. Moreover, the inability to
this provision unreasonably severely limits the ability of an enterprise to recover its
claim a refund or tax credit certificate until after the business has
prepaid input VAT. On its face, it might appear injurious primarily to high margin
enterprises, whose purchase of capital goods in a given quarter would routinely
70
exceed P1,000,000.00. The amortization over a five-year period of the input VAT on
these capital goods would definitely eat up into their profit margin. But it is still
possible for such big businesses to survive despite this new restriction, and their
70 SUPREME COURT REPORTS ANNOTATED financial pain alone may not be sufficient to cause the invalidity of a taxing statute.
However, this amortization plan will prove especially fatal to start-ups and other
new businesses, which need to purchase capital goods in order to start up their new
businesses. It is a known fact in the financial community that a majority of
already ceased virtually renders it improbable for the input VAT to be recovered. As
businesses start earning profit only after the second or third year, and many
such, under the International Accounting Standards, it is with all likelihood that
enterprises do not even get to survive that long. The first few years of a business
the prepaid input VAT, ostensibly creditable, would actually be reflected as a loss.
are the most crucial to its survival, and any financial benefits it can obtain in those
What heretofore was recognized as an asset would now, with the imposition of the
years, no matter how miniscule, may spell the difference between life and death.
70% cap, be now considered as a loss, enhancing the view that the 70% cap is
For such emerging businesses, it is already difficult under the present system to
ultimately confiscatory in nature.
recover the prepaid input VAT from the output VAT collected from customers
Same; Same; Due Process; Assets would fall under the purview of property because initial sales volumes are usually low. With this further limitation,
under the due process clause, and if the taxing arm of the State recognizes that such diminishing as it does any opportunity to have a sustainable cash flow, the ability of
property belongs to the taxpayer and not to the State, then due respect should be new businesses to survive the first three years becomes even more endangered.
given to such expert opinion.— The BIR itself has recognized that unutilized input Same; Same; For some lucky enterprises who may be able to survive the injury
VAT is one of those assets, corporate attributes or property rights that, in the event brought about by the 70% cap, this 60 month amortization period might instead
of a merger, are transferred to the surviving corporation by operation of law. Assets provide the mortal head wound.—Even existing small to medium enterprises are
would fall under the purview of property under the due process clause, and if the imperiled by this 60 month amortization restriction, especially considering the
taxing arm of the State recognizes that such property belongs to the taxpayer and application of the 70% cap. The additional purchase of capital goods bears as a
not to the State, then due respect should be given to such expert opinion. Even means of adding value to the consumer good, as a means to justify the increased
under the International Accounting Standards I adverted to above, the unutilized selling price. However, the purchase of capital goods in excess of P1,000,000.00
input VAT credit may be recognized as an asset “to the extent that it is probable would impose another burden on the small to medium enterprise by further
that future taxable profit will be available against which the unused tax losses and restricting their ability to immediately recover the entire prepaid input VAT (which
unused tax credits can be utilised” If not probable, it would be recognized as a loss. would exceed at least
Since these international standards, duly recognized by the Securities and
Exchange Commission as controlling in this jurisdiction, attribute tangible gain or 72
loss to the VAT credit, it necessarily follows that there is proprietary value attached
to such gain or loss.
Same; Same; Same; To assert that the input VAT is merely a privilege is to
correspondingly claim that the business profit is similarly a mere privilege.—The
prepaid input tax represents unutilized profit, which can only be utilized if it is Abakada Guro Party List vs. Ermita
refunded or credited to output taxes. To assert that the input VAT is merely a
privilege is to correspondingly claim that the business profit is similarly a mere P100,000.00), as they would be compelled to wait for at least five years before they
privilege. The Constitution itself recognizes the right to profit by private can do so. Another hurdle is imposed for such small to medium enterprise to obtain
enterprises. As I stated earlier, one of the enunciated State policies under the the profit margin critical to survival. For some lucky enterprises who may be able to

survive the injury brought about by the 70% cap, this 60 month amortization period businesses.—The provision squarely contradicts Section 20, Article II of the
might instead provide the mortal head wound. Constitution as it vacuously discourages private enterprise, and provides
disincentives to needed investments such as those expected by the State from private
Same; Same; The deletion of the credit apparatus—where tax withheld would
businesses. Whatever advantages may be gained by the temporary increase in the
also be creditable against the VAT liability of the seller or contractor—effectively
government coffers would be overturned by the disadvantages of having a reduced
compels the private enterprise transacting with the government to shoulder the
pool of private enterprises willing to do business with the government. Moreover,
output VAT that should have been paid by the government in excess of 5% of the
since government contracts with private enterprises will still remain a necessary
gross selling price, and at the same time unduly burdens the private enterprise by
fact of life, the amendment to Section 114(C) of the NIRC introduced by the E-VAT
precluding it from applying any creditable input VAT on the same transaction.—The
Law.
principle that the Government and its subsidiaries may deduct and withhold a final
value-added tax on its purchase of goods and services is not new, as the NIRC had Same; Same; Double Taxation; Words and Phrases; Double taxation means
allowed such deduction and withholding at the rate of 3% of the gross payment for taxing for the same tax period the same thing or activity twice, when it should be
the purchase of goods, and 6% of the gross receipts for services. However, the NIRC taxed but once, for the same purpose and with the same kind of character of tax;
had also provided that this tax withheld would also be creditable against the VAT Double taxation is not expressly forbidden in our constitution, but the Court has
liability of the seller or contractor, a mechanism that was deleted by the E-VAT law. recognized it as obnoxious “where the taxpayer is taxed twice for the benefit of the
The deletion of this credit apparatus effectively compels the private enterprise same governmental entity or by the same jurisdiction for the same purpose.”—Double
transacting with the government to shoulder the output VAT that should have been taxation means taxing for the same tax period the
paid by the government in excess of 5% of the gross selling price, and at the same
time unduly burdens the private enterprise by precluding it from applying any 74
creditable input VAT on the same transaction. Notably, the removal of the credit
mechanism runs contrary to the essence of the VAT system, which
characteristically allows the crediting of input taxes against output taxes. Without 74 SUPREME COURT REPORTS ANNOTATED
such crediting mechanism, which allows the shifting of the VAT to only the final end
user, the tax becomes a straightforward tax on business or income. The effect on the Abakada Guro Party List vs. Ermita
enterprise doing business with the government would be that two taxes would be
imposed on the income by the business derived on such transaction: the regular same thing or activity twice, when it should be taxed but once, for the same purpose
personal or corporate income tax on such income, and this final withholding tax of and with the same kind of character of tax. Double taxation is not expressly
5%. forbidden in our constitution, but the Court has recognized it as obnoxious “where
Same; Same; It is a legitimate purpose of a tax law to devise a manner by which the taxpayer is taxed twice for the benefit of the same governmental entity or by the
the government could save money on its own transactions, but it is another matter if same jurisdiction for the same purpose.” Certainly, both the 5% final tax withheld
a private enterprise is punished for doing business with the government.—Granted and the general corporate income tax are both paid for the benefit of the national
that Congress is not government, and for the same incidence of taxation, the sale/lease of goods and
services to the government.
73 Same; Same; Intelligent tax policy should extend beyond the singular-minded
goal of raising State funds—the old-time philosophy behind the taxing schemes of
war-mongering monarchs and totalitarian states—and should sincerely explore the
VOL. 469, SEPTEMBER 1, 2005 73 concept of taxation as a means of providing genuine incentives to private enterprise
to spur economic growth, of promoting egalitarian social justice that would allow
Abakada Guro Party List vs. Ermita everyone to their fair share of the nation’s wealth.—The VAT system, in itself, is
intelligently designed, and stands as a fair means to raise revenue. It has been
bound to adopt with strict conformity the VAT system, and that it has to power to adopted worldwide by countries hoping to employ an efficient means of taxation.
impose new taxes on business income, this amendment to Section 114(C) of the The concerns I have raised do not detract from my general approval of the VAT
NIRC still remains unconstitutional. It unfairly discriminates against entities which system. I do lament though that our government’s wholehearted adoption of the
contract with the government by imposing an additional tax on the income derived VAT system is endemic of what I deem a flaw in our national tax policy in the last
from such transactions. The end result of such discrimination is double taxation on few decades. The power of taxation, inherent in the State and ever so powerful, has
income that is both oppressive and confiscatory. It is a legitimate purpose of a tax been generally employed by our financial planners for a solitary purpose: the
law to devise a manner by which the government could save money on its own raising of revenue. Revenue generation is a legitimate purpose of taxation, but
transactions, but it is another matter if a private enterprise is punished for doing standing alone, it is a woefully unsophisticated design. Intelligent tax policy should
business with the government. The erstwhile NIRC worked towards such advantage, extend beyond the singular-minded goal of raising State funds—the old-time
by allowing the government to reduce its cash outlay on purchases of goods and philosophy behind the taxing schemes of war-mongering monarchs and totalitarian
services by withholding the payment of a percentage thereof. While the new E-VAT states—and should sincerely explore the concept of taxation as a means of providing
law retains this benefit to the government, at the same time it burdens the private genuine incentives to private enterprise to spur economic growth; of promoting
enterprise with an additional tax by refusing to allow the crediting of this tax egalitarian social justice that would allow everyone to their fair share of the
withheld to the business’s input VAT. nation’s wealth. Instead, we are condemned by a national policy driven by the
monomania for State revenue. It may be beyond my oath as a Justice to compel the
Same; Same; Section 114(C) of the NIRC squarely contradicts Section 20, Article
government to adopt an economic policy in consonance with my personal views, but
II of the Constitution as it vacuously discourages private enterprise, and provides
I offer these observations since they lie at the very heart of the noxiousness of the
disincentives to needed investments such as those expected by the State from private

assailed provisions of the E-VAT law. The 70% cap, the 60-month amortization declared so by this Court. This would undermine the authority of our statutes
period and the 5% withholding tax on govern- because despite having been signed and certified by the designated officers of
Congress, their validity would still be in doubt and their implementation would be
75 greatly hampered by allegations of irregularities in their passage by the
Legislature. Such an uncertainty in the statutes would indubitably result in
confusion and disorder. In all probability, it is the contemplation of such a scenario
that led an American judge to proclaim, thus—. . . Better, far better, that a
provision should occasionally find its way into the statute through mistake, or even
Abakada Guro Party List vs. Ermita fraud, than, that every Act, state and national, should at any and all times be liable
to put in issue and impeached by the journals, loose papers of the Legislature, and
ment transactions were selfishly designed to increase government revenue at the parol evidence. Such a state of uncertainty in the statute laws of the land would
expense of the survival of local industries. lead to mischiefs absolutely intolerable. . . .
Same; Same; Under the device employed in the E-VAT law, the price to be paid Same; Bicameral Conference Committee; It does perplex me that members of
for a more sustainable liquidity of the government’s finances will be the death of both Houses would again ask the Court to define and limit the powers of the
local business, and correspondingly, the demise of our society.—I am not insensitive Bicameral Conference Committee when such committee is of their own creation; That
to the concerns raised by the respondents as to the dire consequences to the the majority of the members of both Houses refuses to amend the Rules on the
economy should the E-VAT law be struck down. I am aware that the granting of the Bicameral Conference Committee is an indication that it is still satisfied therewith.
petition in G.R. No. 168461 will negatively affect the cash flow of the government. If —It does perplex me that members of both Houses would again ask the Court to
that were the only relevant concern at stake, I would have no problems denying the define and limit the powers of the Bicameral Conference Committee when such
petition. Unfortunately, under the device employed in the E-VAT law, the price to be committee is of their own creation. In a number of cases, this Court already made a
paid for a more sustainable liquidity of the government’s finances will be the death determination of the extent of the powers of the Bicameral Conference Committee
of local business, and correspondingly, the demise of our society. It is a measure just after taking into account the existing Rules of both Houses of Congress. In gist, the
as draconian as the standard issue taxes of medieval tyrants. power of the Bicameral Conference Committee to reconcile or settle the differences
in the two Houses’ respective bills is not limited to the conflicting provisions of the
Same; Same; Taxes may be the lifeblood of the state, but never at the expense of
bills; but may include matters not found in the original bills but germane to the
the life of its subjects.—I am not normally inclined towards the language of the
purpose thereof. If both Houses viewed the pronouncement made by this Court in
overwrought, yet if the sky were indeed truly falling, how else could that fact be
such cases as extreme or beyond what they intended, they had the power to amend
communicated. The E-VAT Law is of multiple fatal consequences. How are we to
their respective Rules to clarify or limit even further the scope of the authority
survive as a nation without the bulwark of private industries? Perhaps the larger
which they grant to the Bicameral Conference
scale, established businesses may ultimately remain standing, but they will be
unable to sustain the void left by the demise of small to medium enterprises. Or
77
worse, domestic industry would be left in the absolute control of monopolies,
combines or cartels, whether dominated by foreigners or local oligarchs. The
destruction of subsisting industries would be bad enough, the destruction of
opportunity and the entrepreneurial spirit would be even more grievous and tragic, VOL. 469, SEPTEMBER 1, 2005 77
as it would mark as well the end of hope. Taxes may be the lifeblood of the state,
but never at the expense of the life of its subjects.
Committee. Petitioners’ grievance that, unfortunately, they cannot bring about such
CHICO-NAZARIO, J., Concurring Opinion:
an amendment of the Rules on the Bicameral Conference Committee because they
are members of the minority, deserves scant consideration. That the majority of the
Congress; Enrolled Bill Doctrine; I believe that it is more prudent for this Court
members of both Houses refuses to amend the Rules on the Bicameral Conference
to remain conservative and to continue its adherence to the enrolled bill doctrine, for
Committee is an indication that it is still satisfied therewith. At any rate, this is
to abandon the said doctrine would be to open a Pandora’s Box, giving rise to a
how democracy works—the will of the majority shall be controlling.
situation more fraught with evil and mischief.—Petitioners’ arguments failed to
Taxation; Germaneness Rule; If we have one Code for all our national internal
76 revenue taxes, then there is no reason why we cannot have a single statute amending
provisions thereof even if they involve different taxes under separate titles.—
Although House Bills No. 3555 and 3705 were limited to the amendments of the
provisions on VAT of the National Internal Revenue Code of 1997, Senate Bill No.
1950 had a much wider scope and included amendments of other provisions of the
Abakada Guro Party List vs. Ermita said Code, such as those on income, percentage, and excise taxes. It should be borne
in mind that the very purpose of these three Bills and, subsequently, of Rep. Act No.
convince me of the wisdom of abandoning the enrolled bill doctrine. I believe that it 9337, was to raise additional revenues for the government to address the dire
is more prudent for this Court to remain conservative and to continue its adherence economic situation of the country. The National Internal Revenue Code of 1997, as
to the enrolled bill doctrine, for to abandon the said doctrine would be to open a its title suggests, is the single Code that governs all our national internal revenue
Pandora’s Box, giving rise to a situation more fraught with evil and mischief. taxes. While it does cover different taxes, all of them are imposed and collected by
Statutes enacted by Congress may not attain finality or conclusiveness unless the national government to raise revenues. If we have one Code for all our national

internal revenue taxes, then there is no reason why we cannot have a single statute VOL. 469, SEPTEMBER 1, 2005 79
amending provisions thereof even if they involve different taxes under separate
titles. I hereby submit that the amendments introduced by the Bicameral Abakada Guro Party List vs. Ermita
Conference Committee to non-VAT provisions of the National Internal Revenue
Code of 1997 are not unconstitutional for they are germane to the purpose of House accorded to it by Rep. Act No. 9337, the petroleum dealers reject the limitation
Bills No. 3555 and 3705 and Senate Bill No. 1950, which is to raise national imposed by the very same law on such use. It should be remembered that prior to
revenues. Rep. Act No. 9337, the petroleum dealers’ input VAT credits were inexistent—they
were unrecognized and disallowed by law. The petroleum dealers had no such
Same; Value-Added Tax; Since the privilege of an input VAT credit is granted by
property called input VAT credits. It is only rational, therefore, that they cannot
law, then an amendment of such law may limit the exercise of or may totally
acquire vested rights to the use of such input VAT credits when they were never
withdraw the privilege.—The crediting of the input VAT against the output VAT is
entitled to such credits in the first place, at least, not until Rep. Act No. 9337. My
a statutory privilege, granted by Section 110 of the National Internal Revenue Code
view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is
of 1997. It gives the VAT-registered person the opportunity to recover the input
that petroleum dealers’ right to use their input VAT as credit against their output
VAT he had paid, so that, in effect, the input VAT does not
VAT unlimitedly has not vested, being a mere expectancy of a future benefit and
78 being contingent on the continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.
Same; Same; The 70% cap on input VAT credits was not imposed by Congress
arbitrarily—members of the Bicameral Conference Committee settled on the said
percentage so as to ensure that the government can collect a minimum of 30% output
Abakada Guro Party List vs. Ermita VAT per taxpayer, to put a VAT-taxpayer, at least, on equal footing with a VAT-
exempt taxpayer under Section 109(V) of the National Internal Revenue Code, as
constitute an additional cost for him. While it is true that input VAT credits are amended by Rep. Act No. 9337.—I find that the 70% cap on input VAT credits was
reported as assets in a VAT-registered person’s financial statements and books of not imposed by Congress arbitrarily. Members of the Bicameral Conference
account, this accounting treatment is still based on the statutory provision Committee settled on the said percentage so as to ensure that the government can
recognizing the input VAT as a credit. Without Section 110 of the National Internal collect a minimum of 30% output VAT per taxpayer. This is to put a VAT-taxpayer,
Revenue Code of 1997, then the accounting treatment of any input VAT will also at least, on equal footing with a VAT-exempt taxpayer under Section 109(V) of the
change and may no longer be booked outright as an asset. Since the privilege of an National Internal Revenue Code, as amended by Rep. Act No. 9337. The latter
input VAT credit is granted by law, then an amendment of such law may limit the taxpayer is exempt from VAT on the basis that his sale or lease of goods or
exercise of or may totally withdraw the privilege. properties or services do not exceed P1,500,000; instead, he is subject to pay a three
percent (3%) tax on his gross receipts in lieu of the VAT. If a taxpayer with
Same; Same; To say that Congress may not trifle with Section 110 of the
presumably a smaller business is required to pay three percent (3%) gross receipts
National Internal Revenue Code of 1997 would be to violate a basic precept of
tax, a type of tax which does not even allow for any crediting, a VAT-taxpayer with
constitutional law—that no law is irrepealable; There can be no vested right to the
a bigger business should be obligated, likewise, to pay a minimum of 30% output
continued existence of a statute, which precludes its change or repeal.—The
VAT (which should be equivalent to 3% of the gross selling price per good or
amendment of Section 110 of the National Internal Revenue Code of 1997 by Rep.
property or service sold). The cap assures the government a collection of at least
Act No. 9337, which imposed the 70% cap on input VAT credits, is a legitimate
30% output VAT, contributing to an improved cash flow for the government.
exercise by Congress of its law-making power. To say that Congress may not trifle
with Section 110 of the National Internal Revenue Code of 1997 would be to violate
a basic precept of constitutional law—that no law is irrepealable. There can be no 80
vested right to the continued existence of a statute, which precludes its change or
repeal.
Same; Same; It should be remembered that prior to Rep. Act No. 9337, the
petroleum dealers’ input VAT credits were inexistent—they were unrecognized and Abakada Guro Party List vs. Ermita
disallowed by law—the petroleum dealers had no such property called input VAT
credits.—Under the National Internal Revenue Code of 1997, before it was amended
SPECIAL CIVIL ACTION in the Supreme Court.
by Rep. Act No. 9337, the sale or importation of petroleum products were exempt
from VAT, and instead, were subject to excise tax. Petroleum dealers did not impose
any output VAT on their sales to consumers. Since they had no output VAT against The facts are stated in the opinion of the Court.
which they could credit their input VAT, they shouldered the costs of the input VAT Carlos G. Baniqued and Laura Victoria Yuson-Layug for petitioners
that they paid on their purchases of goods, properties, and services. Their sales not in G.R. No. 168461.
being subject to VAT, the petroleum dealers had no input VAT credits to speak of. It
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie Taguian,
is only under Rep. Act No. 9337 that the sales by the petroleum dealers have
Agustin C. Bacungan III and Roland Allan C. Abarquez for petitioners in
become subject to VAT and only in its implementation may they use their input
G.R. No. 168463.
VAT as credit against their output VAT. While eager to use their input VAT credit
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for
79 petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.

_______________
The Solicitor General for public respondents.
2 Entitled, “An Act Restructuring the Value-Added Tax, Amending for the Purpose
AUSTRIA-MARTINEZ, J.: Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997,
As Amended, and For Other Purposes.”
The expenses of government, having for their object the interest of all, should 3 Entitled, “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the
be borne by everyone, and the more man enjoys the advantages of society, the more National Internal Revenue Code of 1997, As Amended, and For Other Purposes.”
he ought to hold himself honored in contributing to those expenses.
82
—Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal Abakada Guro Party List vs. Ermita
allocation for education, increased emoluments for health workers, and
wider coverage for full value-added tax benefits . . . these are the reasons
1
why Republic Act No. 9337 (R.A. No. 9337) was enacted. Reasons, the Meanwhile, the Senate 4
Committee on Ways and Means approved
wisdom of which, the Court even with its extensive constitutional power of Senate Bill No. 1950 on March 7, 2005, “in substitution of Senate
review, cannot probe. The petitioners in these cases, however, question not Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill
only the wisdom of the law, but also perceived constitutional infirmities in Nos. 3555 and 3705.” Senator Ralph G. Recto sponsored Senate Bill
its passage. 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.
1 Entitled “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
On the same date, April 13, 2005, the Senate agreed to the
114, 116, 117, 119, 121, 148, 151, 236, 237, and 288 of the National Internal Revenue Code of
request of the House of Representatives for a committee conference
1997, As Amended and For Other Purposes.”
on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing
81 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
VOL. 469, SEPTEMBER 1, 2005 81 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
Every law enjoys in its favor the presumption of constitutionality. the same into law on May 24, 2005. Thus, came R.A. No.5 9337.
Their arguments notwithstanding, petitioners failed to justify their call for July 1, 2005 is the effectivity date of R.A. No. 9337. When said
the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional. 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
LEGISLATIVE HISTORY
the hearing, the Court speaking through Mr. Justice
R.A. No. 9337 is a consolidation of three legislative bills namely,
House Bill Nos. 3555 and 3705,
2
and Senate Bill No. 1950. _______________
House Bill No. 3555 was introduced on first reading on
4 Entitled, “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113,
January 7, 2005. The House Committee on Ways and Means
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal
approved the bill, in substitution of House Bill No. 1468, which
Revenue Code of 1997, As Amended, and For Other Purposes.”
Representative (Rep.) Eric D. Singson introduced on August 8,
5 Section 26, R.A. No. 9337.
2004. The President certified the bill on January 7, 2005 for
immediate enactment. On January 27, 2005, the House of 83
Representatives approved 3
the bill on second and third reading.
House Bill No. 3705 on the other hand, substituted House Bill
No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill VOL. 469, SEPTEMBER 1, 2005 83
No. 3381 introduced by Rep. Jacinto V. Paras. Its “mother bill” is Abakada Guro Party List vs. Ermita
House Bill No. 3555. The House Committee on Ways and Means
approved the bill on February 2, 2005. The President also certified
Artemio V. Panganiban, voiced the rationale for its issuance of the
it as urgent on February 8, 2005. The House of Representatives
temporary restraining order on July 1, 2005, to wit:
approved the bill on second and third reading on February 28, 2005.

J. . . . But before I go into the details of your different services are hit differently. So it’s not
PANGANIBAN: presentation, let me just tell you a little correct to say that all prices must go up by 10%.
background. You know when the law took effect
ATTY. You’re right, Your Honor.
on July 1, 2005, the Court issued a TRO at about
BANIQUED:
5 o’clock in the afternoon. But before that, there
was a lot of complaints aired on television and on J. Now. For instance, Domestic Airline companies,
radio. Some people in a gas station were PANGANIBAN: Mr. Counsel, are at present imposed a Sales Tax
complaining that the gas prices went up by 10%. of 3%. When this E-Vat law took effect the Sales
Some people were complaining that their electric Tax was also removed as a mitigating measure.
bill will go up by 10%. Other times people riding So, therefore, there is no justification to increase
in domestic air carrier were complaining that the the fares by 10% at best 7%, correct?
prices that they’ll have to pay would have to go up ATTY. I guess so, Your Honor, yes.
by 10%. While all that was being aired, per your BANIQUED:
presentation and per our own understanding of
the law, that’s not true. It’s not true that the e-vat J. There are other products that the people were
law necessarily increased prices by 10% uniformly PANGANIBAN: complaining on that first day, were being
isn’t it? increased arbitrarily by 10%. And that’s one
reason among many others this Court had to issue
ATTY. No, Your Honor. TRO because of the confusion in the
BANIQUED: implementation. That’s why we added as an issue
J. It is not? in this case, even if it’s tangentially taken up by
PANGANIBAN: the pleadings of the parties, the confusion in the
implementation of the E-vat. Our people were
ATTY. It’s not, because, Your Honor, there isan
subjected to the mercy of that confusion of an
BANIQUED: Executive Order that granted the Petroleum
across the board increase of 10%, which you
companies some subsidy . . .interrupted
yourself now admit and I think even the
J. That’s correct . . . Government will admit is incorrect. In some cases,
PANGANIBAN: it should be
ATTY. . . . and therefore that was meant to temper the
BANIQUED: impact . . . interrupted 85
J. . . . mitigating measures . . .
PANGANIBAN: VOL. 469, SEPTEMBER 1, 2005 85
ATTY. Yes, Your Honor. Abakada Guro Party List vs. Ermita
BANIQUED:
J. As a matter of fact a part of the mitigating 3% only, in some cases it should be 6% depending
PANGANIBAN: measures would be the eliminationof the Excise on these mitigating measures and the location
Tax and the import duties.That is why, it is not and situation of each product, of each service, of
correct to say that each company, isn’t it?
ATTY. Yes, Your Honor.
84 BANIQUED:

84 SUPREME COURT REPORTS ANNOTATED J. Alright. So that’s one reason why we had to issue
PANGANIBAN: 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
the VAT as to petroleum dealers increased prices implementing 6rules, in case the law is upheld by
by 10%. this Court. . . . The Court also directed the
ATTY. Yes, Your Honor. parties to file their respective Memoranda.
BANIQUED:

J. And therefore, there is no justification for G.R. No. 168056
PANGANIBAN: increasing the retail price by 10% to cover the E-
Vat tax. If you consider the excise tax and the Before R.A. No. 9337 took effect, petitioners ABAKADA GURO
import duties, the Net Tax would probably be in Party List, et al., filed a petition for prohibition on May 27, 2005.
the neighborhood of 7%? We are not going into They question the constitutionality of Sections 4, 5 and 6 of R.A. No.
exact figures I am just trying to deliver a point
9337, amending Sections 106, 107 and 108, respectively, of the
that different industries, different products,
National Internal Revenue Code (NIRC). Section 4 imposes a 10%
VAT on sale of goods and properties, Section 5 imposes a 10% VAT reading of a bill laid down in Article VI, Section 26(2) of the
on importation of goods, and Section 6 imposes a 10% VAT on sale Constitution.
of services and use or lease of properties. These questioned
87
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 VOL. 469, SEPTEMBER 1, 2005 87
conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been
satisfied: G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by

_______________ the Association of Pilipinas Shell Dealers, Inc., et al., assailing the
6 TSN, July 14, 2005.
following provisions of R.A. No. 9337:
86 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,
86 SUPREME COURT REPORTS ANNOTATED excluding the VAT components, exceeds One Million Pesos
Abakada Guro Party List vs. Ermita (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a
(i) Value-added tax collection as a percentage of Gross 70% limit on the amount of input tax to be credited against
Domestic Product (GDP) of the previous year exceeds two the output tax; and
and four-fifth percent (2 4/5%); or 3) Section 12, amending Section 114 (c) of the NIRC,
(ii) National government deficit as a percentage of GDP of the authorizing the Government or any of its political
previous year exceeds one and one-half percent (1 1/2%). subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on gross
Petitioners argue that the law is unconstitutional, as it constitutes payments of goods and services, which are subject to 10%
abandonment by Congress of its exclusive authority to fix the rate VAT under Sections 106 (sale of goods and properties) and
of taxes under Article VI, Section 28(2) of the 1987 Philippine 108 (sale of services and use or lease of properties) of the
Constitution. NIRC.
Petitioners contend that these provisions are unconstitutional for

G.R. No. 168207 being arbitrary, oppressive, excessive, and confisca-tory.
Petitioners’ argument is premised on the constitutional right of
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a non-deprivation of life, liberty or property without due process of
petition for certiorari likewise assailing the constitutionality of law under Article III, Section 1 of the Constitution. According to
Sections 4, 5 and 6 of R.A. No. 9337. petitioners, the contested sections impose limitations on the amount
Aside from questioning the so-called stand-by authority of the of input tax that may be claimed. Petitioners also argue that the
President to increase the VAT rate to 12%, on the ground that it input tax partakes the nature of a property that may not be
amounts to an undue delegation of legislative power, petitioners confiscated, appropriated, or limited without due process of law.
also contend that the increase in the VAT rate to 12% contingent on Petitioners further contend that like any other property or property
any of the two conditions being satisfied violates the due process right, the input tax credit may be transferred or disposed of, and
clause embodied in Article III, Section 1 of the Constitution, as it that by limiting the same, the government gets to tax a profit or
imposes an unfair and additional tax burden on the people, in that: value-added even if there is no profit or value-added.
(1) the 12% increase is ambiguous because it does not state if the Petitioners also believe that these provisions violate the
rate would be returned to the original 10% if the conditions are no constitutional guarantee of equal protection of the law under Article
longer satisfied; (2) the rate is unfair and unreasonable, as the III, Section 1 of the Constitution, as the limitation on
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 88
incentive to the President to raise the VAT collection to at least 2
4/5 of the GDP of the previous year, should only be based on fiscal
adequacy.
Petitioners further claim that the inclusion of a stand-by Abakada Guro Party List vs. Ermita
authority granted to the President by the Bicameral Conference
Committee is a violation of the “no-amendment rule” upon last
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 RESPONDENTS’ COMMENT
substantial differences to meet a valid classification.
The Office of the Solicitor General (OSG) filed a Comment in behalf
Lastly, petitioners contend that the 70% limit is anything but
of respondents. Preliminarily, respondents contend that R.A. No.
progressive, violative of Article VI, Section 28(1) of the Constitution,
9337 enjoys the presumption of constitutionality and petitioners
and that it is the smaller businesses with higher input tax to output
failed to cast doubt on its validity.
tax ratio that will suffer the consequences thereof for it wipes out
Relying on the case of Tolentino vs. Secretary of Finance, 235
whatever meager margins the petitioners make.
SCRA 630 (1994), respondents argue that the procedural issues
raised by petitioners, i.e., legality of the bicameral proceedings,
G.R. No. 168463 exclusive origination of revenue measures and the power of the
Senate concomitant thereto, have already been settled. With regard
Several members of the House of Representatives led by Rep. to the issue of undue delegation of legislative power to the
Francis Joseph G. Escudero filed this petition for certiorari on June President, respondents contend that the law is complete and leaves
30, 2005. They question the constitutionality of R.A. No. 9337 on no discretion to the President but to increase the rate to 12% once
the following grounds: any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue to 12%, as well as the 70% limitation on the creditable input tax,
delegation of legislative power, in violation of Article VI, the 60-month amortization on the purchase or importation of
Section 28(2) of the Constitution; capital goods exceeding P1,000,000.00, and the 5% final withholding
2) The Bicameral Conference Committee acted without tax by government agencies, is arbitrary, oppressive, and
jurisdiction in deleting the no pass on provisions present in confiscatory, and that it violates the constitutional principle on
Senate Bill No. 1950 and House Bill No. 3705; and progressive taxation, among others.
3) Insertion by the Bicameral Conference 7 Committee of Finally, respondents manifest that R.A. No. 9337 is the anchor of
Sections 27, 28, 34, 116, 117, 119, 121, 125, 148, 151, 236, the government’s fiscal reform agenda. A reform in the value-added
237 and 288, which were present in Senate Bill No. 1950, system of taxation is the core revenue measure
violates Article VI, Section 24(1) of the Constitution, which 90
provides that all appropriation, revenue or tariff bills shall
originate exclusively in the House of Representatives
G.R. No. 168730
that will tilt the balance towards a sustainable macroeconomic
On the eleventh hour, Governor Enrique T. Garcia filed a petition environment necessary for economic growth.
for certiorari and prohibition on July 20, 2005, alleg-
ISSUES
_______________
7 Section 125 of the National Internal Revenue Code, as amended, was not
The Court defined the issues, as follows:
amended by R.A. No. 9337, as can be gleaned from the title and body of the law.
89
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the

VOL. 469, SEPTEMBER 1, 2005 89 Constitution:
Abakada Guro Party List vs. Ermita a. Article VI, Section 24, and
b. Article VI, Section 26(2)
ing unconstitutionality of the law on the ground that the limitation
on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be SUBSTANTIVE ISSUES
solely allocated for public purposes and expenditures. Petitioner
Garcia further claims that allowing these establishments to pass on
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending
the tax to the consumers is inequitable, in violation of Article VI,
Sections 106, 107 and 108 of the NIRC, violate the following
Section 28(1) of the Constitution.
provisions of the Constitution:

a. Article VI, Section 28(1), and 12 Maceda vs. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA 217.
b. Article VI, Section 28(2) 13 Id., Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the
Philippines (First Edition 2000).
2. Whether Section 8 of R.A. No. 9337, amending Sections 14 Commissioner of Internal Revenue vs. Seagate Technology (Phils.), G.R. No.
110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. 153866, February 11, 2005, 451 SCRA 132.
No. 9337, amending Section 114(C) of the NIRC, violate the 92
following provisions of the Constitution:
a. Article VI, Section 28(1), and 92 SUPREME COURT REPORTS ANNOTATED

b. Article III, Section 1 Abakada Guro Party List vs. Ermita
tionalized by imposing a multi-stage 15

tax rate of 0% or 10% on all
RULING OF THE COURT sales using the “tax credit method.”
E.O. No.16
273 was followed by R.A. No. 7716 or the 17Expanded
As a prelude, the Court deems it apt to restate the general VAT Law, R.A. No. 8241 or the Improved 18
VAT Law, R.A. No.
principles and concepts of value-added tax (VAT), as the confusion 8424 or the Tax Reform Act of 1997, and finally, the presently
and inevitably, litigation, breeds from a fallacious notion of its beleaguered R.A. No. 9337, also referred to by respondents as the
nature. VAT Reform Act.
The VAT is a tax on spending or consumption. It is levied on the The Court will now discuss the issues in logical sequence.
sale, barter, exchange or lease of goods or properties
91 PROCEDURAL ISSUE
VOL. 469, SEPTEMBER 1, 2005 91 I.

Whether R.A. No. 9337 violates the following provisions of the
8 Constitution:
and services. Being an indirect tax on expenditure, the seller of9
goods or services may pass on the amount of tax 10
paid to the buyer, a. Article VI, Section 24, and
with the seller acting merely as a tax collector. The burden of VAT b. Article VI, Section 26(2)
is intended to fall on the immediate buyers and ultimately, the end-
consumers. A. The Bicameral Conference Committee
In contrast, a direct tax is a tax for which a taxpayer is directly
liable on the transaction or business11 it engages in, without Petitioners Escudero, et al., and Pimentel, et al., allege that the
transferring the burden to someone else. Examples are individual 12
Bicameral Conference Committee exceeded its authority by:
and corporate income taxes, transfer taxes, and residence taxes.
In the Philippines, the value-added system of sales taxation has 1) Inserting the stand-by authority in favor of the President in
long been in existence, albeit in a different mode. Prior to 1978, the Sections 4, 5, and 6 of R.A. No. 9337;
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
13
method” was used to determine 15 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipi-nas, Inc. vs. Tan,
the value-added tax payable. Under the “tax credit method,” an G.R. Nos. L-81311, L-81820, L-81921, L-82152, June 30, 1988, 163 SCRA 371.
entity can credit against or subtract from the VAT charged on its 16 Entitled, “An Act Restructuring the Value-Added Tax (VAT) System, Widening
sales or14 outputs the VAT paid on its purchases, inputs and its Tax Base and Enhancing its Administration, And for these Purposes Amending
imports. and Repealing the Relevant Provisions of the National Internal Revenue Code, as
It was only in 1987, when President Corazon C. Aquino issued amended, and for other Purposes.”
Executive Order No. 273, that the VAT system was ra- 17 Entitled, “An Act Amending Republic Act No. 7716, otherwise known as the
Value-Added Tax Law and Other Pertinent Provisions of the National Internal
_______________ Revenue Code, as Amended.”
18 Entitled, “An Act Amending the National Internal Revenue Code, as Amended,
8 Section 105, National Internal Revenue of the Philippines, as amended. and for other Purposes.”
9 Ibid.
10 Deoferio, Jr., V.A. and Mamalateo, V.C., The Value Added Tax in the 93
Philippines (First Edition 2000).
11 Maceda vs. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771. VOL. 469, SEPTEMBER 1, 2005 93

Abakada Guro Party List vs. Ermita differences shall be settled by a conference committee of both Houses which
shall meet within ten (10) days after their composition. The President shall
2) Deleting entirely the no pass-on provisions found in both the designate the members of the Senate Panel in the conference committee
House and Senate bills; with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and
3) Inserting the provision imposing a 70% limit on the amount
sufficiently explicit statement of the changes in, or amendments to the
of input tax to be credited against the output tax; and
subject measure, and shall be signed by a majority of the members of each
4) Including the amendments introduced only by Senate Bill House panel, voting separately.
No. 1950 regarding other kinds of taxes in addition to the A comparative presentation of the conflicting House and Senate
value-added tax. provisions and a reconciled version thereof with the explanatory statement
of the conference committee shall be attached to the report.
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 The creation of such conference committee was apparently in
and discipline are intrinsic in any legislative body for, as unerringly response to a problem, not addressed by any constitutional
elucidated by Justice Story, “[i]f the power did not exist, it would be provision, where the two houses of Congress find themselves in
utterly impracticable to transact the business of the nation,
19
either at disagreement over changes or amendments introduced by the other
all, or at least with decency, deliberation, and order.” Thus, Article house in a legislative bill. Given that one of the most basic powers
VI, Section 16 (3) of the Constitution provides that “each House of the legislative branch is to formulate and implement its own
may determine the rules of its proceedings.” Pursuant to this rules of proceedings and to discipline its members, may the Court
inherent constitutional power to promulgate and implement its own then delve into the details of how Congress complies with its
rules of procedure, the respective rules of each house of Congress internal rules or how it conducts its business of passing legislation?
provided for the creation of a Bicameral Conference Committee. Note that in the present petitions, the issue is not whether
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of provisions of the rules of both houses creating the bicameral
Representatives provides as follows: conference committee are
Sec. 88. Conference Committee.—In the event that the House does not agree 95
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 Abakada Guro Party List vs. Ermita
with the Senate are so substantial that they materially impair the House
Bill, the panel shall report such fact to the House for the latter’s unconstitutional, but whether the bicameral conference committee
appropriate action. has strictly complied with the rules of both houses, thereby
remaining within the jurisdiction conferred upon it by Congress.20
_______________ In the recent case of Fariñas vs. The Executive Secretary, the
Court En Banc, unanimously reiterated and emphasized its
19 Story, Commentaries 835 (1833). adherence to the “enrolled bill doctrine,” thus, declining therein
petitioners’ plea for the Court to go behind the enrolled copy of the
94
bill. Assailed in said case was Congress’s creation of two sets of
bicameral conference committees, the lack of records of said
94 SUPREME COURT REPORTS ANNOTATED committees’ proceedings, the alleged violation of said committees of
Abakada Guro Party List vs. Ermita 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
Sec. 89. Conference Committee Reports.—. . . Each report shall contain a
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
detailed, sufficiently explicit statement of the changes in or amendments to
Striking down such argument, the Court held thus:
the subject measure.
... Under the “enrolled bill doctrine,” the signing of a bill by the Speaker of the
The Chairman of the House panel may be interpellated on the House and the Senate President and the certification of the Secretaries of
Conference Committee Report prior to the voting thereon. The House shall both Houses of Congress that it was passed are conclusive of its due
vote on the Conference Committee Report in the same manner and enactment. A review of cases reveals the Court’s consistent adherence to
procedure as it votes on a bill on third and final reading. the rule. The Court finds no reason to deviate from the salutary rule
in this case where the irregularities alleged by the petitioners
Rule XII, Section 35 of the Rules of the Senate states: mostly involved the internal rules of Congress, e.g., creation of the
Sec. 35. In the event that the Senate does not agree with the House of 2nd or 3rd Bicameral Conference Committee by the House. This
Representatives on the provision of any bill or joint resolution, the 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 Moreover, as far back as 1994 or more than 23
ten years ago, in the
of Rep. Act No. 9006 must be resolved in its favor. The Court case of Tolentino vs. Secretary of Finance, the Court already made
reiterates its ruling in Arroyo vs. De Venecia, viz.: the pronouncement that “[i]f a change is desired in the practice [of
the Bicameral Conference Committee] it must be sought in Congress
But the cases, both here and abroad, in varying forms of expression, all since this question is not covered by any24constitutional provision but
deny to the courts the power to inquire into allegations that, in enacting a is only an internal rule of each house.” To date, Congress has not
law, a House 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.
20 G.R. No. 147387, December 10, 2003, 417 SCRA 503.
Nevertheless, just to put minds at ease that no blatant
96 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
96 SUPREME COURT REPORTS ANNOTATED committee because a comparison of the provisions of House Bill
Abakada Guro Party List vs. Ermita Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the
other, reveals that there were indeed disagreements. As pointed out
of Congress failed to comply with its own rules, in the absence of showing in the petitions, said disagreements were as follows:
that there was a violation of a constitutional provision or the rights of
private individuals. In Osmeña v. Pendatun, it was held: “At any rate, courts House Bill No. 3555 House Bill No. Senate Bill No.
have declared that ‘the rules adopted by deliberative bodies are subject to
3705 1950
revocation, modification or waiver at the pleasure of the body adopting them.’ And With regard to “Stand-By Authority” in favor of President
it has been said that “Parliamentary rules are merely procedural, and with
Provides for 12% VAT Provides for 12% Provides for a single
their observance, the courts have no concern. They may be waived or on every sale of goods VAT in general on rate of 10% VAT on
disregarded by the legislative body.” Consequently, “mere failure to or properties sales of goods or sale of goods or
conform to parliamentary usage will not invalidate the action (taken by a (amending Sec. 106 of properties and properties (amending
deliberative body) when the requisite number of members have agreed to
21
NIRC); 12% VAT on reduced rates for Sec. 106 of NIRC),
a particular measure.” (Emphasis supplied) importation of goods sale of certain locally 10% VAT on sale of
(amending Sec. 107 of manufactured goods services including
The foregoing declaration is exactly in point with the present cases, NIRC); and 12% VAT and petroleum sale of electricity by
where petitioners allege irregularities committed by the conference on sale of services and products and raw generation
committee in introducing changes or deleting provisions22
in the use materials to be used companies, trans-
House and Senate bills. Akin to the Fariñas case, the present in
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 23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.
rules for its proceedings and the discipline of its members. Congress 24 Id., p. 670.
is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole 98
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 Abakada Guro Party List vs. Ermita
operation of Congress, thus, the Court is wont to deny a review of
the internal proceedings of a co-equal branch of government. or lease of the manufacturethereof mission
properties(amending (amending Sec. 106 of and
_______________ Sec. 108 of NIRC) NIRC);12% VAT on importation distribution
of goods and reduced rates for companies,
21 Id., pp. 529-530. certain imported products and use or
22 Supra., Note 20. including petroleum products lease of
(amending Sec. 107 of NIRC); properties
97 and 12% VAT on sale of services (amending
and use or lease of properties Sec. 108 of
and a reduced rate for certain NIRC)
services including power
generation (amending Sec. 108 Abakada Guro Party List vs. Ermita
of NIRC)
electricity generation, transmission and distribution companies
With regard to the “no pass-on” provision should not be passed on to consumers, as proposed in the Senate
No Provides that the Provides that the VAT imposed bill, or both the VAT imposed on electricity generation,
similar VAT imposed on onsales of electricity bygeneration transmission and distribution companies and the VAT imposed on
provision power generation companies and services of sale of petroleum products should not be passed on to consumers, as
and on the sale of transmission companies and proposed in the House bill; (3) in what manner input tax credits
petroleum products distribution companies, as well as should be limited; (4) and whether the NIRC provisions on
shall be absorbed by those of franchise grantees of corporate income taxes, percentage, franchise and excise taxes
generation electric utilities shall not apply to should be amended.
companies or sellers, residential end-users. VAT shall There being differences and/or disagreements on the foregoing
respectively, and be absorbed by generation, provisions of the House and Senate bills, the Bicameral Conference
shall not be passed transmission, and distribution
Committee was mandated by the rules of both houses of Congress to
on to consumers companies.
act on the same by settling said differences and/or disagreements.
The Bicameral Conference Committee acted on the disagreeing
99 provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be

imposed, it would appear from the Conference Committee
Abakada Guro Party List vs. Ermita Report that the Bicameral Conference Committee tried to
bridge the gap in the difference between the 10% VAT rate
With regard to 70% limit on input tax credit proposed by the Senate, and the various rates with 12% as
the highest VAT rate proposed by the House, by striking a
Provides that the input tax credit for No Provides that
capital goods on which a VAT has been similar the input tax
compromise whereby the present 10% VAT rate would be
paid shall be equally distributed over 5 provision credit for capital retained until certain conditions arise, i.e., the value-added
years or the depreciable life of such goods on which tax collection as a percentage of gross domestic product
capital goods; the input tax credit for a VAT has been (GDP) of the previous year exceeds 2 4/5%, or National
goods and services other than capital paid shall be Government deficit as a percentage of GDP of the previous
goods shall not exceed 5% of the total equally year exceeds 1 1/2%, when the President, upon
amount of such goods and services; and distributed over recommendation of the Secretary of Finance shall raise the
for persons engaged in retail trading of 5 years or the rate of VAT to 12% effective January 1, 2006.
goods, the allowable input tax credit depreciable life 2. With regard to the disagreement on whether only the VAT
shall not exceed 11% of the total of such capital imposed on electricity generation, transmission and
amount of goods purchased. goods; the input
distribution companies should not be passed on to
tax credit for
consumers or whether both the VAT imposed on electricity
goods and
services other
generation, transmission and distribution companies and
than capital the VAT imposed on sale of petroleum products may be
goods shall not passed on to con-
exceed 90% of
the output VAT. 101
With regard to amendments to be made to NIRC provisions VOL. 469, SEPTEMBER 1, 2005 101
regarding income and excise taxes
No No Provided for amendments to several NIRC
similar similar provisions regarding corporate income,
provision provision percentage, franchise and excise taxes sumers, the Bicameral Conference Committee chose to settle
such disagreement by altogether deleting from its Report
any no pass-on provision.
The disagreements between the provisions in the House bills and 3. With regard to the disagreement on whether input tax
the Senate bill were with regard to (1) what rate of VAT is to be credits should be limited or not, the Bicameral Conference
imposed; (2) whether only the VAT imposed on Committee decided to adopt the position of the House by
putting a limitation on the amount of input tax that may be
100 credited against the output tax, although it crafted its own
language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing to try to bridge the difference in the rate of VAT proposed by the
thus: two houses of Congress. Nevertheless, such compromise is still
totally within the subject of what rate of VAT should be imposed on
(A) Creditable Input Tax.—. . . taxpayers.
... The no pass-on provision was deleted altogether. In the
Provided, The input tax on goods purchased or imported in a calendar transcripts of the proceedings of the Bicameral Conference
month for use in trade or business for which deduction for depreciation is Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of
allowed under this Code, shall be spread evenly over the month of the Senate Panel, explained the reason for deleting the no pass-on
acquisition and the fifty-nine (59) succeeding months if the aggregate provision in this wise:
acquisition cost for such goods, excluding the VAT component thereof,
exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the . . . the thinking was just to keep the VAT law or the VAT bill simple. And
estimated useful life of the capital good is less than five (5) years, as used we were thinking that no sector should be a beneficiary of legislative grace,
for depreciation purposes, then the input VAT shall be spread over such neither should any sector be discriminated on. The VAT is an indirect tax.
shorter period: . . . It is a pass on-tax. And let’s keep it
(B) Excess Output or Input Tax.—If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VAT- _______________
registered person. If the input tax exceeds the output tax, the excess shall 25 Webster’s Third New International Dictionary, p. 1897.
be carried over to the succeeding quarter or quarters: PROVIDED that the
input tax inclusive of input VAT carried over from the previous quarter 103
that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax
attributable to zero-rated sales by a VAT-registered person may at his VOL. 469, SEPTEMBER 1, 2005 103
option be refunded or credited against other internal revenue taxes, . . . Abakada Guro Party List vs. Ermita
4. With regard to the amendments to other provisions of the plain and simple. Let’s not confuse the bill and put a no pass-on provision.
NIRC on corporate income tax, franchise, percentage and Two-thirds of the world have a VAT system and in this two-thirds of the
excise taxes, the conference committee decided to include globe, I have yet to see a VAT with a no pass-though provision. So, the
26
such amendments and basically adopted the provisions thinking of the Senate is basically simple, let’s keep the VAT simple.
found in Senate Bill No. 1950, with some changes as to the (Emphasis supplied)
rate of the tax to be imposed.
Rep. Teodoro Locsin further made the manifestation that the no
102 pass-on 27provision “never really enjoyed the support of either
House.”
With regard to the amount of input tax to be credited against
output tax, the Bicameral Conference Committee came to a
Abakada Guro Party List vs. Ermita compromise on the percentage rate of the limitation or cap on such
input tax credit, but again, the change introduced by the Bicameral
Under the provisions of both the Rules of the House of Conference Committee was totally within the intent of both houses
Representatives and Senate Rules, the Bicameral Conference to put a cap on input tax that may be credited against the output
Committee is mandated to settle the differences between the tax. From the inception of the subject revenue bill in the House of
disagreeing provisions in the House bill and the Senate bill.25The Representatives, one of the major objectives was to “plug a glaring
term “settle” is synonymous to “reconcile” and “harmonize.” To loophole in the tax policy and administration by creating vital
reconcile or harmonize disagreeing provisions, the Bicameral restrictions on the claiming of input VAT tax credits . . .” and “[b]y
Conference Committee may then (a) adopt the specific provisions of introducing limitations on the claiming of tax credit, we are capping
either th e House bill or Senate bill, (b) decide that neither a major leakage 28
that has placed our collection efforts at an apparent
provisions in the House bill or the provisions in the Senate bill disadvantage.”
would be carried into the final form of the bill, and/or (c) try to As to the amendments to NIRC provisions on taxes other than
arrive at a compromise between the disagreeing provisions. the value-added tax proposed in Senate Bill No. 1950, since said
In the present case, the changes introduced by the Bicam-eral provisions were among those referred to it, the conference
Conference Committee on disagreeing provisions were meant only committee had to act on the same and it basically adopted the
to reconcile and harmonize the disagreeing provisions for it did not version of the Senate.
inject any idea or intent that is wholly foreign to the subject Thus, all the changes or modifications made by the Bicameral
embraced by the original provisions. Conference Committee were germane to subjects of the
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
26 TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate allowed, and the vote thereon shall be taken immediately thereafter, and
Bill No. 1950 and House Bill Nos. 3705 and 3555, May 10, 2005, p. 4. the yeas and nays entered in the Journal.
27 Id., p. 3.
28 Sponsorship Speech of Representative Teves, in behalf of Representative Jesli Petitioners’ argument that the practice where a bicameral
Lapus, TSN, January 7, 2005, pp. 34-35. conference committee is allowed to add or delete provisions in the
House bill and the Senate bill after these had passed three readings
104 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
104 SUPREME COURT REPORTS ANNOTATED deviate from its ruling in the Tolentino case that:
Abakada Guro Party List vs. Ermita Nor is there any reason for requiring that the Committee’s Report in these
cases must have undergone three readings in each of the two houses. If that
be the case, there would be no end to negotiation since each house may seek
provisions referred to it for reconciliation. Such being the case, the
modification of the compromise bill . . . .
Court does not see any grave abuse of discretion amounting to lack
Art. VI. § 26 (2) must, therefore, be construed as referring only to
or excess of jurisdiction committed by the Bicameral Conference
bills introduced for the first time in either house of Congress, not
Committee. In the earlier cases of Philippine Judges Association vs. 32
29 30 to the conference committee report. (Emphasis supplied)
Prado and Tolentino vs. Secretary of Finance, the Court
recognized the long-standing legislative practice of giving said The Court reiterates here that the “no-amendment rule” refers only
conference committee ample latitude for compromising differences to the procedure to be followed by each house of Congress with
between the Senate and the House. Thus, in the Tolentino case, it regard to bills initiated in each of said respective houses, before said
was held that: bill is transmitted to the other house for its concurrence or
. . . it is within the power of a conference committee to include in its report amendment. Verily, to construe said provision in a way as to
an entirely new provision that is not found either in the House bill or in the proscribe any further changes to a bill after one house has voted on
Senate bill. If the committee can propose an amendment consisting of one it would lead to absurdity as this would mean that the other house
or two provisions, there is no reason why it cannot propose several of Congress would be deprived of its constitutional power to amend
provisions, collectively considered as an “amendment in the nature of a or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
substitute,” so long as such amendment is germane to the subject of the Constitution cannot be taken to mean that the introduction by the
bills before the committee. After all, its report was not final but needed the Bicameral Conference Committee of amendments and modifications
approval of both houses of Congress to become valid as an act of the to disagreeing provisions in bills that have been acted upon by both
legislative department. The charge that in this case the Conference houses of Congress is prohibited.
Committee acted as a third legislative chamber is thus without any
31
basis. (Emphasis supplied) _______________
B. R.A. No. 9337 Does Not Violate Article VI, 32 Id., p. 671.
Section 26(2) of the Constitution on the 106
“No-Amendment Rule”
Article VI, Sec. 26 (2) of the Constitution, states: 106 SUPREME COURT REPORTS ANNOTATED
No bill passed by either House shall become a law unless it has passed Abakada Guro Party List vs. Ermita
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 C. R.A. No. 9337 Does Not Violate Article VI,
when the President certifies to the necessity of its immediate enactment to Section 24 of the Constitution on Exclusive
meet a public calamity or emergency. Upon the last reading of a bill, no Origination of Revenue Bills
amendment thereto shall be
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
29 G.R. No. 105371, November 11, 1993, 227 SCRA 703. provisions, to wit:
30 Supra, Note 23.
31 Id., p. 668. Section
27 Rates of Income Tax on Domestic Corporation
105
28(A) Tax on Resident Foreign Corporation
(1)
VOL. 469, SEPTEMBER 1, 2005 105
28(B) Inter-corporate Dividends
(1)

34(B) Inter-corporate Dividends . . . To begin with, it is not the law—but the revenue bill—which is required
(1) by the Constitution to “originate exclusively” in the House of
116 Tax on Persons Exempt from VAT Representatives. It is important to emphasize this, because a bill
originating in the House may undergo such extensive changes in the
117 Percentage Tax on domestic carriers and keepers ofGarage Senate that the result may be a rewriting of the whole. . . . At this point,
119 Tax on franchises what is important to note is that, as a result of the Senate action, a distinct
121 Tax on banks and Non-Bank Financial Intermediaries bill may be produced. To insist that a revenue statute—and not only
the bill which initiated the legislative process culminating in the
148 Excise Tax on manufactured oils and other fuels enactment of the law—must substantially be the same as the House
151 Excise Tax on mineral products bill would be to deny the Senate’s power not only to “concur with
amendments” but also to “propose amendments.” It would be to violate
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices 108
288 Disposition of Incremental Revenue

Petitioners claim that the amendments to these provisions of the Abakada Guro Party List vs. Ermita
NIRC did not at all originate from the House. They aver that House
Bill No. 3555 proposed amendments only regarding Sections 106, the coequality of legislative power of the two houses of Congress and in fact
107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 make the House superior to the Senate.
proposed amendments only to Sections 106, 107, 108, 109, 110 and ...
111 of the NIRC; thus, the other sections of the NIRC which the . . . Given, then, the power of the Senate to propose amendments,
Senate amended but which amendments were not found in the the Senate can propose its own version even with respect to bills
House bills are not intended to be amended by the House of which are required by the Constitution to originate in the House.
Representatives. Hence, they argue that since the proposed ...
amendments did Indeed, what the Constitution simply means is that the initiative for
filing revenue, tariff or tax bills, bills authorizing an increase of the public
107
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,
VOL. 469, SEPTEMBER 1, 2005 107 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
not originate from the House, such amendments are a violation of 33
bear on the enactment of such laws. (Emphasis supplied)
Article VI, Section 24 of the Constitution.
The argument does not hold water. Since there is no question that the revenue bill exclusively
Article VI, Section 24 of the Constitution reads: originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase
House bill when it included provisions in Senate Bill No. 1950
of the public debt, bills of local application, and private bills shall originate
amending corporate income taxes, percentage, excise and franchise
exclusively in the House of Representatives but the Senate may propose or
taxes. Verily, Article VI, Section 24 of the Constitution does not
concur with amendments.
contain any prohibition or limitation on the extent of the
In the present cases, petitioners admit that it was indeed House amendments that may be introduced by the Senate to the House
Bill Nos. 3555 and 3705 that initiated the move for amending revenue bill.
provisions of the NIRC dealing mainly with the value-added tax. Furthermore, the amendments introduced by the Senate to the
Upon transmittal of said House bills to the Senate, the Senate came NIRC provisions that had not been touched in the House bills are
out with Senate Bill No. 1950 proposing amendments not only to still in furtherance of the intent of the House in initiating the
NIRC provisions on the value-added tax but also amendments to subject revenue bills. The Explanatory Note of House Bill No. 1468,
NIRC provisions on other kinds of taxes. Is the introduction by the the very first House bill introduced on the floor, which was later
Senate of provisions not dealing directly with the value- added tax, substituted by House Bill No. 3555, stated:
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
33 Id., pp. 661-663.
originated from the House?
The foregoing question had been squarely answered in the 109
Tolentino case, wherein the Court held, thus:
VOL. 469, SEPTEMBER 1, 2005 109

Abakada Guro Party List vs. Ermita 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
One of the challenges faced by the present administration is the urgent and
prescribe is a burden sharing between corporate Philippines and the
daunting task of solving the country’s serious financial problems. To do
consumer. Why should the latter bear all the pain? Why should the fiscal
this, government expenditures must be strictly monitored and controlled
salvation be only on the burden of the consumer?
and revenues must be significantly increased. This may be easier said than
The corporate world’s equity is in form of the increase in the corporate
done, but our fiscal authorities are still optimistic the government will be
income tax from 32 to 35 percent, but up to 2008 only. This will raise P10.5
operating on a balanced budget by the year 2009. In fact, several measures
billion a year. After that, the rate will slide back, not to its old rate of 32
that will result to significant expenditure savings have been identified by
percent, but two notches lower, to 30 percent.
the administration. It is supported with a credible package of
Clearly, we are telling those with the capacity to pay, corporations, to
revenue measures that include measures to improve tax
bear with this emergency provision that will be in effect for 1,200 days,
administration and control the leakages in revenues from income
while we put our fiscal house in order. This fiscal medicine will have an
taxes and the value-added tax (VAT). (Emphasis supplied)
expiry date.
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. For their assistance, a reward of tax reduction awaits them. We intend
3555, declared that: 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
In the budget message of our President in the year 2005, she reiterated keep on making the tunnel long.
that we all acknowledged that on top of our agenda must be the restoration The responsibility will not rest solely on the weary shoulders of the
35
of the health of our fiscal system. small man. Big business will be there to share the burden.
In order to considerably lower the consolidated public sector deficit and
eventually achieve a balanced budget by the year 2009, we need to seize As the Court has said, the Senate can propose amendments and in
windows of opportunities which might seem poignant in the fact, the amendments made on provisions in the tax on
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
34
conditions. (Emphasis supplied) 35 Journal of the Senate, Session No. 67, March 7, 2005, pp. 727-728.
111
Notably therefore, the main purpose of the bills emanating from the
House of Representatives is to bring in sizeable revenues for the
government to supplement our country’s serious financial problems, VOL. 469, SEPTEMBER 1, 2005 111
and improve tax administration and control of the leakages in
revenues from income taxes and value-added taxes. As these house Abakada Guro Party List vs. Ermita
bills were transmitted to the Senate, the latter, approaching the
measures from the point of national perspective, can introduce income of corporations are germane to the purpose of the house bills
amendments within the purposes of those bills. It can provide for which is to raise revenues for the government.
ways that 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
34 Transcript of Session Proceedings, January 7, 2005, pp. 19-20. subject to percentage tax and excise tax would no longer be VAT-
exempt, the consumer would be burdened more as they would be
110
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
110 SUPREME COURT REPORTS ANNOTATED sponsorship speech, Sen. Recto said:
Abakada Guro Party List vs. Ermita 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
would soften the impact of the VAT measure on the consumer, i.e., product.
by distributing the burden across all sectors instead of putting it For electric utilities like Meralco, we will wipe out the franchise tax in
entirely on the shoulders of the consumers. The sponsorship speech exchange for a VAT.
of Sen. Ralph Recto on why the provisions on income tax on And in the case of petroleum, while we will levy the VAT on oil products,
corporation were included is worth quoting: 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.
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 What do all these exercises point to? These are not contortions of giving
mitigating prices of power, services and petroleum products. 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
36
the blow of higher prices they will have to pay as a result of VAT.
VOL. 469, SEPTEMBER 1, 2005 113
The other sections amended by the Senate pertained to matters of Abakada Guro Party List vs. Ermita
tax administration which are necessary for the implementation of
the changes in the VAT system. (i) value-added tax collection as a percentage of Gross
To reiterate, the sections introduced by the Senate are germane Domestic Product (GDP) of the previous year exceeds two
to the subject matter and purposes of the house bills, which is to and four-fifth percent (2 4/5%) or
supplement our country’s fiscal deficit, among (ii) national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
_______________
SEC. 5. Section 107 of the same Code, as amended, is hereby further
36 Id., p. 726.
amended to read as follows:
112
SEC. 107. Value-Added Tax on Importation of Goods.—
(A) In General.—There shall be levied, assessed and collected on every
112 SUPREME COURT REPORTS ANNOTATED 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
others. Thus, the Senate acted within its power to propose those where the customs duties are determined on the basis of the quantity or volume of
amendments. 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
SUBSTANTIVE ISSUES
value-added tax to twelve percent (12%) after any of the following
conditions has been satisfied.
I.
(i) value-added tax collection as a percentage of Gross Domestic
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 Product (GDP) of the previous year exceeds two and four-fifth
and 108 of the NIRC, violate the following provisions of the Constitution: percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous
a. Article VI, Section 28(1), and year exceeds one and one-half percent (1 ½%).
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative amended to read as follows:
Power
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties—
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., (A) Rate and Base of Tax.—There shall be levied, assessed and collected, a value-
and Escudero, et al. contend in common that Sections 4, 5 and 6 of added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of exchange
the NIRC giving the President the stand-by authority to raise the
114
VAT rate from 10% to 12% when a certain condition is met,
constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows: 114 SUPREME COURT REPORTS ANNOTATED
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended
to read as follows:
of services: provided, that the President, upon the recommendation of the
SEC. 106. Value-Added Tax on Sale of Goods or Properties.—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected on every value-added tax to twelve percent (12%), after any of the following
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten conditions has been satisfied.
percent (10%) of the gross selling price or gross value in money of the goods or
(i) value-added tax collection as a percentage of Gross Domestic
properties sold, bartered or exchanged, such tax to be paid by the seller or
Product (GDP) of the previous year exceeds two and four-fifth
transferor: provided, that the President, upon the recommendation of the
percent (2 4/5%) or
value-added tax to twelve percent (12%), after any of the following (ii) national government deficit as a percentage of GDP of the previous
conditions has been satisfied. year exceeds one and one-half percent (1 1/2%). (Emphasis supplied)
113
Petitioners allege that the grant of the stand-by authority to the the Latin maxim: potestas delegata non delegari potest which means
President to increase the VAT rate is a virtual abdication by “what has been
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:
37 See Angara vs. Electoral Commission, No. 45081, July 15, 1936, 63 Phil. 139,
The Congress may, by law, authorize the President to fix within specified 156.
limits, and may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the 116
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or 116 SUPREME COURT REPORTS ANNOTATED
exchange of goods and properties as well as on the sale or exchange Abakada Guro Party List vs. Ermita
of services, which cannot be included within the purview of tariffs
under the exempted delegation as the latter refers to customs 38
delegated, cannot be delegated.” This doctrine is based on the
duties, tolls or tribute payable upon merchandise to the government ethical principle that such as delegated power constitutes not only a
and usually imposed on goods or merchandise imported or exported. right but a duty to be performed by the delegate through the
Petitioners ABAKADA GURO Party List, et al., further contend instrumentality of his own judgment and not through the
that delegating to the President the legislative power to tax is intervening mind of another.
39
contrary to republicanism. They insist that accountability, With respect to the Legislature, Section 1 of Article VI of the
responsibility and transparency should dictate the actions of Constitution provides that “the Legislative power shall be vested in
Congress and they should not pass to the President the decision to the Congress of the Philippines which shall consist of a Senate and a
impose taxes. They also argue that the law House of Representatives.” The powers which Congress is prohibited
115 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
VOL. 469, SEPTEMBER 1, 2005 115 law—complete as to the time when it shall take effect and as to
Abakada Guro Party List vs. Ermita whom it shall
40
be applicable—and to determine the expediency of its
enactment. Thus, the rule is that in order that a court may be
justified in holding a statute unconstitutional as a delegation
also effectively nullified the President’s power of control, which
includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the fixing _______________
of the tax rate by the President upon the recommendation of the 38 Defensor-Santiago vs. Commission on Elections, G.R. No. 127325, March 19,
Secretary of Finance. 1997, 270 SCRA 106, 153; People vs. Rosenthal, Nos. 46076 & 46077, June 12, 1939,
Petitioners Pimentel, et al. aver that the President has ample 68 Phil. 328; ISAGANI A. CRUZ, Philippine Political Law 86 (1996). Judge Cooley
powers to cause, influence or create the conditions provided by the enunciates the doctrine in the following oft-quoted language: “One of the settled
law to bring about either or both the conditions precedent. maxims in constitutional law is, that the power conferred upon the legislature to
On the other hand, petitioners Escudero, et al. find bizarre and make laws cannot be delegated by that department to any other body or authority.
revolting the situation that the imposition of the 12% rate would be Where the sovereign power of the state has located the authority, there it must
subject to the whim of the Secretary of Finance, an unelected remain; and by the constitutional agency alone the laws must be made until the
bureaucrat, contrary to the principle of no taxation without Constitution itself is changed. The power to whose judgment, wisdom, and patriotism
representation. They submit that the Secretary of Finance is not this high prerogative has been intrusted cannot relieve itself of the responsibility by
mandated to give a favorable recommendation and he may not even choosing other agencies upon which the power shall be devolved, nor can it substitute
give his recommendation. Moreover, they allege that no guiding the judgment, wisdom, and patriotism of any other body for those to which alone the
standards are provided in the law on what basis and as to how he people have seen fit to confide this sovereign trust.” (Cooley on Constitutional
will make his recommendation. They claim, nonetheless, that any Limitations, 8th ed., Vol. I, p. 224)
recommendation of the Secretary of Finance can easily be brushed 39 United States vs. Barrias, No. 4349, September 24, 1908, 11 Phil. 327, 330.
aside by the President since the former is a mere alter ego of the 40 16 Am Jur 2d, Constitutional Law, § 337.
latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not. 117
A brief discourse on the principle of non-delegation of powers is
instructive.
VOL. 469, SEPTEMBER 1, 2005 117
The principle of separation of powers ordains that each of the
three great branches of government has exclusive cognizance of and Abakada Guro Party List vs. Ermita
is supreme in 37 matters falling within its own constitutionally
allocated sphere. A logical corollary to the doctrine of separation of of legislative power, it must appear that the power involved is
powers is the principle of non-delegation of powers, as expressed in purely legislative in nature—that is, one appertaining exclusively to
the legislative department. It is the nature of the power, and not nothing was left to the judgment of any other appointee or delegate of the
the liability of its use or the manner of its exercise, which legislature.
determines the validity of its delegation. ...
Nonetheless, the general rule barring delegation of legislative ‘The true distinction,’ says Judge Ranney, ‘is between the
powers is subject to the following recognized limitations or delegation of power to make the law, which necessarily involves a
exceptions: discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in
(1) Delegation of tariff powers to the President under Section 28 pursuance of the law. The first cannot be done; to the latter no
(2) of Article VI of the Constitution; valid objection can be made.’
(2) Delegation of emergency powers to the President under ...
Section 23 (2) of Article VI of the Constitution; It is contended, however, that a legislative act may be made to the effect
(3) Delegation to the people at large; 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
(4) Delegation to local governments; and
executive or the adoption by the people of a particular community. In
(5) Delegation to administrative bodies. Wayman vs. Southard, the Supreme Court
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
41
to be executed, Board of Public Utility, No. 11216, March 6, 1916, 34 Phil. 136 et seq.
carried out, or implemented by the delegate; and (b) fixes a 43 Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 497.
standard—the limits of which are sufficiently determinate and 44 Eastern Shipping Lines, Inc. vs. Philippine Overseas Employment Administration, No. L-
determinable—to which the 42
delegate must conform in the 76633, October 18, 1988, 166 SCRA 533, 543-544.
performance of his functions. A suffi- 45 No. 45685, November 16, 1937, 65 Phil. 56.
119
_______________
41 Pelaez vs. Auditor General, No. L-23825, December 24, 1965, 122 Phil. 965, 974; VOL. 469, SEPTEMBER 1, 2005 119
15 SCRA 569, 577, citing Calalang vs. Williams, No. 47800, December 2, 1940, 70
Phil. 726; Pangasinan Transp. Co. vs. Public Service Commission, No. 47065, June
26, 1940, 70 Phil. 221; Cruz vs. Youngberg, No. 34674, October 26, 1931, 56 Phil. 234;
Alegre vs. Collector of Customs, No. 30783, August 27, 1929, 53 Phil. 394 et seq.
of the United States ruled that the legislature may delegate a power not
42 Pelaez vs. Auditor General, supra, citing People vs. Lim Ho, No. L-12091-2,
legislative which it may itself rightfully exercise. The power to ascertain
January 28, 1960, 106 Phil. 887; People vs. Jolliffee, No. L-9553, May 13, 1959, 105
facts is such a power which may be delegated. There is nothing
Phil 677; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56; U.S. vs. Nag
essentially legislative in ascertaining the existence of facts or
Tang Ho, No. L-17122, February 27, 1922, 43 Phil. 1; Compañia General de Tabacos
conditions as the basis of the taking into effect of a law. That is a
vs.
mental process common to all branches of the government.
Notwithstanding the apparent tendency, however, to relax the rule
118 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
Abakada Guro Party List vs. Ermita on the Constitution of the United States in the following language—
speaking of declaration of legislative power to administrative agencies: The
cient standard is one which defines legislative policy, marks its principle which permits the legislature to provide that the
limits, maps out its boundaries and specifies the public agency to administrative agent may determine when the circumstances are
apply it. It indicates the circumstances under which the legislative such as require the application of a law is defended upon the
43
command is to be effected. Both tests are intended to prevent a ground that at the time this authority is granted, the rule of public
total transference of legislative authority to the delegate, who is not policy, which is the essence of the legislative act, is determined by
allowed to step into the shoes of the legislature and exercise a the legislature. In other words, the legislature, as it is its duty to
44
power essentially legislative. do, determines that, under given circumstances, certain executive
45
In People vs. Vera, the Court, through eminent Justice Jose P. or administrative action is to be taken, and that, under other
Laurel, expounded on the concept and extent of delegation of power circumstances, different or no action at all is to be taken. What is
in this wise: thus left to the administrative official is not the legislative
determination of what public policy demands, but simply the
In testing whether a statute constitutes an undue delegation of legislative ascertainment of what the facts of the case require to be done
power or not, it is usual to inquire whether the statute was complete in all according to the terms of the law by which he is governed. The
its terms and provisions when it left the hands of the legislature so that 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 VOL. 469, SEPTEMBER 1, 2005 121
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. tion. Thus, the duty of correlating information and making
(Emphasis supplied).
46
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
46 Id., pp. 115-120. of accurate information on the part of the legislators, and 51
any
reasonable method of securing such information is proper. The
120 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
Abakada Guro Party List vs. Ermita application of legislative policy to particular facts and
circumstances52
impossible for Congress itself properly to
47
In Edu vs. Ericta, the Court reiterated: investigate.
In the present case, the challenged section of R.A. No. 9337 is the
What cannot be delegated is the authority under the Constitution to make common proviso in Sections 4, 5 and 6 which reads as follows:
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 That the President, upon the recommendation of the Secretary of Finance,
legislature. To determine whether or not there is an undue delegation of shall, effective January 1, 2006, raise the rate of value-added tax to twelve
legislative power, the inquiry must be directed to the scope and percent (12%), after any of the following conditions has been satisfied:
definiteness of the measure enacted. The legislative does not abdicate
(i) Value-added tax collection as a percentage of Gross Domestic
its functions when it describes what job must be done, who is to do
Product (GDP) of the previous year exceeds two and four-fifth
it, and what is the scope of his authority. For a complex economy, that
percent (2 4/5%); or
may be the only way in which the legislative process can go forward. A
distinction has rightfully been made between delegation of power (ii) National government deficit as a percentage of GDP of the previous
to make the laws which necessarily involves a discretion as to what year exceeds one and one-half percent (1 1/2%).
it shall be, which constitutionally may not be done, and delegation
of authority or discretion as to its execution to be exercised under The case before the Court is not a delegation of legislative power. It
and in pursuance of the law, to which no valid objection can be is simply a delegation of ascertainment of facts upon which
made. The Constitution is thus not to be regarded as denying the enforcement and administration of the increase rate under the law
legislature the necessary resources of flexibility and practicability. is contingent. The legislature has made the
48
(Emphasis supplied).
_______________
Clearly, the legislature may delegate to executive officers or bodies
the power to determine certain facts or conditions, or the happening 51 16 Am. Jur. 2d, Constitutional Law § 340.
of contingencies, on which the operation of a statute is, by its terms, 52 Yajus vs. United States, 321 US 414, 88 L.Ed. 834, 64 S Ct. 660, 28 Ohio Ops
made to depend, but the legislature must prescribe 49
sufficient 220.
standards, policies or limitations on their authority. While the
122
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 50
to determine the existence 122 SUPREME COURT REPORTS ANNOTATED
of facts on which its operation depends.
The rationale for this is that the preliminary ascertainment of
facts as basis for the enactment of legislation is not of itself a
legislative function, but is simply ancillary to legisla- 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.
47 Supra, note 43. No discretion would be exercised by the President. Highlighting
48 Id., pp. 496-497. the absence of discretion is the fact that the word shall is used in
49 16 C.J.S., Constitutional Law, § 138. the common proviso. The use of the word shall connotes a
50 Ibid. mandatory order. Its use in a statute denotes an imperative 53
obligation and is inconsistent with the idea of discretion. Where
121 the law is clear and unambiguous, it must be taken to mean exactly
what it says, and 54 courts have no choice but to see to it that the or even her subordinate. In such instance, he is not subject to the
mandate is obeyed. power of control and direction of the President. He is acting as the
Thus, it is the ministerial duty of the President to immediately agent of the legislative department, to determine 56 and declare the
impose the 12% rate upon the existence of any of the conditions event upon which its expressed will is to take effect. The Secretary
specified by Congress. This is a duty which cannot be evaded by the of Finance becomes the means or tool by which legislative policy is
President. Inasmuch as the law specifically uses the word shall, the determined and
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 55 Villena vs. Secretary of Interior, No. 46570, April 21, 1939, 67 Phil 451, 463-464.
contingency, or upon the ascertainment of certain facts or 56 Alunan vs. Mirasol, G.R. No. 108399, July 31, 1997, 276 SCRA 501, 513-514,
conditions by a person or body other than the legislature itself. citing Panama Refining Co. vs. Ryan, 293 U.S. 388, 79 L.Ed. 469 (1935).
The Court finds no merit to the contention of petitioners
124
ABAKADA GURO Party List, et al. that the law effectively nullified
the President’s power of control over the Secretary of Finance by
mandating the fixing of the tax rate by the President upon the 124 SUPREME COURT REPORTS ANNOTATED
recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
_______________
implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to
53 Province of Batangas vs. Romulo, G.R. No. 152774, May 27, 2004, 429 SCRA properly evaluate them. His function is to gather and collate
736; Enriquez vs. Court of Appeals, G.R. No. 140473, January 28, 2003, 396 SCRA statistical data and other pertinent information and verify if any of
377; Codoy vs. Calugay, G.R. No. 123486, August 12, 1999, 312 SCRA 333. the two conditions laid out by Congress is present. His personality
54 Province of Batangas vs. Romulo, supra; Quisumbing vs. Meralco, G.R. No. in such instance is in reality but a projection of that of Congress.
142943, April 3, 2002, 380 SCRA 195; Agpalo, Statutory Construction, 1990 ed., p. Thus, being the agent of Congress and not of the President, the
45. President cannot alter or modify or nullify, or set aside the findings
of the Secretary of Finance and to substitute the judgment of the
123 former for that of the latter.
Congress simply granted the Secretary of Finance the authority
VOL. 469, SEPTEMBER 1, 2005 123 to ascertain the existence of a fact, namely, whether by December
31, 2005, the value-added tax collection as a percentage of Gross
Abakada Guro Party List vs. Ermita Domestic Product (GDP) of the previous year exceeds two and four-
fifth percent (2 4/5%) or the national government deficit as a
Pimentel, et al. that the word shall should be interpreted to mean percentage of GDP of the previous year exceeds one and one-half
may in view of the phrase “upon the recommendation of the percent (1 1/2%). If either of these two instances has occurred, the
Secretary of Finance.” Neither does the Court find persuasive the Secretary of Finance, by legislative mandate, must submit such
submission of petitioners Escudero, et al. that any recommendation information to the President. Then the 12% VAT rate must be
by the Secretary of Finance can easily be brushed aside by the imposed by the President effective January 1, 2006. There is no
President since the former is a mere alter ego of the latter. undue delegation of legislative power but only of the
When one speaks of the Secretary of Finance as the alter ego of discretion as to the execution 57
of a law. This is
the President, it simply means that as head of the Department of constitutionally permissible. Congress does not abdicate its
Finance he is the assistant and agent of the Chief Executive. The functions or unduly delegate power when it describes what job must
multifarious executive and administrative functions of the Chief be done, who must do it, and what is the scope of his authority;
Executive are performed by and through the executive
departments, and the acts of the secre-taries of such departments, _______________
such as the Department of Finance, performed and promulgated in
the regular course of business, are, unless disapproved or 57 Compañia General de Tabacos de Filipinas vs. The Board of Public Utility
reprobated by the Chief Executive, presumptively the acts of the Commissioners, No. 11216, 34 Phil. 136; Cruz vs. Youngberg, No. 34674, October 26,
Chief Executive. The Secretary of Finance, as such, occupies a 1931, 56 Phil. 234; People vs. Vera, No. 45685, November 16, 1937, 65 Phil. 56, 113;
political position and holds office in an advisory capacity, and, in Edu vs. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481; Tatad vs. Secretary of
the language of Thomas Jefferson, “should be of the President’s the Department of Energy, G.R. No. 124360, November 5, 1997, 281 SCRA 330;
bosom confidence” and, in the language of Attorney-General
55
Alunan vs. Mirasol, supra.
Cushing, is “subject to the direction of the President.”
125
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 VOL. 469, SEPTEMBER 1, 2005 125

Abakada Guro Party List vs. Ermita Therefore, no statutory construction or interpretation is needed.
Neither can conditions or limitations be introduced where none is
in our complex economy that is frequently the only way in which provided for. Rewriting the 60
law is a forbidden ground that only
58
the legislative process can go forward. Congress may tread upon.
As to the argument of petitioners ABAKADA GURO Party List, Thus, in the absence of any provision providing for a return to
et al. that delegating to the President the legislative power to tax is the 10% rate, which in this case the Court finds none, petitioners’
contrary to the principle of republicanism, the same deserves scant argument is, at best, purely speculative. There is no basis for
consideration. Congress did not delegate the power to tax but the petitioners’ fear of a fluctuating VAT rate because the law itself
mere implementation of the law. The intent and will to increase the does not provide that the rate should go back to 10% if the
VAT rate to 12% came from Congress and the task of the President conditions provided in Sections 4, 5 and 6 are no longer present.
is to simply execute the legislative policy. That Congress chose to do The rule is that where the provision of the law is clear and
so in such a manner is not within the province of the Court to unambiguous, so that there is no occasion for the court’s seeking the
59
inquire into, its task being to interpret the law. legislative intent, the law
61
must be taken as it is, devoid of judicial
The insinuation by petitioners Pimentel, et al. that the President addition or subtraction.
has ample powers to cause, influence or create the conditions to Petitioners also contend that the increase in the VAT rate, which
bring about either or both the conditions precedent does not deserve was allegedly an incentive to the President to raise the
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 60 Commissioner of Internal Revenue vs. American Express International, Inc.
instead of realities, justice and law will be short-lived. (Philippine Branch), G.R. No. 152609, June 29, 2005, 462 SCRA 197.
61 Acting Commissioner of Customs vs. MERALCO, No. L-23623, June 30, 1977,
B. The 12% Increase VAT Rate Does Not 77 SCRA 469, 473.
Impose an Unfair and Unnecessary
127
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT VOL. 469, SEPTEMBER 1, 2005 127
rate imposes an unfair and additional tax burden on the people.
Petitioners also argue that the 12% increase, dependent on any of Abakada Guro Party List vs. Ermita
the 2 conditions set forth in the contested provisions, is ambiguous
because it does not state if the VAT 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
58 Bowles vs. Willinghan, 321 US 503, 88 l Ed 892, 64 S Ct 641, 28 Ohio Ops 180. national government deficit as a percentage of GDP of the previous
59 United Residents of Dominican Hill, Inc. vs. Commission on the Settlement of year exceeds one and one-half percent (1 1/2%).
Land Problems, G.R. No. 135945, March 7, 2001, 353 SCRA 782; Commissioner of Respondents explained the philosophy behind these alternative
Internal Revenue vs. Santos, G.R. No. 119252, August 18, 1997, 277 SCRA 617, 630. conditions:
126 1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal
126 SUPREME COURT REPORTS ANNOTATED meaning. If VAT/GDP is less than 2.8%, it means that government has
Abakada Guro Party List vs. Ermita 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.
rate would be returned to the original 10% if the rates are no longer
satisfied. Petitioners also argue that such rate is unfair and 2. Nat’l Gov’t Deficit/GDP >1.5%
unreasonable, as the people are unsure of the applicable VAT rate
from year to year. The condition set for increasing VAT when deficit/GDP is 1.5% or less
Under the common provisos of Sections 4, 5 and 6 of R.A. No. means the fiscal condition of government has reached a relatively sound
9337, if any of the two conditions set forth therein are satisfied, the position or is towards the direction of a balanced budget position.
President shall increase the VAT rate to 12%. The provisions of the Therefore, there is no need to increase the VAT rate since the fiscal house
law are clear. It does not provide for a return to the 10% rate nor is in a relatively healthy position. Otherwise stated, if the ratio is more
62
does it empower the President to so revert if, after the rate is than 1.5%, there is indeed a need to increase the VAT rate.
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 That the first condition amounts to an incentive to the President to
a percentage of GDP of the previous year does not exceed 1 1/2%. 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 When the President made her speech in July last year, the environment
adequacy dictated the need for a raise in revenue. was not as bad as it is now, at least based on the forecast of most financial
The principle of fiscal adequacy as a characteristic of a sound tax institutions. So, we were assuming that raising 80 billion would put us in a
system was originally stated by Adam Smith in his Canons of position where we can then convince them to improve our ability to borrow
Taxation (1776), as: 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
62 Respondents’ Memorandum, pp. 168-169. 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
128
now we have not accessed and we might pull back because the conditions
are not very good.
128 SUPREME COURT REPORTS ANNOTATED 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
IV. Every tax ought to be so contrived as both to take out and to keep out of debt service eats and eats more of your revenue. We need to get out of this
the pockets of the people as little as possible over and above what it brings debt spiral. And the only way, I think, we can get out of this debt spiral is
63 65
into the public treasury of the state. really have a front-end adjustment in our revenue base.
It simply means that sources of revenues must64be adequate to meet The image portrayed is chilling. Congress passed the law hoping for
government expenditures and their variations. rescue from an inevitable catastrophe. Whether the law is indeed
The dire need for revenue cannot be ignored. Our country is in a sufficient to answer the state’s economic dilemma is not for the
quagmire of financial woe. During the Bicameral Conference Court to judge. In the Fariñas case, the Court refused to consider
Committee hearing, then Finance Secretary Purisima bluntly the various arguments raised therein that dwelt on the wisdom of
depicted the country’s gloomy state of economic affairs, thus: Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing
that:
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 . . . policy matters are not the concern of the Court. Government policy is
service. So, for every peso of revenue that we currently raise, 90 goes to within the exclusive dominion of the political branches of the government.
debt service. That’s interest plus amortization of our debt. So clearly, this is It is not for this Court to look into the wisdom or propriety of legislative
not a sustainable situation. That’s the first fact. determination. Indeed, whether an enactment is wise or unwise, whether it
The second fact is that our debt to GDP level is way out of line compared is based on sound economic theory, whether it is the best means to achieve
to other peer countries that borrow money from that international financial the desired results,
markets. Our debt to GDP is approximately equal to our GDP. Again, that
shows you that this is not a sustainable situation. _______________
The third thing that I’d 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 65 TSN, Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill No.
years. 1950 and House Bill Nos. 3705 and 3555, April 25, 2005, pp. 5-6.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a 130
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 130 SUPREME COURT REPORTS ANNOTATED
rates in the leading economies of the world. And, therefore, our ability to Abakada Guro Party List vs. Ermita
borrow at reasonable prices is going to be challenged. In fact, ultimately,
the question is our ability to access the financial markets.
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
66
them within the range of judicial cognizance.
63 The Wealth of Nations, Book V, Chapter II.
64 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990, 186 SCRA 331, 338. In the same vein, the Court in this case will not dawdle on the
129
purpose of Congress or the executive policy, given that it is not for
the judiciary to “pass 67upon questions of wisdom, justice or
expediency of legislation.”
VOL. 469, SEPTEMBER 1, 2005 129
II.

Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and input tax is less than 70% of the output tax, then 100% of such
110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section input tax is still creditable.
114(C) of the NIRC, violate the following provisions of the Constitution: More importantly, the excess input tax, if any, is retained in a
business’s books of accounts and remains creditable in the
a. Article VI, Section 28(1), and succeeding quarter/s. This is explicitly allowed by Section 110(B),
b. Article III, Section 1 which provides that “if the input tax exceeds the output tax, the
excess shall be carried over to the succeeding
A. Due Process and Equal Protection Clauses
_______________
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue
that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 68 Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654, 661.
(B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of
the NIRC are arbitrary, oppressive, excessive and confiscatory. 132
Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as 132 SUPREME COURT REPORTS ANNOTATED
embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the Abakada Guro Party List vs. Ermita
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection quarter or quarters.” In addition, Section 112(B) allows a VAT-
clauses are invoked, considering that they are not 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
66 G.R. No. 147387, December 10, 2003, 417 SCRA 503, 524. taxes.
67 National Housing Authority vs. Reyes, G.R. No. L-49439, June 29, 1983, 123 The non-application of the unutilized input tax in a given
SCRA 245, 249. quarter is not ad infinitum, as petitioners exaggeratedly contend.
Their analysis of the effect of the 70% limitation is incomplete and
131
one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not
VOL. 469, SEPTEMBER 1, 2005 131 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).
fixed rules but rather broad standards, there is a need for proof of Therefore, petitioners’ argument must be rejected.
such persuasive character as would lead to such a conclusion. 68 On the other hand, it appears that petitioner Garcia failed to
Absent such a showing, the presumption of validity must prevail. comprehend the operation of the 70% limitation on the input tax.
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC According to petitioner, the limitation on the creditable input tax in
imposes a limitation on the amount of input tax that may be effect allows VAT-registered establishments to retain a portion of
credited against the output tax. It states, in part: “[P]rovided, that the taxes they collect, which violates the principle that tax
the input tax inclusive of the input VAT carried over from the collection and revenue should be for public purposes and
previous quarter that may be credited in every quarter shall not expenditures
exceed seventy percent (70%) of the output VAT: . . .” As earlier stated, the input tax is the tax paid by a person,
Input Tax is defined under Section 110(A) of the NIRC, as passed on to him by the seller, when he buys goods. Output tax
amended, as the value-added tax due from or paid by a VAT- meanwhile is the tax due to the person when he sells goods. In
registered person on the importation of goods or local purchase of computing the VAT payable, three possible scenarios may arise:
good and services, including lease or use of property, in the course First, if at the end of a taxable quarter the output taxes charged
of trade or business, from a VAT-registered person, and Output Tax by the seller are equal to the input taxes that he paid and passed on
is the value-added tax due on the sale or lease of taxable goods or by the suppliers, then no payment is required;
properties or services by any person registered or required to
register under the law. 133
Petitioners claim that the contested sections impose limitations
on the amount of input tax that may be claimed. In effect, a portion VOL. 469, SEPTEMBER 1, 2005 133
of the input tax that has already been paid cannot now be credited
against the output tax. Abakada Guro Party List vs. Ermita
Petitioners’ argument is not absolute. It assumes that the input
tax exceeds 70% of the output tax, and therefore, the input tax in Second, when the output taxes exceed the input taxes, the person
excess of 70% remains uncredited. However, to the extent that the shall be liable for the excess, which has to be paid to the Bureau of
69
69
Internal Revenue (BIR); and created by law, a privilege that also the law can remove, or in this
Third, if the input taxes exceed the output taxes, the excess shall case, limit.
be carried over to the succeeding quarter or quarters. Should the Petitioners also contest as arbitrary, oppressive, excessive and
input taxes result from zero-rated or effectively zero-rated confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of
transactions, any excess over the output taxes shall instead be the NIRC, which provides:
refunded to the taxpayer or credited
70
against other internal revenue
taxes, at the taxpayer’s option. SEC. 110. Tax Credits.—
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on (A) Creditable Input Tax.—. . .
the input tax. Thus, a person can credit his input tax only up to the Provided, That the input tax on goods purchased or imported in a
extent of 70% of the output tax. In layman’s term, the value-added calendar month for use in trade or business for which deduction for
taxes that a person/taxpayer paid and passed on to him by a seller depreciation is allowed under this Code, shall be spread evenly over the
can only be credited up to 70% of the value-added taxes that is due month of acquisition and the fifty-nine (59) succeeding months if the
to him on a taxable transaction. There is no retention of any tax aggregate acquisition cost for such goods, excluding the VAT component
collection because the person/taxpayer has already previously paid thereof, exceeds One million pesos (P1,000,000.00):
the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. 71The party directly liable for the payment of _______________
the tax is the seller. What only needs to be done is for the 72 United Paracale Mining Co. vs. Dela Rosa, G.R. Nos. 63786-87, April 7, 1993, 221 SCRA
person/taxpayer to apply or credit these input taxes, as evidenced 108, 115.
by receipts, against his output taxes. 73 E.O. No. 273, Section 1.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also 74 Section 5.
argue that the input tax partakes the nature of a property that may 75 Section 110(B).
not be confiscated, appropriated, or limited without due process of
law. 135
The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered
person’s entitlement to the creditable input tax is a mere statutory VOL. 469, SEPTEMBER 1, 2005 135
privilege. Abakada Guro Party List vs. Ermita
_______________ 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
69 Section 8, R.A. No. 9337, amending Section 110(A)(B),NIRC. VAT shall be spread over such a shorter period: Provided, finally, That in
70 Ibid. the case of purchase of services, lease or use of properties, the input tax
71 Commissioner of Internal Revenue vs. Benguet Corp., G.R. Nos. 134587 & shall be creditable to the purchaser, lessee or license upon payment of the
134588, July 8, 2005, 463 SCRA 28. compensation, rental, royalty or fee.
134 The foregoing section imposes a 60-month period within which to

amortize the creditable input tax on purchase or importation of
134 SUPREME COURT REPORTS ANNOTATED capital goods with acquisition cost of P1 Million pesos, exclusive of
the VAT component. Such spread out only poses a delay in the
Abakada Guro Party List vs. Ermita crediting of the input tax. Petitioners’ argument is without basis
because the taxpayer is not permanently deprived of his privilege to
The distinction between statutory privileges and vested rights must credit the input tax.
be borne in mind for persons have no vested rights in statutory It is worth mentioning that Congress admitted that the spread-
privileges. The state may change or take away rights, which were out of the creditable input tax in this
76
case amounts to a 4-year
created by the law of the state, although it may72not take away interest-free loan to the government. In the same breath, Congress
property, which was vested by virtue of such rights. also justified its move by saying that the provision
77
was designed to
Under the previous system of single-stage taxation, taxes paid at raise an annual revenue of 22.6 billion. The legislature also
every level of distribution are not recoverable from the taxes dispelled the fear that the provision will fend off foreign
payable, although it becomes part of the cost, which is deductible investments, saying that foreign investors have other tax incentives
from the gross revenue. When Pres. Aquino issued E.O. No. 273 provided by law, and citing the case of China, where despite 78 a
imposing a 10% multi-stage tax on all sales, it was then that the 17.5% non-creditable VAT, foreign investments were not deterred.
crediting of the input tax paid on purchase or importation of goods Again, for whatever is the purpose of the 60-month amortization,
and services73
by VAT-registered persons against the output tax was this involves executive economic policy and legislative wisdom in
introduced.
74
This was adopted by the Expanded VAT Law 75
(R.A. No. which the Court cannot intervene.
7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right With regard to the 5% creditable withholding tax imposed on
to credit input tax as against the output tax is clearly a privilege payments made by the government for taxable transactions, Section
12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:

_______________ (A) Final Withholding Tax.—Under the final withholding tax system the
amount of income tax withheld by the withholding agent is constituted as
76 Journal of the Senate, Session No. 71, March 15, 2005, p. 803.
full and final payment of the income tax due from the payee on the said
77 Id., Session No. 67, March 7, 2005, p. 726.
income. The liability for payment of the tax rests primarily on the payor as
78 Id., Session No. 71, March 15, 2005, p. 803.
a withholding agent. Thus, in case of his failure to withhold the tax or in
136 case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. . . .
(B) Creditable Withholding Tax.—Under the creditable withholding tax
136 SUPREME COURT REPORTS ANNOTATED system, taxes withheld on certain income payments are intended to equal
Abakada Guro Party List vs. Ermita 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
SEC. 114. Return and Payment of Value-added Tax.—
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
(C) Withholding of Value-added Tax.—The Government or any of its
political subdivisions, instrumentalities or agencies, including government- As applied to value-added tax, this means that taxable transactions
owned or controlled corporations (GOCCs) shall, before making payment on with the government are subject to a 5% rate, which constitutes as
account of each purchase of goods and services which are subject to the full payment of the tax payable on the transaction. This represents
value-added tax imposed in Sections 106 and 108 of this Code, deduct and the net VAT payable of the seller. The other 5% effectively accounts
withhold a final value-added tax at the rate of five percent (5%) of the gross for the standard input VAT (deemed input VAT), in lieu of the
payment thereof: Provided, That the payment for lease or use of properties actual input VAT directly or attributable to the taxable
79
or property rights to nonresident owners shall be subject to ten percent transaction.
(10%) withholding tax at the time of payment. For purposes of this Section, The Court need not explore the rationale behind the provision. It
the payor or person in control of the payment shall be considered as the is clear that Congress intended80 to treat differently taxable
withholding agent. transactions with the government. This is supported by the fact
The value-added tax withheld under this Section shall be remitted that under the old provision, the 5% tax withheld
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 79 Revenue Regulations No. 14-2005, 4.114-2(a).
by respondents, a more simplified VAT withholding system. The 80 Commissioner of Internal Revenue vs. Philipine American Accident Insurance
government in this case is constituted as a withholding agent with Company, Inc., G.R. No. 141658, March 18, 2005, 453 SCRA 668.
respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different 138
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 138 SUPREME COURT REPORTS ANNOTATED
payments for services supplied by public work contractors; or 10% Abakada Guro Party List vs. Ermita
on payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these by the government remains creditable against the tax liability of
different rates, except for the 10% on lease or property rights the seller or contractor, to wit:
payment to non-residents, were deleted, and a uniform rate of 5% is
applied. SEC. 114. Return and Payment of Value-added Tax.—
The Court observes, however, that the law the used the word (C) Withholding of Creditable Value-added Tax.—The Government
final. In tax usage, final, as opposed to creditable, means full. Thus, or any of its political subdivisions, instrumentalities or agencies, including
it is provided in Section 114(C): “final value-added tax at the rate of government-owned or controlled corporations (GOCCs) shall, before making
five percent (5%).” payment on account of each purchase of goods from sellers and services
rendered by contractors which are subject to the value-added tax imposed
137
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
VOL. 469, SEPTEMBER 1, 2005 137 purchase of goods and six percent (6%) on gross receipts for services
rendered by contractors on every sale or installment payment which shall
be creditable against the value-added tax liability of the seller or
contractor: Provided, however, That in the case of government public
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 works contractors, the withholding rate shall be eight and one-half percent
(The Tax Reform Act of 1997), the concept of final withholding tax (8.5%): Provided, further, That the payment for lease or use of properties or
on income was explained, to wit: 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
SECTION 2.57. Withholding of Tax at Source

person in control of the payment shall be considered as the withholding 82 Act V, Scene V.
agent. 83 Philippine Rural Electric Cooperatives Association, Inc. vs. Department of
The valued-added tax withheld under this Section shall be remitted Interior and Local Government, G.R. No. 143076, June 10, 2003, 403 SCRA 558, 565.
within ten (10) days following the end of the month the withholding was
140
made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word 140 SUPREME COURT REPORTS ANNOTATED
creditable exhibits Congress’s intention to treat transactions with
the government differently. Since it has not been shown that the Abakada Guro Party List vs. Ermita
class subject to the 5% final withholding tax has been unreasonably
narrowed, there is no reason to invalidate the provision. Petitioners, clear showing of unreasonableness, discrimination, or
84
as petroleum dealers, are not the only ones subjected to the 5% final arbitrariness.
withholding tax. It applies to all those who deal with the Petitioners point out that the limitation on the creditable input
government. tax if the entity has a high ratio of input tax, or invests in capital
Moreover, the actual input tax is not totally lost or uncreditable, equipment, or has several transactions with the government, is not
as petitioners believe. Revenue Regulations No. 14-2005 or the based on real and substantial differences to meet a valid
Consolidated Value-Added Tax Regulations 2005 issued by the BIR, classification.
provides that should the actual input tax exceed 5% of gross The argument is pedantic, if not outright baseless. The law does
payments, the excess may form part of 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
139
methods of assessment, valuation and collection. Petitioners’
alleged distinctions are based on variables that bear different
VOL. 469, SEPTEMBER 1, 2005 139 consequences. While the implementation of the law may yield
varying end results depending on one’s profit margin and value-
added, the Court cannot go beyond what the legislature has laid
down and interfere with the affairs of business.
the cost. Equally, should the actual
81
input tax be less than 5%, the The equal protection clause does not require the universal
difference is treated as income. application of the laws on all persons or things without distinction.
Petitioners also argue that by imposing a limitation on the This might in fact sometimes result in unequal protection. What the
creditable input tax, the government gets to tax a profit or value- clause requires is equality among equals as determined according to
added even if there is no profit or value-added. a valid classification. By classification is meant the grouping of
Petitioners’ stance is purely hypothetical, argumentative, and persons or things similar to each other in certain85 particulars and
again, one-sided. The Court will not engage in a legal joust where different from all others in these same particulars.
premises are what ifs, arguments, theoretical and facts, uncertain. Petitioners brought to the Court’s attention the introduction of
Any disquisition by the Court on this 82
point will only be, as Senate Bill No. 2038 by Sens. S.R. Osmeña III and Ma. Ana
Shakespeare describes life in Macbeth, “full of sound and fury, Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493
signifying nothing.” by Rep. Eric D. Singson. The proposed legislation seeks to amend
What’s more, petitioners’ contention assumes the proposition the 70% limitation by increasing the same to 90%. This, according
that there is no profit or value-added. It need not take an astute to petitioners, supports their stance that the 70% limitation is
businessman to know that it is a matter of exception that a arbitrary and confiscatory. On this
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 84 Aban, Benjamin, Law of Basic Taxation in the Philippines (First Edition 1994).
“no person or class of persons shall be deprived of the same 85 Philippine Judges Association case, supra., note 29.
protection of laws which is enjoyed by other persons
83
or other classes
in the same place and in like circumstances.” 141
The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been VOL. 469, SEPTEMBER 1, 2005 141
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 Abakada Guro Party List vs. Ermita
methods of assessment, valuation and collection, the State’s power
is entitled to presumption of validity. As a rule, the judiciary will score, suffice it to say that these are still proposed legislations.
not interfere with such power absent a Until Congress amends the law, and absent any unequivocal basis
for its unconstitutionality, the 70% limitation stays.
_______________
B. Uniformity and Equitability of Taxation
81 Revenue Regulations No. 14-2005, Sec. 4. 114-2.
Article VI, Section 28(1) of the Constitution reads: imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not
The rule of taxation shall be uniform and equitable. The Congress shall exceeding P1.5 Million. This acts as a equalizer because in effect,
evolve a progressive system of taxation. bigger businesses that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.
Uniformity in taxation means that all taxable articles or kinds of
Moreover, Congress provided mitigating measures to cushion the
property of the same class shall be taxed at the same rate. Different
impact of the imposition of the tax on those previously exempt.
articles may be taxed at different amounts provided that the rate 86is 91
Excise taxes on petroleum products and natural
uniform on the same class everywhere with all people at all times.
In this case, the tax law is uniform as it provides a standard rate
of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 _______________
of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, 88 Section 7, R.A. No. 9337.
of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and 89 Ibid.
properties, importation of goods, and sale of services and use or 90 No. L-81311, June 30, 1988, 163 SCRA 371, 383.
lease of properties. These same sections also provide for a 0% rate 91 Section 17, R.A. No. 9337, amending Section 148, NIRC.
on certain sales and transaction.
Neither does the law make any distinction as to the type of 143
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 VOL. 469, SEPTEMBER 1, 2005 143
must be stressed that the rule of uniform taxation does not deprive Abakada Guro Party List vs. Ermita
Congress of the power to classify subjects of 87taxation, and only
demands uniformity within the particular class. 92
gas were reduced. Percentage tax on domestic carriers was
93
removed.
94
Power producers are now exempt from paying franchise
_______________ tax.
Aside from these, Congress also increased the income tax rates of
86 Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119761,
corporations, in order to distribute the burden of taxation.
August 29, 1996, 261 SCRA 236, 249.
Domestic, foreign, and non-resident corporations are95
now subject to
87 Kee vs. Court of Tax Appeals, No. L-18080, April 22, 1963, 117 Phil. 682, 688; 7
a 35% income tax rate, from a previous 32%. Intercorporate
SCRA 670, 676.
dividends of non-resident foreign corporations are still subject to
142 15% final withholding tax but the tax credit96 allowed on the
corporation’s domicile was increased to 20%. The Philippine
Amusement and Gaming Corporation
97
(PAGCOR) is not exempt
142 SUPREME COURT REPORTS ANNOTATED from income taxes anymore. Even the sale by an artist of his
Abakada Guro Party List vs. Ermita 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
R.A. No. 9337 is also equitable. The law is equipped with a
of taxation, which would otherwise rest largely on the consumers. It
threshold margin. The VAT rate of 0% or 10% (or 12%) does not
cannot therefore be gainsaid that R.A. No. 9337 is equitable.
apply to sales of goods or services with 88
gross annual sales or
receipts not exceeding P1,500,000.00. Also, basic marine and C. Progressivity of Taxation
agricultural
89
food products in their original state are still not subject
to the tax, thus ensuring that prices at the grassroots level will Lastly, petitioners contend that the limitation on the creditable
remain accessible. As was stated in Kapatiran90
ng mga Naglilingkod input tax is anything but regressive. It is the smaller business with
sa Pamahalaan ng Pilipinas, Inc. vs. Tan: higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the tax-payer’s
“The disputed sales tax is also equitable. It is imposed only on sales of
ability to pay. This principle was also lifted from Adam Smith’s
goods or services by persons engaged in business with an aggregate gross
Canons of Taxation, and it states:
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 92 Section 18, amending Section 151, NIRC.
expected to be relatively lower and within the reach of the general public.” 93 Section 14, amending Section 117, NIRC.
94 Section 15, amending Section 119, NIRC.
It is admitted that R.A. No. 9337 puts a premium on businesses
95 Sections 1 and 2, amending Sections 27 and 28, NIRC.
with low profit margins, and unduly favors those with high profit
96 Section 2, amending Section 28, NIRC.
margins. Congress was not oblivious to this. Thus, to equalize the
97 Section 1, amending Section 27(C), NIRC.
weighty burden the law entails, the law, under Section 116,

144 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
99
amending §103 of the NIRC)”
CONCLUSION
I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective It has been said that taxes are the lifeblood of the government. In
abilities; that is, in proportion to the revenue which they respectively enjoy this case, it is just an enema, a first-aid measure to resuscitate an
under the protection of the state. 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
Taxation is progressive when its 98
rate goes up depending on the panacea for the malady that the law seeks to remedy. As in other
resources of the person affected. cases, the Court cannot strike down a law as unconstitutional
The VAT is an antithesis of progressive taxation. By its very simply because of its yokes.
nature, it is regressive. The principle of progressive taxation has no
relation with the VAT system inasmuch as the VAT paid by the Let us not be overly influenced by the plea that for every wrong there is a
consumer or business for every goods bought or services enjoyed is remedy, and that the judiciary should stand ready to afford relief. There
the same regardless of income. In other words, the VAT paid eats are undoubtedly many wrongs the judicature may not correct, for instance,
the same portion of an income, whether big or small. The disparity those involving political questions. . . .
lies in the income earned by a person or profit margin marked by a Let us likewise disabuse our minds from the notion that the judiciary is
business, such that the higher the income or profit margin, the the repository of remedies for all political or social ills; We should not forget
smaller the portion of the income or profit that is eaten by VAT. A that the Constitution has judiciously allocated the powers of government to
converso, the lower the income or profit margin, the bigger the part three distinct and separate compartments; and that judicial interpretation
that the VAT eats away. At the end of the day, it is really the lower has tended to the preservation of the independence of the three, and a
income group or businesses with low-profit margins that is always zealous regard of the prerogatives of each, knowing full well that one is not
hardest hit. the guardian
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
99 Tolentino vs. Secretary of Finance, G.R. No. 115455, October 30, 1995, 249 SCRA 628,
Court stated in the Tolentino case, thus:
659.
“The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that 146
Congress shall ‘evolve a progressive system of taxa-tion.’ The constitutional
provision has been interpreted to mean simply that ‘direct taxes are . . . to 146 SUPREME COURT REPORTS ANNOTATED
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
of the others and that, for official wrong-doing, each may be brought to
to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps 100
account, either by impeachment, trial or by the ballot box.
are
101
The words of the Court in Vera vs. Avelino holds true then, as it
_______________ still holds true now. All things considered, there is no raison d'être
for the unconstitutionality of R.A. No. 9337.
98 Reyes vs. Almanzor, G.R. Nos. 49839-46, April 26, 1991, 196 SCRA 322, 327.
WHEREFORE, Republic Act No. 9337 not being
145 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
VOL. 469, SEPTEMBER 1, 2005 145 implementation of R.A. No. 9337, the temporary restraining order
Abakada Guro Party List vs. Ermita issued by the Court on July 1, 2005 is LIFTED upon finality of
herein decision.
the oldest form of indirect taxes, would have been prohibited with the SO ORDERED.
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. Carpio, J., concur.
Resort to indirect taxes should be minimized but not avoided entirely Davide, Jr. (C.J.), Please see Separate Concurring and
because it is difficult, if not impossible, to avoid them by imposing such Dissenting Opinion.
taxes according to the taxpayers’ ability to pay. In the case of the VAT, the Puno, J., Please see Concurring and Dissenting Opinion.
law minimizes the regressive effects of this imposition by providing for zero Panganiban, J., Please see Separate Opinion.

Quisumbing, J., In the result. 148

Ynares-Santiago, J., I certify that she participated in the
oral arguments and initial deliberations and allows to vote and
submit for separate opinion. Davide, Jr. (C.J.)
Sandoval-Gutierrez, J., Please see my Concurring and Abakada Guro Party List vs. Ermita
Dissenting Opinion.
Corona, J., I join Mme. Justice Sandoval-Gutierrez in her amendment of Sections 106, 107, 108, 109, 110, and 111 of the
concurring and dissenting opinion. National Internal Revenue Code (NIRC) as amended; while the
second (HB No. 3705) proposed amendments to Sections 106, 107,
_______________ 108, 110, and 114 of the NIRC, as amended. It is significant to note
that all these Sections specifically deal with VAT. And indubitably,
100 Vera vs. Avelino, G.R. No. L-543, August 31, 1946, 77 Phil. 365. these bills are revenue bills in that2 they are intended to levy taxes
101 Ibid. and raise funds for the government.
On the other hand, SB No. 1950 introduced amendments to
147
“Sections 27, 28, 34, 106, 108, 109, 110, 111, 112, 113, 114, 116, 117,
118, 119, 125, 148, 236, 237, and 288” of the NIRC, as amended.
VOL. 469, SEPTEMBER 1, 2005 147 Among the provisions sought to be amended, only Sections 106, 108,
Abakada Guro Party List vs. Ermita 109, 110, 111, 112, 113, 114, and 116 pertain to VAT. And while
Sections 236, 237, and 288 are administrative provisions pertaining
to registration requirements and issuance of receipts commercial
Carpio-Morales, J., I concur. I also concur with the dissent invoices, the proposed amendments thereto are related to VAT.
of J. Tinga on Section 8 of the law. Hence, the proposed amendments to these Sections were validly
Callejo, Sr., J., Please See My Concurring and Dissenting taken cognizance of and properly considered by the Bicameral
Opinion. Conference Committee (BCC).
Azcuna, J., Please see Separate Concurring and Dissenting However, I am of the opinion that the inclusion into the law of
opinion. the amendments proposed in SB No. 1950 to the following
Tinga, J., See Dissenting and Concurring Opinion. provisions (with modifications on the rates of taxes) is invalid.
Chico-Nazario, J., Please see Separate Concurring Opinion.
Garcia, J., I also concur with J. Puno insofar as the deletion Provision Subject matter
of no pass on provision is concerned, including Sec. 21.
Section 27 Rate of income tax on domestic corporations
Section 28(A) Rate of income tax on resident foreign corporation
(1)
SEPARATE CONCURRING
AND DISSENTING OPINION Section 28(B) Rate of income tax on non-resident foreign
(1) corporation
DAVIDE, JR., C.J.:

_______________
While I still hold on to my position
1
expressed in my dissenting
2 ISAGANI A. CRUZ, POLITICAL LAW 154 (2002 ed.) citing U.S. v. Nortorn, 91
opinion in the first VAT cases, I partly yield to the application to
U.S. 566.
the cases at bar of the rule on “germaneness” therein enunciated.
Thus, I concur with the ponencia of my highly-esteemed colleague 149
Mme. Justice Ma. Alicia Austria-Martinez except as regards its
ruling on the issue of whether Republic Act No. 9337 violates
Section 24, Article VI of the Constitution. VOL. 469, SEPTEMBER 1, 2005 149
R.A. No. 9337 primarily aims to restructure the value-added tax Abakada Guro Party List vs. Ermita
(VAT) system by broadening its base and raising the rate so as to
generate more revenues for the government that can assuage the Section Rate of income tax on intracorporate dividends received
economic predicament that our country is now facing. This recently 28(B)(5-b) by non-resident foreign corporation
enacted law stemmed from three legislative bills: House Bill (HB)
No. 3555, HB No. 3705, and Senate Bill (SB) 1950. The first (HB Section Deductions from gross income
No. 3555) called for the 34(B)(1)
Section Percentage tax on domestic carriers and keepers of
_______________ 117 garages
Section Tax on franchises
1 Tolentino v. Secretary of Finance, G.R. No. 115455, 25 August 1994, 235 SCRA 119
630, and companion cases.
Section Excise tax on manufactured oils and other fuels
148 other hand, proposed the (1) amendment of Sections 99, 100, 102,
103, 104, 105, 107, 108, 110, 112, 236, 237, and 238 of the NIRC, as
Obviously, these provisions do not deal with VAT. It must be noted amended; and (2) repeal of Sections 113, 114, and 116 of the NIRC,
that the House Bills initiated amendments to provisions pertaining as amended. In short, all the provisions sought to be changed in the
to VAT only. Doubtless, the Senate has the constitutional power to Senate bill were covered in the House bill. Although the new
concur with the amendments to the VAT provisions introduced in provisions inserted by the conference committee were not found in
the House Bills or even to propose its own version of VAT measure.
But that power does not extend to initiation of other tax measures, _______________
such as introducing amendments to provisions on corporate income
taxes, percentage taxes, franchise taxes, and excise taxes like what 3 G.R. No. 105371, 11 November 1993, 27 SCRA 703, 708, citing Davies,
the Senate did in these cases. It was beyond the ambit of the Legislative Law and Process: In a Nutshell 81 (1986 ed.)
authority of the Senate to propose amendments to provisions not 4 Supra note 1.
covered by the House Bills or not related to the subject matter of 151
the House Bills, which is VAT. To allow the Senate to do so would
be tantamount to vesting in it the power to initiate revenue bills—a
power that exclusively pertains to the House of Representatives VOL. 469, SEPTEMBER 1, 2005 151
under Section 24, Article VI of the Constitution, which provides: Abakada Guro Party List vs. Ermita
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase
of the public debt, bills of local application, and private bills shall originate either the House or Senate bills, they were germane to the general
exclusively in the House of Representatives but the Senate may propose or subject of the bills.
concur with amendments. In the present cases, the provisions inserted by the BCC, namely,
Sections 121 (Percentage Tax on Banks and Non-Bank Financial
Moreover, Sections 121 (Percentage Tax on Banks and Non-Bank Intermediaries) and 151 (Excise Tax on Mineral Products) of the
Financial Intermediaries) and 151 (Excise Tax on Mineral Products) NIRC, as amended, are undoubtedly germane to SB No. 1950,
of the NIRC, as amended, have been included by the BCC in R.A. which introduced amendments to the provisions on percentage and
No. 9337 even though they were not found in the Senate and House excise taxes—but foreign to HB Nos. 3555 and 3705, which dealt
Bills. with VAT only. Since the proposed amendments in the Senate bill
relating to percentage and excise taxes cannot themselves be
150
sustained because they did not take their root from, or are not
related to the subject of, HB Nos. 3705 and 3555, in violation of
150 SUPREME COURT REPORTS ANNOTATED Section 24, Article VI of the Constitution, the new provisions
inserted by the BCC on percentage and excise taxes would have no
leg to stand on.
3 I understand very well that the amendments of the Senate and
In Philippine Judges Association v. Prado, the Court described the the BCC relating to corporate income, percentage, franchise, and
function of a conference committee in this wise: “A conference excise taxes were designed to “soften the impact of VAT measure on
committee may deal generally with the subject matter or it may be the consumer, i.e., by distributing the burden across all sectors
limited to resolving the precise differences between the two houses. instead of putting it entirely on the shoulders of the consumers” and
Even where the conference committee is not by rule limited in its to alleviate the country’s financial problems by bringing more
jurisdiction, legislative custom severely limits the freedom with revenues for the government. However, these commendable
which new subject matter can be inserted into the conference bill.” intentions do not justify a deviation from the Constitution, which
The limitation on the power of a conference committee to insert4 mandates that the initiative for filing revenue bills should come
new provisions was laid down in Tolentino v. Secretary of Finance. from the House of Representatives, not from the Senate. After all,
There, the Court, while recognizing the power of a conference these aims may still be realized by means of another bill that may
committee to include in its report an entirely new provision that is later be initiated by the House of Representatives.
not found either in the House bill or in the Senate bill, held that the Therefore, I vote to declare R.A. No. 9337 as constitutional
exercise of that power is subject to the condition that the said insofar as it amends provisions pertaining to VAT. However, I vote
provision is “germane to the subject of the House and Senate bills.” to declare as unconstitutional Sections 1, 2, 3, 14, 15, 16, 17, and 18
As pointed out by the petitioners, Tolentino differs from the thereof which, respectively, amend Sections 27, 28, 34, 117, 119,
present cases in the sense that in that case the amendments 121, 148, and 151 of the NIRC, as amended because these
introduced in the Senate bill were on the same subject matter amendments deal with subject matters which were not touched or
treated in the House bill, which was VAT, and the new provision covered by the bills emanating from the
inserted by the conference committee had relation to that subject
matter. Specifically, HB No. 11197 called for the (1) amendment of 152
Sections 99, 100, 102, 103, 104, 105, 106, 107, 108, 110, 112, 115,
116, 236, 237, and 238 of the NIRC, as amended; and (2) repeal of 152 SUPREME COURT REPORTS ANNOTATED
Sections 113 and 114 of the NIRC, as amended. SB No. 1630, on the
5
Abakada Guro Party List vs. Ermita occur at all.” The ripeness requirement must be satisfied for each
challenged legal provision and parts of a statute so that those which
House of Representatives, thereby violating Section 24 of Article VI are “not immediately involved are not thereby6
thrown open for a
of the Constitution. judicial determination of constitutionality.”
It is manifest that the constitutional challenge to sections 4 to 6
of R.A. No. 9337 cannot hurdle the requirement of ripeness. These
CONCURRING AND DISSENTING OPINION sections give the President the power to raise the VAT rate to 12% on
January 1, 2006 upon satisfaction of certain fact-based conditions.
We are not endowed with the infallible gift of prophesy to know
PUNO, J.:
whether these conditions are certain to happen. The power to adjust
The main opinion of Madam Justice Martinez exhaustively the tax rate given to the President is futuristic and may or may not
discusses the numerous constitutional and legal issues raised by the be exercised. The Court is therefore beseeched to render a
petitioners. Be that as it may, I wish to raise the following points, conjectural judgment based on hypothetical facts. Such a
viz.: supplication has to be rejected.
First. Petitioners assail sections 4 to 6 of Republic Act No. 9337 Second. With due respect, I submit that the most important
as violative of the principle of non-delegation of legislative power. constitutional issue posed by the petitions at bar relates to the
These sections authorize the President, upon recommendation of parameters of power of a Bicameral Conference Com-
the Secretary of Finance, to raise the value-added tax (VAT) rate to
12% effective January 1, 2006, upon satisfaction of the following _______________
conditions: viz.:
3 Id., at p. 87.
(i) Value-added tax collection as a percentage of Gross 4 Abbott Laboratories v. Gardner, 387 U.S. 136 (1967); I Tribe, American
Domestic Product (GDP) of the previous year exceeds two Constitutional Law, p. 334 (3rd ed.).
and four-fifth percent (2 4/5%); or 5 Texas v. United States, 523 U.S. 296 (1998); Thomas v. Union Carbide
Agricultural Products Co., 473 U.S. 568 (1985); I Tribe, American Constitutional
(ii) National government deficit as a percentage of GDP of the
Law, pp. 335-336 (3rd ed.).
previous year exceeds one and one-half percent (1 1/2%).
6 Communist Party of the United States v. Subversive Activities Control Bd., 367
U.S. 1, 71 (1961); I Tribe, American Constitutional Law, p. 336 (3rd ed.); See also
The power of judicial review under Article VIII, section 5(2) of the
concurring opinion of Justice Brandeis in Ashwander v. Tennessee Valley Authority,
1987 Constitution
1
is limited to the review of “actual cases and
297 U.S. 288 (1936).
controversies.” As rightly stressed by retired Justice Vicente V.
Mendoza, this requirement gives the judiciary “the opportunity, 154
denied to the legislature, of seeing the actual operation of the
statute as it is applied to actual facts and thus enables it to reach
sounder judgment” and “enhances public acceptance of its role in 154 SUPREME COURT REPORTS ANNOTATED
2
our system of government.” It also assures that the judiciary does Abakada Guro Party List vs. Ermita
not intrude on areas
mittee. Most of the issues in the petitions at bar arose because the
_______________ Bicameral Conference Committee concerned exercised powers that
went beyond reconciling the differences between Senate Bill No.
1 Angara v. Electoral Commission, 63 Phil. 139 (1936); See also Tribe, American
1950 and House Bill Nos. 3705 and 3555. In Tolentino v. Secretary
Constitutional Law, pp. 311-314 (3rd ed.). 7
of Finance, I ventured the view that a Bicameral Conference
2 Mendoza, Judicial Review of Constitutional Questions: Cases and Materials, p.
Committee has limited powers and cannot be allowed to act as if it
86 (2004).
were a “third house” of Congress. I further warned that unless its
153 roving powers are reigned in, a Bicameral Conference Committee
can wreck the lawmaking process which is a cornerstone of the
democratic, republican regime established in our Constitution. The
VOL. 469, SEPTEMBER 1, 2005 153 passage of time fortifies my faith that there ought to be no legal u-
Abakada Guro Party List vs. Ermita turn on this preeminent principle. I wish,
8
therefore, to reiterate my
reasons for this unbending view, viz.:
committed to the other branches of government
3
and is confined to Section 209, Rule XII of the Rules of the Senate provides:
its role as defined by the Constitution. Apposite thereto is the
doctrine of ripeness whose basic rationale is “to prevent the courts, In the event that the Senate does not agree with the House of Representatives on
through premature adjudication,
4
from entangling themselves in the provision of any bill or joint resolution, the differences shall be settled by a
abstract disagreements.” Central to the doctrine is the conference committee of both Houses which shall meet within ten days after their
determination of “whether the case involves uncertain or contingent composition.
future events that may not occur as anticipated, or indeed may not
5
Each Conference Committee Report shall contain a detailed and sufficiently 156
explicit statement of the changes in or amendments to the subject measure, and
shall be signed by the conferees. (Emphasis supplied)
The counterpart rule of the House of Representatives is cast in near Abakada Guro Party List vs. Ermita
identical language. Section 85 of the Rules of the House of Representatives
pertinently provides: ject of a free and full discussion of both Houses of Congress. With such a
vagrant power, a Bicameral Conference Committee acting as a Third
In the event that the House does not agree with the Senate on the amendments to any
Chamber will be a constitutional monstrosity.
bill or joint resolution, the differences may be settled by a conference committee of
It needs no omniscience to perceive that our Constitution did not provide
both chambers.
for a Congress composed of three chambers. On the contrary, section 1,
Article VI of the Constitution provides in clear and certain language: “The
_______________ legislative power shall be vested in the Congress of the Philippines which
shall consist of a Senate and a House of Representatives . . .” Note that in
7 235 SCRA 630 (1994).
vesting legislative power exclusively to the Senate and the House, the
8 See Opinion in 235 SCRA 630, 805-825.
Constitution used the word “shall.” Its command for a Congress of two
155 houses is mandatory. It is not mandatory sometimes.
In vesting legislative power to the Senate, the Constitution means the
Senate “. . . composed of twenty-four Senators x x x elected at large by the
VOL. 469, SEPTEMBER 1, 2005 155 qualified voters of the Philippines . . .” Similarly, when the Constitution
Abakada Guro Party List vs. Ermita vested the legislative power to the House, it means the House “. . .
composed of not more than two hundred and fifty members x x x who shall
be elected from legislative districts x x x and those who x x x shall be
x x x. Each report shall contain a detailed, sufficiently explicit statement of the
elected through a party-list system of registered national, regional, and
changes in or amendments to the subject measure. (Emphasis supplied)
sectoral parties or organizations.” The Constitution thus, did not vest on a
The Jefferson’s Manual has been adopted as a supplement to our Bicameral Conference Committee with an ad hoc membership the power to
parliamentary rules and practice. Section 456 of Jefferson’s Manual legislate for it exclusively vested legislative power to the Senate and the
similarly confines the powers of a conference committee, viz.: House as co-equal bodies. To be sure, the Constitution does not mention the
Bicameral Conference Committees of Congress. No constitutional status is
The managers of a conference must confine themselves to the differences committed accorded to them. They are not even statutory creations. They owe their
to them …a and may not include subjects not within the disagreements, even existence from the internal rules of the two Houses of Congress. Yet,
though germane to a question in issue. respondents peddle the disconcerting idea that they should be recognized as
a Third Chamber of Congress and with ex post veto power at that.
This rule of antiquity has been honed and honored in practice by the
The thesis that a Bicameral Conference Committee can exercise law
Congress of the United States. Thus, it is chronicled by Floyd Biddick,
making power with ex post veto power is freighted with mischief. Law
Parliamentarian Emeritus of the United States Senate, viz.:
making is a power that can be used for good or for ill, hence, our
Committees of conference are appointed for the sole purpose of compromising Constitution carefully laid out a plan and a procedure for its exercise.
and adjusting the differing and conflicting opinions of the two Houses and Firstly, it vouchsafed that the power to make laws should be exercised by
the committees of conference alone can grant compromises and modify propositions no other body except the Senate and the House. It ought to be indubitable
of either Houses within the limits of the disagreement. Conferees are limited to the that what is contemplated is the Senate acting as a full Senate and the
consideration of differences between the two Houses. House acting as a full House. It is only when the Senate and the House act
Congress shall not insert in their report matters not committed to them as whole bodies that they truly represent the people. And it is only when
by either House, nor shall they strike from the bill matters agreed to by they represent
both Houses. No matter on which there is nothing in either the Senate or House
157
passed versions of a bill may be included in the conference report and actions to the
contrary would subject the report to a point of order. (Emphasis ours)
VOL. 469, SEPTEMBER 1, 2005 157
In fine, there is neither a sound nor a syllable in the Rules of the Senate
and the House of Representatives to support the thesis of the respondents Abakada Guro Party List vs. Ermita
that a bicameral conference committee is clothed with an ex post veto
power. the people that they can legitimately pass laws. Laws that are not enacted
But the thesis that a Bicameral Conference Committee can wield ex post by the people’s rightful representatives subvert the people’s sovereignty.
veto power does not only contravene the rules of both the Senate and the Bicameral Conference Committees, with their ad hoc character and limited
House. It wages war against our settled ideals of representative democracy. membership, cannot pass laws for they do not represent the people. The
For the inevitable, catastrophic effect of the thesis is to install a Bicameral Constitution does not allow the tyranny of the majority. Yet, the
Conference Committee as the Third Chamber of our Congress, similarly respondents will impose the worst kind of tyranny—the tyranny of the
vested with the power to make laws but with the dissimilarity that its laws minority over the majority. Secondly, the Constitution delineated in deft
are not the sub- strokes the steps to be followed in making laws. The overriding purpose of

these procedural rules is to assure that only bills that successfully survive package, i.e., together with the insertions and deletions. And the vote is
the searching scrutiny of the proper committees of Congress and the full either “aye” or “nay,” without any further debate and deliberation. Quite
and unfettered deliberations of both Houses can become laws. For this often, legislators vote “yes” because they approve of the bill as a whole
reason, a bill has to undergo three (3) mandatory separate readings in each although they may object to its amendments by the Conference Committee.
House. In the case at bench, the additions and deletions made by the This lack of real choice is well observed by Robert Luce:
Bicameral Conference Committee did not enjoy the enlightened studies of
Their power lies chiefly in the fact that reports of conference committees must be
appropriate committees. It is meet to note that the complexities of modern
accepted without amendment or else rejected in toto. The impulse is to get done
day legislations have made our committee system a significant part of the
with the matter and so the motion to accept has undue advantage, for some
legislative process. Thomas Reed called the committee system as “the eye,
members are sure to prefer swallowing unpalatable provisions rather than prolong
the ear, the hand, and very often the brain of the house.” President
controversy. This is the more likely if the report comes in the rush of business
Woodrow Wilson of the United States once referred to the government of
toward the end of a session, when to seek further conference might result in the loss
the United States as “a government by the Chairmen of the Standing
of the measure altogether. At any time in the session there is some risk of such a
Committees of Congress …”” Neither did these additions and deletions of
result following the rejection of a conference report, for it may not be possible to
the Bicameral Conference Committee pass through the coils of collective
secure a second con-
deliberation of the members of the two Houses acting separately. Due to
this short-circuiting of the constitutional procedure of making laws,
159
confusion shrouds the enactment of R.A. No. 7716. Who inserted the
additions and deletions remains a mystery. Why they were inserted is a
riddle. To use a Churchillian phrase, lawmaking should not be a riddle VOL. 469, SEPTEMBER 1, 2005 159
wrapped in an enigma. It cannot be, for Article II, section 28 of the Abakada Guro Party List vs. Ermita
Constitution mandates the State to adopt and implement a “policy of full
public disclosure of all its transactions involving public interest.” The ference, or delay may give opposition to the main proposal chance to develop more
Constitution could not have contemplated a Congress of invisible and strength.
unaccountable John and Mary Does. A law whose rationale is a riddle and
whose authorship is obscure cannot bind the people. In a similar vein, Prof. Jack Davies commented that “conference reports
All these notwithstanding, respondents resort to the legal cosmetology are returned to assembly and Senate on a take-it or leave-it-basis, and the
that these additions and deletions should govern the people as laws bodies are generally placed in the position that to leave-it is a practical
because the Bicameral Conference Committee Report was anyway impossibility.” Thus, he concludes that “conference committee action is the
submitted to and approved by the Senate and the House of most undemocratic procedure in the legislative process.”
Representatives. The submission may have some merit with respect The respondents also contend that the additions and deletions made by
the Bicameral Conference Committee were in accord with legislative
158 customs and usages. The argument does not persuade for it misappreciates
the value of customs and usages in the hierarchy of sources of legislative
158 SUPREME COURT REPORTS ANNOTATED rules of procedure. To be sure, every legislative assembly has the inherent
right to promulgate its own internal rules. In our jurisdiction, Article VI,
section 16(3) of the Constitution provides that “Each House may determine
the rules of its proceedings x x x.” But it is hornbook law that the sources of
to provisions agreed upon by the Committee in the process of reconciling Rules of Procedure are many and hierarchical in character. Mason laid
conflicts between S.B. No. 1630 and H.B. No. 11197. In these instances, the them down as follows:
conflicting provisions had been previously screened by the proper
committees, deliberated upon by both Houses and approved by them. It is, xxx
however, a different matter with respect to additions and deletions which
were entirely new and which were made not to reconcile inconsistencies 1. Rules of Procedure are derived from several sources. The principal sources
between S.B. No. 1630 and H.B. No. 11197. The members of the Bicameral are as follows:
Conference Committee did not have any authority to add new provisions or
a. Constitutional rules.
delete provisions already approved by both Houses as it was not necessary
to discharge their limited task of reconciling differences in bills. At that b. Statutory rules or charter provisions.
late stage of law making, the Conference Committee cannot add/delete c. Adopted rules.
provisions which can become laws without undergoing the study and d. Judicial decisions.
deliberation of both chambers given to bills on 1st, 2nd, and 3rd readings. e. Adopted parliamentary authority.
Even the Senate and the House cannot enact a law which will not undergo f. Parliamentary law.
these mandatory three (3) readings required by the Constitution. If the
g. Customs and usages.
Senate and the House cannot enact such a law, neither can the lesser
Bicameral Conference Committee. 2. The rules from the different sources take precedence in the order
Moreover, the so-called choice given to the members of both Houses to listed above except that judicial decisions, since they are interpretations of rules
either approve or disapprove the said additions and deletions is more of an from one of the other sources, take the same precedence as the source interpreted.
optical illusion. These additions and deletions are not submitted separately
for approval. They are tucked to the entire bill. The vote is on the bill as a
Thus, for example, an interpretation of a constitutional provision takes precedence the sheriff’s return. Indeed, they had the same origin, that is, the sheriff was an
over a statute. officer of the king and likewise the parliamentary act was a regal act and no official
3. Whenever there is conflict between rules from these sources the rule might dispute the king’s word. Transposed to our democratic system of government,
from the source listed earlier courts held that as the legislature was an official branch of government the court
must indulge every presumption that the legislative act was valid. The doctrine of
160 separation of powers was advanced as a strong reason why the court should treat
the acts of a co-ordinate branch of government with the same respect as it treats the
160 SUPREME COURT REPORTS ANNOTATED action of its own officers; indeed, it was thought that it was entitled to even greater
respect, else the court might be in the position of reviewing the work of a
supposedly equal branch of government. When these arguments failed, as they
frequently did, the doctrine of convenience was advanced, that is, that it was not
prevails over the rule from the source listed later. Thus, where the
only an undue burden upon the legislature to preserve its records to meet the attack
Constitution requires three readings of bills, this provision controls over any
of persons not affected by the procedure of enactment, but also that it unnecessarily
provision of statute, adopted rules, adopted manual, or of parliamentary law, and a
complicated litigation and confused the trial of substantive issues.
rule of parliamentary law controls over a local usage but must give way to any rule
Although many of these arguments are persuasive and are indeed the basis for
from a higher source of authority. (Emphasis ours)
the rule in many states today, they are not invulnerable to attack. The rule most
As discussed above, the unauthorized additions and deletions made by relied on—the sheriff’s return or sworn official rule—did not in civil litigation
the Bicameral Conference Committee violated the procedure fixed by the deprive the injured party of an action, for always he could sue the sheriff upon his
Constitution in the making of laws. It is reasonless for respondents official bond. Likewise, although collateral attack was not permitted, direct attack
therefore to justify these insertions as sanctioned by customs and usages. permitted raising the issue of fraud, and at a later date attack in equity was also
Finally, respondents seek sanctuary in the conclusiveness of an enrolled available; and that the evidence of the sheriff was not of unusual weight was
bill to bar any judicial inquiry on whether Congress observed our demonstrated by the fact that in an action against the sheriff no presumption of its
constitutional procedure in the passage of R.A. No. 7716. The enrolled bill authenticity prevailed.
theory is a historical relic that should not continuously rule us from the
162
fossilized past. It should be immediately emphasized that the enrolled bill
theory originated in England where there is no written constitution and
where Parliament is supreme. In this jurisdiction, we have a written 162 SUPREME COURT REPORTS ANNOTATED
constitution and the legislature is a body of limited powers. Likewise, it Abakada Guro Party List vs. Ermita
must be pointed out that starting from the decade of the 40s, even
American courts have veered away from the rigidity and unrealism of the The argument that the enrolled bill is a “record” and therefore unimpeachable is
conclusiveness of an enrolled bill. Prof. Sutherland observed: likewise misleading, for the correction of records is a matter of established judicial
procedure. Apparently, the justification is either the historical one that the king’s
xxx
word could not be questioned or the separation of powers principle that one branch
Where the failure of constitutional compliance in the enactment of statutes is not
of the government must treat as valid the acts of another.
discoverable from the face of the act itself but may be demonstrated by recourse to
Persuasive as these arguments are, the tendency today is to avoid
the legislative journals, debates, committee reports or papers of the governor, courts
reaching results by artificial presumptions and thus it would seem
have used several conflicting theories with which to dispose of the issue. They have
desirable to insist that the enrolled bill stand or fall on the basis of the
held: (1) that the enrolled bill is conclusive and like the sheriff’s return cannot be
relevant evidence which may be submitted for or against it. (Emphasis ours)
attacked; (2) that the enrolled bill is prima facie correct and only in case the
legislative journal shows affirmative contradiction of the constitutional requirement
Thus, as far back as the 1940s, Prof. Sutherland confirmed that “x x x
will the bill be held invalid; (3) that although the enrolled bill is prima facie correct,
the tendency seems to be toward the abandonment of the conclusive
evidence from the journals, or other extrinsic sources is admissible to strike the bill
presumption rule and the adoption of the third rule leaving only a prima
down; (4) that the legislative journal is conclusive and the enrolled bills is valid only
facie presumption of validity which may be attacked by any authoritative
if it accords with the recital in the journal and the constitutional procedure.
source of information.
161
Third. I respectfully submit that it is only by strictly following the
contours of powers of a Bicameral Conference Committee, as
VOL. 469, SEPTEMBER 1, 2005 161 delineated by the rules of the House and the Senate, that we can
prevent said Committee from acting as a “third” chamber of
Congress. Under the clear rules of both the Senate and House, its
power can go no further than settling differences in their bills or
Various jurisdictions have adopted these alternative approaches in view of joint resolutions. Sections 88 and 89, Rule XIV of the Rules of the
strong dissent and dissatisfaction against the philosophical underpinnings House of Representatives provide as follows:
of the conclusiveness of an enrolled bill. Prof. Sutherland further observed:
Sec. 88. Conference Committee.—In the event that the House does not agree
x x x. Numerous reasons have been given for this rule. Traditionally, an enrolled with the Senate on the amendment to any bill or joint resolution, the
bill was “a record” and as such was not subject to attack at common law. Likewise, differences may be settled by the conference committees of both chambers.
the rule of conclusiveness was similar to the common law rule of the inviolability of
In resolving the differences with the Senate, the House panel shall, as the chamber that created it “for the latter’s appropriate action.” In
much as possible, adhere to and support the House Bill. If the differences other words, it must take the proper instructions from the chambers
with the Senate are so substantial that they materially impair the House that created it. It cannot exercise its unbridled discretion. Where
Bill, the panel shall report such fact to the House for the latter’s there is no difference between the bills, it cannot make any change.
appropriate action. Where the difference is substantial, it has to return to the chamber
of its origin and ask for appropriate instructions. It ought to be
163 indubitable that it cannot create a new law, i.e., that which has
never been discussed in either chamber of Congress. Its parameters
VOL. 469, SEPTEMBER 1, 2005 163 of power are not porous, for they are hedged by the clear limitation
that its only power is to settle differences in bills and joint
Abakada Guro Party List vs. Ermita resolutions of the two chambers of Congress.
Fourth. Prescinding from these premises, I respectfully submit
Sec. 89. Conference Committee Reports.—. . . Each report shall contain a that the following acts of the Bicameral Conference Committee
detailed, sufficiently explicit statement of the changes in or amendments to constitute grave abuse of discretion amounting to lack or excess of
the subject measure. jurisdiction and should be struck down as unconstitutional nullities,
... viz.:
The Chairman of the House panel may be interpellated on the a. Its deletion of the pro poor “no pass on provision” which is
Conference Committee Report prior to the voting thereon. The House shall common in both Senate Bill No.91950 and House Bill No. 3705.
vote on the Conference Committee Report in the same manner and Sec. 1 of House Bill No. 3705 provides:
procedure as it votes a bill on third and final reading.
Section 106 of the National Internal Revenue Code of 1997, as amended, is
Section 35, Rule XII of the Rules of the Senate states: hereby further amended to read as follows:
Sec. 35. In the event that the Senate does not agree with the House of SEC. 106. Value-added Tax on Sale of Goods or Properties.—
Representatives on the provision of any bill or joint resolution, the xxx
differences shall be settled by a conference committee of both Houses which Provided, further, that notwithstanding the provision of the second paragraph of
shall meet within ten (10) days after their composition. The President shall Section 105 of this Code, the Value-added Tax herein levied on the sale of petroleum
designate the members of the Senate Panel in the conference committee products under Subparagraph (1) hereof shall be paid and absorbed by the
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
9 H.B. No. 3555 has no “no pass on provision.” House Bill No. 3705 expresses the latest
subject measure, and shall be signed by a majority of the members of each
intent of the House on the matter.
House panel, voting separately.
165
The House rule brightlines the following: (1) the power of the
Conference Committee is limited . . . it is only to settle differences
with the Senate; (2) if the differences are substantial, the VOL. 469, SEPTEMBER 1, 2005 165
Committee must report to the House for the latter’s appropriate Abakada Guro Party List vs. Ermita
action; and (3) the Committee report has to be voted upon in the
same manner and procedure as a bill on third and final reading. sellers of petroleum products who shall be prohibited from passing on the
Similarly, the Senate rule underscores in crimson that (1) the power cost of such tax payments, either directly or indirectly[,] to any consumer
of the Committee is limited - - - to settle differences with the House; in whatever form or manner, it being the express intent of this act that the
(2) it can make changes or amendments only in the discharge of this Value-added Tax shall be borne and absorbed exclusively by the sellers of petroleum
limited power to settle differences with the House; and (3) the products x x x.
changes or amendments are merely recommendatory for they still
have to be approved by the Senate. Sec. 3 of the same House bill provides:
Under both rules, it is obvious that a Bicameral Conference
Committee is a mere agent of the House or the Senate with limited Section 108 of the National Internal Revenue Code of 1997, as amended, is
powers. The House contingent in the Committee can- hereby further amended to read as follows:
164 Sec. 108. Value-added Tax on Sale of Goods or Properties.—

Provided, further, that notwithstanding the provision of the second paragraph of
Section 105 of this Code, the Value-added Tax imposed under this paragraph shall
164 SUPREME COURT REPORTS ANNOTATED be paid and absorbed by the subject generation companies who shall be
Abakada Guro Party List vs. Ermita prohibited from passing on the cost of such tax payments, either directly
or indirectly[,] to any consumer in whatever form or manner, it being the
express intent of this act that the Value-added Tax shall be borne and absorbed
not, on its own, settle differences which are substantial in character.
exclusively [by] the power-generating companies.
If it is confronted with substantial differences, it has to go back to
In contrast and comparison, Sec. 5 of Senate Bill No. 1950 provides: VOL. 469, SEPTEMBER 1, 2005 167
Value-added Tax on sale of Services and Use or Lease of Properties.—
x x x Provided, that the VAT on sales of electricity by generation
companies, and services of transmission companies and distribution not, on its own, act on this substantial conflict. It has to seek
companies, as well as those of franchise grantees of electrical utilities shall guidance from the chamber that created it. It must receive proper
not apply to residential end-users: Provided, that the Value-added Tax instructions from its principal, for it is the law of nature that no
herein levied shall be absorbed and paid by the generation, transmission spring can rise higher than its source. The records of both the
and distribution companies concerned. The said companies shall not Senate and the House do not reveal that this step was taken by the
pass on such tax payments to NAPOCOR or ultimately to the members of the Bicameral Conference Committee. They bypassed
consumers, including but not limited to residential end users, either as their principal and ran riot with the exercise of powers that the
costs or in any other form whatsoever, directly or indirectly. x x x. rules never bestowed on them.
b. Even more constitutionally obnoxious are the added
166 restrictions on local government’s use of incremental revenue from
the VAT in Section 21 of R.A. No. 9337 which were not present in the
Senate or House Bills. Section 21 of R.A. No. 9337 provides:
Abakada Guro Party List vs. Ermita Fifty percent of the local government unit’s share from VAT shall be
allocated and used exclusively for the following purposes:
Even the faintest eye contact with the above provisions will reveal 1. Fifteen percent (15%) for public elementary and secondary
that: (a) both the House bill and the Senate bill prohibited the education to finance the construction of buildings, purchases of
passing on to consumers of the VAT on sales of electricity and (b) school furniture and in-service teacher trainings;
the House bill prohibited the passing on to consumers of the VAT on
2. Ten percent (10%) for health insurance premiums of enrolled
sales of petroleum products while the Senate bill is silent on the
indigents as a counterpart contribution of the local government to
prohibition.
sustain the universal coverage of the national health insurance
In the guise of reconciling disagreeing provisions of the House
program;
and the Senate bills on the matter, the Bicameral Conference
Committee deleted the “no pass on provision” on both the sales of 3. Fifteen percent (15%) for environmental conservation to fully
electricity and petroleum products. This action by the Committee is implement a comprehensive national reforestation program; and
not warranted by the rules of either the Senate or the House. As 4. Ten percent (10%) for agricultural modernization to finance the
aforediscussed, the only power of a Bicameral Conference construction of farm-to-market roads and irrigation facilities.
Committee is to reconcile disagreeing provisions in the bills or joint
resolutions of the two houses of Congress. The House and the Such allocations shall be segregated as separate trust funds by the
Senate bills both prohibited the passing on to consumers of the VAT national treasury and shall be over and above the annual appropriation for
on sales of electricity. The Bicameral Conference Committee cannot similar purposes.
override this unequivocal decision of the Senate and the House. Nor
These amendments did not harmonize conflicting provisions
is it clear that there is a conflict between the House and Senate
between the constituent bills of R.A. No. 9337 but are entirely new
versions on the “no pass on provisions” of the VAT on sales of
and extraneous concepts which fall beyond the median thereof. They
petroleum products. The House version contained a “no pass on
transgress the limits of the Bicameral Conference Committee’s
provision” but the Senate had none. Elementary logic will tell us
authority and must be struck down.
that while there may be a difference in the two versions, it does not
necessarily mean that there is a disagreement or conflict between the 168
Senate and the House. The silence of the Senate on the issue cannot
be interpreted as an outright opposition to the House decision
prohibiting the passing on of the VAT to the consumers on sales of 168 SUPREME COURT REPORTS ANNOTATED
petroleum products. Silence can even be conformity, albeit implicit Abakada Guro Party List vs. Ermita
in nature. But granting for the nonce that there is conflict between
the two versions, the conflict cannot escape the characterization as I cannot therefore subscribe to the thesis of the majority that “the
a substantial difference. The seismic consequence of the deletion of changes introduced by the Bicameral Conference Committee on
the “no pass on provision” of the VAT on sales of petroleum products disagreeing provisions were meant only to reconcile and harmonize
on the ability of our consumers, especially on the roofless and the the disagreeing provisions for it did not inject any idea or intent that
shirtless of our society, to survive the onslaught of spiraling prices is wholly foreign to the subject embraced by the original provisions.”
ought to be beyond quibble. The rules require that the Bicameral Fifth. The majority further defends the constitutionality of the
Conference Committee should above provisions by holding that “all the changes or modifications
167 were germane to subjects of the provisions referred to it for
reconciliation.”

With due respect, it is high time to re-examine the test of relation to each other or to the subject specified in the title, by which measures were
germaneness proffered in Tolentino. often adopted without attracting attention. Such distinct subjects represented
The test of germaneness is overly broad and is the fountainhead diverse interests, and were combined in order to unite the members of the legislature
of mischief for it allows the Bicameral Conference Committee to who favor either in support of all. These combinations were corruptive of the
change provisions in the bills of the House and the Senate when legislature and dangerous to the State. Such omnibus bills sometimes included more
they are not even in disagreement. Worse still, it enables the than a hundred sections on as many different subjects, with a title appropriate to the
Committee to introduce amendments which are entirely new and first section, and for other purposes.”
have not previously passed through the coils of scrutiny of the “The failure to indicate in the title of the bill the object intended to be
members of both houses. The Constitution did not establish a accomplished by the legislation often resulted in members voting ignorantly for
Bicameral Conference Committee that can act as a “third house”of measures which they would not knowingly have approved; and not only were
Congress with super veto power over bills passed by the Senate and legislators thus misled, but the public also; so that legislative provisions were
the House. We cannot concede that super veto power without steadily pushed through in the closing hours of a session, which, having no merit to
wrecking the delicate architecture of legislative power so carefully commend them, would have been made odious by popular discussion
laid down in our Constitution. The clear intent of our fundamental
170
law is to install a lawmaking structure composed only of two houses
whose members would thoroughly debate proposed legislations in
representation of the will of their respective constituents. The 170 SUPREME COURT REPORTS ANNOTATED
institution of this law making structure is unmistakable from the
following provisions: (1) requiring that
10
legislative power shall be
vested in a bicameral legislature; (2) providing for quorum
require- that bills undergo three readings on separate days in each House
prior to passage into
14
law and prohibiting amendments on the last
_______________
reading thereof. A Bicameral Conference Committee with
untrammeled powers will destroy this lawmaking structure. At the
10 1 Sutherland Statutory Construction § 6:2 (6th ed.): The provision requiring very least, it will diminish the free and open debate of proposed
that legislative power shall be vested in a bicameral legislature seeks to “assure legislations and facilitate the smuggling of what purports to be laws.
sound judgment that comes from sepa- On this point, Mr. Robert Luce’s disconcerting observations are
apropos:
169
“Their power lies chiefly in the fact that reports of conference committees
must be accepted without amendment or else rejected in toto. The impulse
VOL. 469, SEPTEMBER 1, 2005 169
is to get done with the matters and so the motion to accept has
Abakada Guro Party List vs. Ermita undue advantage, for some members are sure to prefer swallowing
unpalatable provisions rather than prolong controversy. This is
11
ments; (3) requiring that appropriation, revenue or tariff bills, more likely if the report comes in the rush of business toward the end of the
bills authorizing increase of public debt, bills of local application, session, when to seek further conference might result in the loss of the
and private bills originate exclusively in the House of measure altogether. At any time in the session there is some risk of such a
12
Representatives; (4) requiring that bills embrace one subject result follow-
13
expressed in the title thereof; and (5) mandating
_______________
_______________ and remonstrance if their pendency had been seasonably announced. The constitutional
clause under discussion is intended to correct these evils; to prevent such corrupting
rate deliberations and actions in the respective bodies that check and balance
aggregations of incongruous measures, by confining each act to one subject or object; to
each other.”
prevent surprise and inadvertence by requiring that subject or object to be expressed in the
11 Const., Article VI, Section 16(2) (1987): “(2) A majority of each House shall
title.”
constitute a quorum to do business, but a smaller number may adjourn from day to
14 Const., Article VI, Section 26(2) (1987); 1 Sutherland Statutory Construction § 10:4 (6th
day and may compel the attendance of absent Members in such manner, and under
ed.); See also IV Laurel, Journal of the (1935) Constitutional Convention, pp. 436-437, 440-441
such penalties, as such House may provide.”
where the 1934 Constitutional Convention noted the anomalous legislative practice of
12 Const., Article VI, Section 24 (1987); 1 Sutherland Statutory Construction § 9:6
railroading bills on the last day of the legislative year when members of Congress were eager
(6th ed.): The provision helps guarantee that the exercise of the taxing power is well
to go home. By this irregular procedure, legislators were able to successfully insert matters
studied as the lower house is “presumably more representative in character.”
into bills which would not otherwise stand scrutiny in leisurely debate; I Cooley, A Treatise on
13 Const., Article VI, Section 26(1) (1987); I Cooley, A Treatise on Constitutional
the Constitutional Limitations, pp. 286-287 (8th ed.); Smith v. Mitchell, 69 W.Va 481, 72 S.E.
Limitations, p. 143; Central Capiz v. Ramirez, 40 Phil. 883 (1920): “In the
755 (1911): “The purpose of this provision of the Constitution is to inform legislators and
construction and application of this constitutional restriction the courts have kept
people of legislation proposed by a bill, and to prevent hasty legislation.”
steadily in view the correction of the mischief against which it was aimed. The object
is to prevent the practice, which was common in all legislative bodies where no such 171
restrictions existed of embracing in the same bill incongruous matters having no

VOL. 469, SEPTEMBER 1, 2005 171 interpose its checking powers over mere violations of the internal
16
Abakada Guro Party List vs. Ermita rules of Congress. In Arroyo, et al. v. de Venecia, et al., we ruled
that when the violations affect private rights or impair the
ing the rejection of a conference report, for it may not be possible to secure Constitution, the Court has all the power, nay, the duty to strike
a second conference, or delay may give opposition to the main proposal them down.
chance to develop more strength. In conclusion, I wish to stress that this is not the first time nor
x x x x x x x x x will it be last that arguments will be foisted for the Court to merely
Entangled in a network of rule and custom, the Representative who wink at assaults on the Constitution on the ground of some national
resents and would resist this theft of his rights, finds himself helpless. interest, sometimes clear and at other times inchoate. To be sure, it
Rarely can be vote, rarely can he voice his mind, in the matter of any cannot be gainsaid that the country is in the vortex of a financial
fraction of the bill. Usually he cannot even record himself as protesting crisis. The broadsheets scream the disconcerting news that our debt
against some one feature while accepting the measure as whole. Worst of payments for the year 2006 will exceed Pph1 billion daily for
all, he cannot by argument or suggested change, try to improve what the interest alone. Experts underscore some factors that will further
other branch has done. drive up the debt service expenses such as the devaluation 17
of the
This means more than the subversion of individual rights. It means to peso, credit downgrades and a spike in interest rates. But no
a degree the abandonment of whatever advantage the bicameral doomsday scenario will ever justify the thrashing of the
system may have. By so much it in effect transfers the lawmaking Constitution. The Constitution is meant to be our rule both in good
power to small group of members who work out in private a times as in bad times. It is the Court’s uncompromising obligation
decision that almost always prevails. What is worse, these men are not to defend the Constitution at all times lest it be condemned as an
chosen in a way to ensure the wisest choice. It has become the practice to irrelevant relic.
name as conferees the ranking members of the committee, so that the
accident of seniority determines. Exceptions are made, but in general it is _______________
not a question of who are most competent to serve. Chance governs,
sometimes giving way to favor, rarely to merit. 16 268 SCRA 269, 289 (1997).
x x x x x x x x x 17 The Manila Standard Today, August 26, 2005, p. 1.
Speaking broadly, the system of legislating by conference committee is
173
unscientific and therefore defective. Usually it forfeits the benefit of
scrutiny and judgment by all the wisdom available. Uncontrolled,
it is inferior to that process by which every amendment is secured VOL. 469, SEPTEMBER 1, 2005 173
15
independent discussion and vote. . . .” Abakada Guro Party List vs. Ermita
_______________
WHEREFORE, I concur with the majority but dissent on the
15 235 SCRA 630, 783-784 citing Luce, Legislative Procedure, pp. 404-405, 407 following points:
(1922); See also Davies, Legislative Law and Process, p. 81 (2nd ed.): “conference
a) I vote to withhold judgment on the constitutionality of the
reports are returned to assembly and Senate on a take-it or leave-it-basis, and the
“standby authority” in Sections 4 to 6 of Republic Act No.
bodies are generally placed in the position that to leave-it is a practical
9337 as this issue is not ripe for adjudication.;
impossibility.” Thus, he concludes that “conference committee action is the most
undemocratic procedure in the legislative process.” b) I vote to declare unconstitutional the deletion by the
Bicameral Conference Committee of the pro poor “no pass on
172 provision” on electricity to residential consumers as it
contravened the unequivocal intent of both Houses of
Congress; and
c) I vote to declare Section 21 of Republic Act No. 9337 as
Abakada Guro Party List vs. Ermita unconstitutional as it contains extraneous provisions not
found in its constituent bills.
It cannot be overemphasized that in a republican form of
government, laws can only be enacted by all the duly elected
representatives of the people. It cuts against conventional wisdom
in democracy to lodge this power in the hands of a few or in the SEPARATE OPINION
claws of a committee. It is for these reasons that the argument that
we should overlook the excesses of the Bicameral Conference PANGANIBAN, J.:
Committee because its report is anyway approved by both houses is
a futile attempt to square the circle for an unconstitutional act is The ponencia written by the esteemed Madame Justice Ma. Alicia
void and cannot be redeemed by any subsequent ratification. Austria-Martinez declares that the enrolled bill doctrine has been
Neither can we shut our eyes to the unconstitutional acts of the historically and uniformly upheld in our country. Cited as recent
Bicameral Conference Committee by holding that the Court cannot
reiterations of this1 doctrine are the two Tolentino v. 2Secretary of expenditures. Each bill goes through several stages in each House. The first stage,
Finance judgments and Fariñas v. Executive Secretary. called the first reading, is a mere for-
Precedence of Mandatory 175

Constitutional Provisions
Over the Enrolled Bill Doctrine VOL. 469, SEPTEMBER 1, 2005 175
3
I believe, however, that the enrolled bill doctrine is not absolute. It Abakada Guro Party List vs. Ermita
may be all-encompassing in some countries like
7
the doctrine from which it originated could be modified accordingly
_______________ by our Constitution.
In fine, the enrolled bill doctrine applies mainly to the internal
1 235 SCRA 630, August 25, 1994; and 249 SCRA 628, October 30, 1995. The rules and processes followed by Congress in its principal duty of
second case is an en banc Resolution on the Motions for Reconsideration of the first lawmaking. However, when the Constitution imposes certain
case. conditions, restrictions or limitations on the exercise of
2 417 SCRA 503, December 10, 2003. congressional prerogatives, the judiciary has both the power and
3 “[I]t is well-settled that the enrolled bill doctrine is conclusive upon the courts as the duty to strike down congressional actions that are done8in plain
regards the tenor of the measure passed by Con- contravention of such conditions, restrictions or limitations. Insofar
174
as the present case is concerned, the three most important
restrictions or limitations to the enrolled bill doctrine are the
“origination,” “no-amendment” and “three-reading” rules which I
174 SUPREME COURT REPORTS ANNOTATED will discuss later.
Abakada Guro Party List vs. Ermita Verily, these restrictions or limitations 9
to the enrolled bill
doctrine are safeguarded by the expanded constitutional mandate
4 of the judiciary “to determine whether or not there has been a grave
Great Britain, but as applied to our jurisdiction, it must yield to abuse of discretion amounting to lack or excess of jurisdiction10on the
mandatory provisions of our 1987 Constitution.
5
The Court can6 take part of any branch or instrumentality of the government.” Even
judicial notice of the form of government in Great Britain. It is the ponente of Tolentino,
11
unlike that in our country and, therefore,

_______________
_______________
mality. The second—the second reading—is when general principles of the
gress and approved by the President.” Resins Inc. v. Auditor General, 134 Phil. bill are debated upon. At the second reading, the House may vote to reject
697, 700; 25 SCRA 754, 756, October 29, 1968, per Fernando, J., later C.J.; (citing the bill. Once the House considers the bill, the third reading follows. In the
Casco Philippine Chemical Co., Inc. v. Gimenez, 117 Phil. 363, 366; 7 SCRA 347, 350, House of Commons, no further amendments may be made, and the passage
February 28, 1963, per Concepciónn, J., later C.J.). It is a doctrine that flows as a
of the motion amounts to passage of the whole bill. The House of Lords,
however, may not amend a bill so as to insert a provision relating to
corollary to the separation of powers, and by which due respect is given by one
taxation. http://en.wikipedia.org/
branch of government to the actions of the others. See Morales v. Subido, 136 Phil. wiki/Constitution_of_the_United_Kingdom; http://www.oefre.unibe.
405, 412; 27 SCRA 131, February 27, 1969. ch/law/icl/uk00000_.html; www.parliament.uk; and
Following Field v. Clark (143 US 649, 12 S.Ct. 495, February 29, 1892), such http://encyclopedia.thefreedictionary.com/British+Parliament (Last visited
conclusiveness refers not only to the provisions of the law, but also to its due August 4, 2005, 11:30am PST).
enactment. Mabanag v. Lopez Vito, 78 Phil. 1, 13-18, March 5, 1947. 7See Dissenting Opinion of Puno, J. in Tolentino v. Secretary of Finance,
“[T]he signing of a bill by the Speaker of the House and the Senate President and supra, p. 818.
the certification of the Secretaries of both [h]ouses of Congress that it was passed are 8Cf. Francisco Jr. v. House of Representatives, 415 SCRA 44, November 10,
conclusive of its due enactment.” Fariñas v. Executive Secretary, supra, p. 529, per 2003.
Callejo, Sr., J.
9 Tolentino v. Secretary of Finance, supra.
4 Mabanag v. Lopez Vito, supra, p. 12.
5 §1 of Rule 129 of the Rules of Court.
10 2nd paragraph, §1 of Article VIII of the 1987 Constitution.
6 The United Kingdom has an uncodified Constitution, consisting of both written 11 Tolentino v. Secretary of Finance, supra.
and unwritten sources, capable of evolving to be responsive to political and social
change, and found partly in conventions and customs and partly in statute. Its 176
Parliament has the power to change or abolish any written or unwritten element of
the Constitution. There is neither separation of powers nor formal checks and
balances. Every bill drafted has to be approved by both the House of Commons and
the House of Lords, before it receives the Royal Assent and becomes an Act of Abakada Guro Party List vs. Ermita
Parliament. The House of Lords is the second chamber that complements the work of
the Commons, whose members are elected to represent their constituents. The first
is the House of Commons that alone may start bills to raise taxes or authorize
the learned Mr. Justice Vicente V. Mendoza, concedes in another question of origination arises. Under the 1987 Constitution, all
decision that each house “may not by its rules ignore constitutional “revenue x x x bills x x x shall originate exclusively in the House of
restraints or violate fundamental rights, and there should be a Representatives,
17
but the Senate may propose or concur with
reasonable relation between the mode or method of proceeding amendments.”
established
12
by the rule and the result which is sought to be If the revenue bill originates exclusively
18
from the Senate, then
attained.” obviously the origination provision of the Constitution
The Bicameral Conference Committee (BCC) created by
Congress to iron out differences between the Senate
13
and the House _______________
of Representatives versions of the E-VAT bills is one such “branch
or instrumentality of the government,” over which this Court may 14 §26(2) of Article VI of the 1987 Constitution.
exercise certiorari review to determine whether or not grave abuse 15 “The purpose for which three readings on separate days is required is said to be
of discretion has been committed; and, specifically, to find out two-fold: (1) to inform the members of Congress of what they must vote on and (2) to
whether the constitutional conditions, restrictions and limitations give them notice that a measure is progressing through the enacting process, thus
on law-making have been violated. enabling them and others interested in the measure to prepare their positions with
In general, the BCC has at least five options in performing its reference to it.” Tolentino v. Secretary of Finance, supra, p. 647, October 30, 1995, per
functions: (1) adopt the House version in part or in toto, (2) adopt Mendoza, J.
the Senate version in part or in toto, (3) consolidate the two 16 §24 of Article VI of the 1987 Constitution.
versions, (4) reject non-conflicting provisions, and (5) adopt 17 §24 of Article VI of the 1987 Constitution. The power of the Senate to propose or
completely new provisions not found in either version. This, concur with amendments is, apparently, without restriction. By virtue of this power,
therefore, is the simple question: In the performance of its function the Senate can practically rewrite a bill that is required to come from the House and
of reconciling conflicting provisions, has the Committee blatantly leave only a trace of the original bill. See Flint v. Stone Tracy Co., 220 US 107, 31
violated the Constitution? S.Ct. 342, March 13, 1911.
My short answer is: No, except those relating to income taxes 18 §24 of Article VI of the 1987 Constitution.
referred to in Sections 1, 2 and 3 of Republic Act (RA) No. 9337. Let
178
me explain.
Adopting the House 178 SUPREME COURT REPORTS ANNOTATED

Version in Part or In Toto
First, the BCC had the option of adopting the House bills either in
part or in toto, endorsing them without changes. would be violated. If, however, it originates exclusively from the
House and presumably passes the three-reading requirement there,
_______________ then the question to contend with is whether the Senate
amendments complied with the “germane” principle.
12 Arroyo v. De Venecia, 343 Phil. 42, 61-62; 277 SCRA 268, 286, August 14, 1997, While in the Senate, the House version may, per Tolentino,
per Mendoza, J. undergo extensive changes, such that the Senate may rewrite not
19
13 These refer to House Bill Nos. 3555 & 3705; and Senate Bill No. 1950. only portions of it but even all of it. I believe that such rewriting is
20
177
limited 21by the “germane” principle: although “relevant” or
“related” to the general subject of taxation, the Senate version is
not necessarily “germane” all the time. The “germane” 22
principle
VOL. 469, SEPTEMBER 1, 2005 177 requires a legal—not necessarily an economic or political— 23
Abakada Guro Party List vs. Ermita interpretation. There must be an “inherent logical connection.”
What may be germane in an economic or political sense is not
14 necessarily germane in the legal sense. Otherwise, any provision in
Since these bills 15
had passed the three-reading requirement under the Senate version that is entirely new and extraneous, or that is
the Constitution, it readily becomes apparent that no procedural remotely or even slightly connected, to the vast and perplexing
impediment16would arise. There would also be no question as to their subject of taxation, would always be germane. Under this
origination, because the bills originated exclusively from the interpretation, the origination principle would surely be rendered
House of Representatives itself. inutile.
In the present case, the BCC did not ignore the Senate and adopt To repeat, in Tolentino, the Court said that the Senate may even
any of the House bills in part or in toto. Therefore, this option was write its own version, which in effect would be an
not taken by the BCC.
Adopting the Senate _______________

Version in Part or In Toto 19 Tolentino v. Secretary of Finance, supra, p. 661, August 25, 1994.
20 Garner (ed. in chief), Black’s Law Dictionary (8th ed., 2004), p. 708.
Second, the BCC may choose to adopt the Senate version either in
21 Statsky, West’s Legal Thesaurus/Dictionary (1986), p. 348.
part or in toto, endorsing it also without changes. In so doing, the
22 To argue that the raising of revenues makes the non-VAT provisions of a VAT final valid act of the Legislative Department
29
until the BCC obtains
bill automatically germane is to bring legal analysis within the penumbra of the approval of both houses of Congress.
economic scrutiny. The burden or impact of any tax depends on the relative Standby Authority. I believe that the BCC did not exceed its
elasticities of supply and demand and is chiefly a matter of policy confined within the authority when it crafted the so-called “standby authority” of the
august halls of Congress. See Pindyck and Rubinfeld, Microeconomics (5th ed., 2003), President. The originating
30
bills from the House imposed a 12
pp. 314-317. percent VAT rate, 31 while the bill from the Senate retained the
23 Exxon Mobil Corp. v. Allapattah Services, Inc., 125 S. Ct. 2611, 2622, June 23, original 10 percent. The BCC opted to initially use the 10 percent
2005, per Kennedy, J. Senate provision and to increase this rate
179
_______________
VOL. 469, SEPTEMBER 1, 2005 179 29 Tolentino v. Secretary of Finance, supra, p. 668, August 25, 1994.
There is no allegation in any of the memoranda submitted to this Court that the
consolidated bill was not approved. In fact, both houses of Congress voted separately
24 and majority of each house approved it.
amendment by substitution. The Court went further by saying 30 On the one hand, §§1-3 of House Bill (HB) No. 3555 seek to amend §§106, 107 &
that “the Constitution does not prohibit the filing in the Senate of a 108 the Tax Code by increasing the VAT rate to 12% on every sale, barter or
substitute bill in anticipation of its receipt of the bill from the exchange of goods or properties; importation of goods; and sale or exchange of
House, so long as action by the25 Senate as a body is withheld services, including the use or lease of properties.
pending receipt of the House bill.” After all,26the initiative for filing §§1-3 of HB 3705, on the other, seek to amend §§106, 107 & 108 the Tax Code by
a revenue bill must come from the House on the theory that, also increasing the VAT rate to 12% on every sale, barter or exchange of goods or
elected as its members are from their respective districts, the House properties; importation of goods; and sale or exchange of services, including the use
is more sensitive to local needs and problems. By contrast, the or lease of properties, but decreasing such rate to 8% on every importation of certain
Senate whose members are 27elected at large approaches the matter goods; 6% on the sale, barter or exchange of certain locally manufactured goods; and
from a national
28
perspective, with a broader and more circumspect 4% on the sale, barter or exchange, as well as importation, of petroleum products
outlook. subject to excise tax and raw materials to be used in their manufacture (subject to
Even if I have some reservations on the foregoing sweeping subsequent increases of such reduced rates), and on the gross receipts derived from
pronouncements in Tolentino, I shall not comment any further, services rendered on the sale of generated power. The Tax Code referred to in this
because the BCC, in reconciling conflicting provisions, also did not case is RA 8424, otherwise known as the “Tax Reform Act of 1997.”
take the second option of ignoring the House bills completely and of 31 §§4-5 of Senate Bill (SB) No. 1950 seek to amend §§106 & 108 of the Tax Code
adopting only the Senate version in part or in toto. Instead, the by retaining the VAT rate of 10% on every sale, barter or exchange of goods or
BCC used or applied the third option as will be discussed below. properties; and on the sale or exchange of services, including the use or lease of
properties, and the sale of electricity by generation, transmission, and distribution
Compromising companies.
by Consolidating
181
As a third option, the BCC may reach a compromise by
consolidating both the Senate and the House versions. It can adopt
some parts and reject other parts of both bills, and craft new VOL. 469, SEPTEMBER 1, 2005 181
provisions or even a substitute bill. I believe this option is viable, Abakada Guro Party List vs. Ermita
provided that there is no violation of the origination and germane
principles, as well as the three-reading rule. After all, the report to the 12 percent House provision, effective January 1, 2006, upon
generated by the BCC will not become a the occurrence of a predetermined factual scenario as follows:
_______________ “(i) [VAT] collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%) or
24 Tolentino v. Secretary of Finance, supra, p. 663, August 25, 1994. See Cruz, (ii) National Government Deficit as a percentage of GDP of the previous
32
Philippine Political Law (2002), p. 154. year exceeds one and one-half percent (1 1/2%).”
25 Tolentino v. Secretary of Finance, supra, August 25, 1994, per Mendoza, J.
26 Cruz, Philippine Political Law (2002), p. 155. In the computation of the percentage requirements in the
27 Tolentino v. Secretary of Finance, supra, August 25, 1994. alternative conditions under 33the law, the 34
amounts of the VAT
28 Cruz, Philippine Political Law (2002), p. 111. collection, National Deficit, and GDP —as well as the
interrelationship among them—can easily be derived by the finance
180 secretary from the proper government bodies charged with their
determination. The law is complete and standards have
_______________

32 §§4-6 of the consolidated bill amending §§106-108 of the Tax Code, respectively. that formula is exceeded x x x?” (pp. 59-60);
Conference Committee Report on HBs 3555 & 3705, and SB 1950, pp. 4-7. xxx
The predetermined factual scenario in the above-cited sections of the consolidated “Atty. Gana:
bill also appears in §§4-6 of Republic Act (RA) No. 9337, amending the same Well, x x x it would take a grace period of 6 to 8 months[,] because
provisions of the Tax Code. Mathematically, it is expressed as follows: obviously, determination could not be made on January 1, 2006. Yes,
they were under the impression that at the earliest it would take 30 days.
VAT Collection > 2.8%
“Justice Panganiban:
GDP
Historically, when [will] these figures [be] available[:] the GDP, [VAT]
or collection?” (p. 192);
National Government Deficit > 1.5% xxx
GDP “Justice Panganiban:
But certainly not on January 1. Therefore, by January 1, people would not
33 A negative budget surplus, or an excess of expenditure over revenues, is a know whether the rate would be increased or not, even if there is no
budget deficit. Dornbusch, Fischer, and Startz, Macroeconomics (9th ed., 2005), p. discretion?
231. “Atty. Gana:
34 GDP refers to the value of all goods and services produced domestically; the That’s true, Your Honor, even if there is no discretion.
sum of gross value added of all resident institutional units engaged in production “Justice Panganiban:
(plus any taxes, and minus any subsidies, on products not included in the values of It will take weeks, or months to be able to determine that?
their outputs). www.nscb. gov.ph/sna/default.asp (Last visited July 14, 2005 10am
It will take weeks, or months to be able to determine that?
PST).
183
182
VOL. 469, SEPTEMBER 1, 2005 183

37
35 This eventuality has been predetermined by Congress.
been fixed. Only the fact-finding mathematical computation for its
implementation on January 1, 2006, is necessary.
_______________
Once either of the factual and mathematical events provided in
the law takes place, the President has no36choice but to implement “Atty. Gana:
the increase of the VAT rate to 12 percent. Well, they anticipated it, would take at most by March.” (p. 193); and
xxx
_______________
35 See Pelaez v. Auditor General, 122 Phil. 965, 974; 15 SCRA 569, 576-577, March, I will ask the government later on when they argue.
December 24, 1965. “Atty. Gana:
36 The acts of retroactively implementing the 12 percent VAT rate, should the As early as January but not later than 60 to 90 days.” (boldface supplied; p.
finance secretary be able to make recommendation only weeks or months after the 194). Culled from the same record, the following excerpts show the position of
public respondents:
end of fiscal year 2005, or reverting to 10 percent if both conditions are not met, are
best addressed to the political branches of government. “Justice Panganiban:
The following excerpts from the Transcript of the Oral Arguments in G.R. Nos. It will be based on actual figures?
168461, 168463, 168056, and 168207, held on July 14, 2005 at the Supreme Court “Usec. Bonoan:
Session Hall, are instructive on the position of petitioners: It will be based on actual figures.
“Atty. Gorospe:
That creates a problem[,] because where do you get the actual figures[?]
[It’s] supposed to be 2005, Your Honor, but apparently, it [will] be impossible
to determine GDP the first day of 2006, Your Honor.” (p. 57); “Usec. Bonoan:
xxx I understand that[,] traditionally[,] we can come in March, but there is no
impediment to speeding up the gathering.
Now [let’s see] when it is possible then to determine this formula. It cannot be
on the first day of January 2006, because the year [2005] ended just the Speed it up. February 15?
midnight before, isn’t it? “Usec. Bonoan:
“Atty. Gorospe: Even within January, Your Honor, I think this can be….
Yes, Your Honor. “Justice Panganiban:
“Justice Panganiban: Alright at the end of January, it’s just estimate to get the figures in
x x x if it’s only determined on March 1[,] then how can the law become effective January.
January 1[.] In other words, how will the [people be] able to pay the tax if ever “Usec. Bonoan:
Yes, Your Honor (pp. 661-662); and alter ego in finance matters, to determine the
39
factual bases for
xxx making the increase in VAT rate operative. Indeed, as I have
“Justice Panganiban: mentioned earlier, the fact-
My only point is, I raised this earlier and I promised counsel for the petitioner
whom I was questionin[g] that I will raise it with you, whether the date _______________
January 1, 2006 would present an impossibility of a condition
happening. quotient is already 6.4 percent. http://www.nscb.gov.ph/sna/2005/
“Usec. Bonoan: 1stQ2005/2005per1.asp; and the 2003 Bureau of Internal Revenue (BIR) Annual
It will not, Your Honor. Report found on www.bir.gov.ph (Last visited July 14, 2005, 10:45am PST).
“Justice Panganiban: 38 Besides, the use of the word “shall” in §§106(A), 107(A) & 108(A) of the Tax
So, your position [is] it will not present an impossibility. Elaborate on it in your Code, as amended respectively by §§4, 5 & 6 of RA 9337, is mandatory, imperative
memorandum. and compulsory. See Agpalo, Statutory Construction (4th ed., 1998), p. 333.
“Usec. Bonoan: 39 See Separate Opinion (Concurring and Dissenting) of Panganiban, J., in
Yes, Your Honor. Southern Cross Cement Corp. v. Philippine Cement
185
Because it is important. The administrative regulations are important[,]
because they clarify the law and it will guide taxpayers. So[,] by January
1[,] [taxpayers] would not be wondering. Do we charge the end consumers 10 VOL. 469, SEPTEMBER 1, 2005 185
[percent] or 12 [percent]? The regulations should be able to spell that out [i]n the
same manner that even now the various consumers of various products and Abakada Guro Party List vs. Ermita
services must be able to get from your regulations how much they [would] be
charged, how much should gasoline stations charge in addition to their correct
prices, how much carriers should charge[,] so there [would] be no confusion. finding condition is a mere administrative, not legislative, function.
“Usec. Bonoan: The ponencia states that Congress merely delegates the
Yes, Your Honor.” (boldface supplied; pp. 665-666). implementation of the law to the secretary of finance. How then can
the latter be its agent? Making a law is different from implementing
37 Using available statistics, it is approximated that the 2 4/5 percent has been it. While the first (the making of laws) may be delegated under
reached. VAT collection (in million pesos) for the first quarter alone of 2004 is certain conditions and only in specific instances provided under the
83,542.83, or 83 percent of revenue collections amounting to 100,654.01. Divided into Constitution, the second (the implementation of laws) may not be
GDP of 13,053, the done by Congress. After all, the legislature does not have the power
to implement laws. Therefore, congressional agency arises only in
184
the first, not in the second. The first is a legislative function; the
second, an executive one.
184 SUPREME COURT REPORTS ANNOTATED Petitioners’ argument is that because the GDP does not account
for the economic effects of so-called underground businesses, it is an
inaccurate indicator of40 either economic growth or slowdown in
transitional economies. Clearly, this matter is within the confines
The taxing power has not been delegated by Congress to either or of lawmaking. This Court is neither a substitute for the wisdom, or
41
both the President and the finance secretary. What was delegated lack of it, in Congress, nor an arbiter of flaws within the latter’s
42
was only the power to ascertain the facts in order to bring the law internal rules. Policy matters lie within the domain of the political
into operation. In fact, there was really no “delegation’ to speak of;
there was merely 38a declaration of an administrative, not a _______________
legislative, function.
I concur with the ponencia in that there was no undue delegation Manufacturers Corp., G.R. No. 158540, August 3, 2005, 465 SCRA 532, 660.
of legislative power in the increase from 10 percent to 12 percent of 40 Escudero Memorandum, pp. 38-39.
the VAT rate. I respectfully disagree, however, with the statements GDP data are far from perfect measures of either economic output or welfare.
therein that, first, the secretary of finance is “acting as the agent of There are three major problems: (1) some outputs are poorly measured because they
the legislative department” or an “agent of Congress” in are not traded in the market, and government services are not directly priced by
determining and declaring the event upon which its expressed will such market; (2) some activities measured as additions to GDP in fact only represent
is to take effect; and, second, that the secretary’s personality “is in the use of resources in order to avoid crime or risks to national security; and (3) it is
reality but a projection of that of Congress.” difficult to account correctly for improvements in the quality of goods. Dornbusch,
The secretary of finance is not an alter ego of Congress, but of the Fischer, and Startz, Macroeconomics (9th ed., 2005), pp. 35-36.
President. The mandate given by RA 9337 to the secretary is not 41 Fariñas v. Executive Secretary, 417 SCRA, 503, 530, December 10, 2003.
equipollent to an authority to make laws. In passing this law, 42 “Any meaningful change in the method and procedures of Congress or its
Congress did not restrict or curtail the constitutional power of the committees must x x x be sought in that body itself.”
President to retain control and supervision over the entire
Executive Department. The law should be construed to be merely 186
asking the President, with a recommendation from the President’s

186 SUPREME COURT REPORTS ANNOTATED imagination to even relate one concept with the other. In like
Abakada Guro Party List vs. Ermita manner, it is inconceivable
43 44
_______________
branches of government, outside the range of judicial cognizance.
“[T]he right to select the measure and objects of taxation devolves 47 HBs 3555 & 3705 do not contain any provision that seeks to revise non-VAT
upon the Congress, and not upon the courts, and such selections
45
are provisions of the Tax Code, but SB 1950 has §§1-3 that seek to amend the rates of
valid unless constitutional limitations are overstepped.” Moreover, income tax on domestic, resident foreign and nonresident foreign corporations at 35%
each house of Congress has 46the power and authority to determine (30% in 2009), with a tax credit on intercorporate dividends at 20% (15% in 2009);
the rules of its proceedings. The contention that this case is not and to reduce the allowable deductions for interest expense by 42% (33% in 2009) of
ripe for determination because there is no violation yet of the the interest income subject to final tax.
Constitution regarding the exercise of the President’s standby 48 The amendments to income taxes also partake of the nature of taxation without
authority has no basis. The question raised is whether the BCC, in representation. As I will discuss in the succeeding paragraphs of this Opinion, they
passing the law, committed grave abuse of discretion, not whether did not emanate from the House of Representatives that, under §24 of Article VI of
the provision in question had been violated. Hence, this case is not the 1987 Constitution, is the only body from which revenue bills should exclusively
premature and is, in fact, subject to judicial determination. originate.
Amendments on Income Taxes. I respectfully submit that the 49 Mamalateo, Philippine Income Tax (2004), p. 1.
amendments made by the BCC (that were culled 50 Commissioner of Internal Revenue v. American Express International, Inc.
(Philippine Branch), G.R. No. 152609, 462 SCRA 197, 215, June 29, 2005, per
_______________ Panganiban, J. See Deoferio, Jr. & Mamalateo, The Value Added Tax in the
Philippines (2000), p. 36.
Tolentino v. Secretary of Finance, supra, p. 650, October 30, 1995, per Mendoza, J. 51 De Leon, The Fundamentals of Taxation (12th ed., 1998), pp. 92 & 132.
43 The necessity, desirability or expediency of a law must be addressed to
Congress as the body that is responsible to the electorate, for “legislators are the 188
ultimate guardians of the liberties and welfare of the people in quite as great a
degree [as the] courts.” Tolentino v. Secretary of Finance, supra, p. 650, October 30,
1995, per Mendoza, J.; (citing Missouri, K. & T. Ry. Co. v. May, 194 US 267, 270, 24
S. Ct. 638, 639, May 2, 1904, per Holmes, J.) Abakada Guro Party List vs. Ermita
44 Fariñas v. Executive Secretary, 417 SCRA, 503, 524, December 10, 2003.
45 Flint v. Stone Tracy Co., 220 US 107, 167, 31 S. Ct. 342, 355, March 13, 1911, how the provisions that increase corporate income taxes can be
per Day, J. considered as mitigating measures for increasing the VAT and, as I
46 §16(3) of Article VI of the 1987 Constitution. will explain later, for effectively imposing a maximum of 3 percent
“Parliamentary rules are merely procedural, and with their observance, the courts tax on gross sales or revenues because of the 70 percent cap. Even
have no concern. They may be waived or disregarded by the legislative body.” Arroyo the argument that the corporate income tax rates will be reduced to
v. De Venecia, supra, p. 61, August 14, 1997, per Mendoza, J.; (citing Osmeña, Jr. v. 30 percent does not hold water. This reduction will take effect only
Pendatun, 109 Phil. 863, 870-871, October 28, 1960, per Bengzon, J.). in 2009, not 2006 when the 12 percent VAT rate will have been
187
implemented.
Two, taxes on intercorporate dividends are final, but the input
VAT is generally creditable. Under a final withholding tax system,
VOL. 469, SEPTEMBER 1, 2005 187 the amount of income tax that is withheld by a withholding agent is
Abakada Guro Party List vs. Ermita constituted as a full and final
52
payment of the income tax due from
the payee on said income. The liability for 53the tax primarily rests
47 upon the payor as a withholding agent. Under a creditable
from the Senate version) regarding income taxes are not legally withholding tax system, taxes withheld on certain payments are
germane to the subject matter of the House bills. Revising the meant to 54approximate the tax that is due of the payee on said
income tax rates on domestic, resident foreign and nonresident payments. The liability for the tax rests upon the payee who is
foreign corporations; increasing the tax credit against taxes due mandated by law to still file a tax return, report the tax base, and
from nonresident foreign corporations on intercorporate dividends; pay the difference between the tax withheld and the tax due.
55
and reducing the allowable deduction for interest expense are From this observation alone, it can already be seen that not only
legally unrelated and not germane to the subject matter contained48 are dividends alien to the tax base upon which the VAT is imposed,
in the House bills; they violate the origination principle. The but their respective methods of withholding are totally different.
reasons are as follows: VAT-registered persons may not always be nonresident foreign
One, an income tax is a direct tax imposed on actual or presumed corporations that declare and pay dividends, while intercorporate
income—gross 49
or net—realized by a taxpayer during a given dividends are certainly not goods or properties for sale, barter,
taxable year, while a VAT is an indirect tax not in the context of exchange, lease or importation. Certainly, input VAT credits are
who is directly and legally liable for
50
its payment, but in terms of its different from tax credits on dividends received by nonresident
nature as “a tax on consumption.” The 51
former cannot be passed on foreign corporations.
to the consumer, but the latter can. It is too wide a stretch of the
_______________ ity to make amendments not only implies the power to make
insertions, but also deletions, in order to resolve conflicting
52 Mamalateo, Philippine Income Tax (2004), p. 379.
provisions.
53 Vitug, Tax Law and Jurisprudence (2nd ed., 2000), p. 188.
The no pass-on provision in House Bill (HB) No. 3705 referred to
the petroleum products subject to excise tax (and the raw materials
55 De Leon, The Law on Transfer and Business Taxation with Illustrations,
used in the manufacture of such products), 61
the sellers of petroleum
Problems, and Solutions (1998), pp. 195-196 & 222-224.
products, and the generation companies. The analogous provision
189 in Senate Bill (SB) No. 1950 dealt with electricity, businesses other
than generation62companies, and services of franchise grantees of
electric utilities. In contrast, there was a marked absence of the no
VOL. 469, SEPTEMBER 1, 2005 189 pass-on provision in HB 3555. Faced with such variances, the BCC
Abakada Guro Party List vs. Ermita had the option of retaining or modifying the no pass-on provisions
and determining their extent, or of deleting them altogether. In
opting for deletion to resolve the variances, it was merely acting
Three, itemized deductions from gross income partake of the nature
56 within its discretion. No grave abuse may be imputed to the BCC.
of a tax exemption. Interest—which is among such deductions—
The 70 Percent Cap on Input Tax and the 5 Percent Final
refers to the amount paid by a debtor to a creditor for the use or
57 Withholding VAT. Deciding on the 70 percent cap and the 5
forbearance of money. It is an expense item that is paid or
percent final withholding VAT in the consolidated bill is also within
incurred within a given taxable year on indebtedness in connection
58 the power of the BCC. While HB 3555 in-
with a taxpayer’s trade, business or ex ercise of profession.
59
In
order to reduce revenue losses, Congress enacted RA 8424 which
reduces the amount of interest expense deductible by a taxpayer _______________
from gross income, equal to 60
the applicable percentage of interest 61 §§1-3 of HB 3705.
income subject to final tax. To assert that reducing the allowable 62 §5 of SB 1950. There seems to be a discrepancy between the Conference
deduction in interest expense is a matter that is legally related to Committee Report and the various pleadings before this Court. While such report,
the proposed VAT amendments is too far-fetched. Interest expenses attaching a copy of the bill as reconciled and approved by its conferees, as well as the
are not allowed as credits against output VAT. Neither are VAT- report submitted by the Senate’s Committee on Ways & Means to the Senate
registered persons always liable for interest. President on March 7, 2005, show that SB 1950 does not contain a no-pass on
Having argued on the unconstitutionality (non-germaneness) of provision, the petitioners and respondents show that it does (Pimentel
the BCC insertions on income taxes, let me now proceed to the other Memorandum, Annex “A” showing a “Matrix on the Disagreeing Provisions of the
provisions that were attacked by petitioners. [VAT] Bills,” pp. 9-11; Escudero Memorandum, p. 42; and Respondents’
No Pass-on Provisions. I agree with the ponencia that the BCC Memorandum, pp. 109-110). Notably, the qualified dissent of Senator Joker Arroyo
did not exceed its authority when it deleted the no pass-on to the Bicameral Conference Report states that the Senate version prohibits the
provisions found in the congressional bills. Its author- power companies from passing on the VAT that they will pay.
_______________ 191

57 See §78 of Revenue Regulations No. 2-1940, recommended by Bibiano L. Meer, VOL. 469, SEPTEMBER 1, 2005 191
then Collector of Internal Revenue, and promulgated by Manuel Roxas, then Abakada Guro Party List vs. Ermita
Secretary of Finance, later President of the Republic of the Philippines, on February
63
11, 1941, XXXIX OG 18, 325.
cluded limits of 5 percent and 11 percent 64
on input tax, SB 1950
proposed an even spread over 60 months. The decision to put a cap
59 RA 8424 refers to the Tax Reform Act of 1997.
and fix its rate, so as to harmonize or to find a65 compromise in
60 The 42 percent reduction rate under §3 of RA 9337, amending §34(B)(1) of the
settling the apparent differences in these versions, was within the
Tax Code, is derived by first subtracting the 20 percent tax on interest income from
sound discretion of the BCC.
the increased tax rate of 35 percent imposed on domestic, resident foreign, and
In like manner, HB 3555 contained provisions on the
nonresident foreign corporations, and then dividing the difference obtained by the
withholding of creditable VAT66
at the rates of 5 percent, 8 percent,
increased rate. Hence, it is computed as follows:
10.5 percent, and 12 percent. HB 3705 had no such equiva-
35% - 20% = 15%
15% : 35% = 42%, the amount of reduction.
_______________
190
63 §4 of HB 3555 seeks to amend §110(A) of the Tax Code by limiting to 5% and
11% of their respective total amounts the claim for input tax credit of capital goods,
190 SUPREME COURT REPORTS ANNOTATED through equal distribution of the amount of such claim over their depreciable lives;
Abakada Guro Party List vs. Ermita and of goods and services other than capital goods, and goods purchased by persons
engaged in retail trade.

64 §7 of SB 1950 seeks to amend §110 of the Tax Code by also limiting the claim VAT liability of the seller; and 10% of the gross payment for the lease or use of
for input tax credit of goods purchased or imported for use in trade or business, properties or property rights to nonresident owners.
through an even depreciation or amortization over the month of acquisition and the 68 Deoferio, Jr. & Mamalateo, The Value Added Tax in the Philippines (2000), pp.
59 succeeding months, if the aggregate acquisition cost of such goods exceeds P 34-35 & 44.
660,000. 69 http://explanation-guide.info/meaning/Maurice-LaurÃ©.html (Last visited
The depreciation or amortization in the amendments is referred to as a “spread- August 23, 2005, 3:25pm PST).
out” in an unnumbered Revenue Memorandum Circular dated July 12, 2005,
193
submitted to this Court by public respondents in their Compliance dated August 16,
2005. Such spread-out recognizes industries where capital assets are constructed or
assembled. VOL. 469, SEPTEMBER 1, 2005 193
65 No cap is found in HB 3705.
66 §5 of HB 3555 seeks to amend §114 of the Tax Code by requiring that the VAT
be deducted and withheld by the government or by any of its political subdivisions, 70
instrumentalities or agencies—including government-owned-and-controlled rect tax on consumption, called taxe sur la valeur ajoutée, which
corporations (GOCCs)—before making any payment on account of each purchase of was quickly adopted by the Direction Générale des Impost, the new
goods from sellers and services rendered by contractors. The VAT deducted and French tax authority of which he became joint director.
withheld shall be at the rates of 5% of the gross payment for the purchase of goods Consequently, taxpayers at all levels in the production process,
and 8% of the gross receipts for services rendered by contractors on every sale or rather than retailers or tax authorities,
71
were forced to administer
installment payment. The VAT that is deducted and withheld shall be creditable and account for the tax them-selves.
against their respective VAT liabilities—10.5%, in case of government public works Since the unutilized input VAT can be carried over to succeeding
contrac- quarters, there is no undue deprivation72
of property. Alternatively, it
can be passed on to the consumers; there is no law prohibiting
192 that. Merely speculative and unproven, therefore, is the contention
73
that the law is arbitrary and oppressive. Laws that impose taxes
192 SUPREME COURT REPORTS ANNOTATED are necessarily burdensome, compulsory, and involuntary.
The deferred input tax account—which accumulates the
Abakada Guro Party List vs. Ermita unutilized input VAT—remains an asset in the accounting
lent amendment, 67
and SB 1950 pegged the rates at only 5 percent _______________
and 10 percent. I believe that the decision to impose a final (not
creditable) VAT and to fix the rates at 5 percent and 10 percent, so 70 This refers to a “tax on value added”—TVA in French and VAT in English.
as to harmonize the apparent differences in all three versions, was 71 http://en.wikipedia.org/wiki/ Maurice-LaurÃ© (Last visited August 23, 2005,
also within the sound discretion of the BCC. 3:20pm PST).
Indeed, the tax credit method under our VAT system is not only 72 The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463, 168056,
practical, but also principally used in almost all taxing jurisdictions. and 168207, held on July 14, 2005 at the Supreme Court Session Hall, show that the
This does not mean, however, that in the eyes of Congress through act of passing on to consumers is a mere cash flow problem, as agreed to by counsel
the BCC, our country can neither deviate from this method nor for petitioners in G.R. No. 168461:
modify its application to suit our fiscal requirements. The VAT is
usually collected through the tax credit method (and in the past,
So, the final consumer pays the tax?
even through
68
the cost deduction method or a mixture of these two
methods), but there is no hard and fast rule that 100 percent of “Atty. Baniqued:
the input taxes will always be allowed as a tax credit.69 Yes, Your Honor.
In fact, it was Maurice Lauré, a French engineer, who invented “Justice Panganiban:
the VAT. In 1954, he had the idea of imposing an indi- The trade people in between the middlemen just take it as an input and then
[collect] it as output, isn’t it?
Atty. Baniqued:
_______________
Yes, Your Honor.
tors; and 12% of the payments for the lease or use of properties orproperty rights to “Justice Panganiban:
nonresident owners.
It’s just a cash flow problem for them, essentially?
67 §11 of SB 1950 seeks to amend §114 of the Tax Code by requiring that the VAT
“Atty. Baniqued:
be deducted and withheld by the government or by any of its political subdivisions,
Yes x x x.” (p. 375).
instrumentalities or agencies—including government-owned or controlled
corporations (GOCCs)—before making any payment on account of each purchase of
73 The 5 percent final withholding tax may also be charged as part of a supplier’s
goods from sellers and services rendered by contractors. The VAT deducted and
Cost of Sales.
withheld shall be at the rates of 5% of the gross payment for the purchase of goods
and on the gross receipts for services rendered by contractors, including public works 194
contractors. The VAT that is deducted and withheld shall be creditable against the

194 SUPREME COURT REPORTS ANNOTATED 2. Accounting Standards Council;
Abakada Guro Party List vs. Ermita 3. Standards issued by the International Accounting Standards Board (now Committee);
and
4. Accounting principles and practices for which there has been a long history of
records of a business. It is not at all confiscated
74
by the government.
acceptance and usage.
By deleting Section 112(B) of the Tax Code, Congress no longer
made available tax credit certificates for such asset account until If there appears to be a conflict between any of the bodies listed above, the
retirement from or cessation75
of business, or changes in or cessation pronouncements of the first listed body shall be applied. SEC Securities Regulation
of VAT-registered status. This is a matter of policy, not legality. Code Rule 68(1)(b)(iv) as amended, cited in Appendix “C” of Morales, The Philippine
The Court cannot step beyond the confines of its constitutional Securities Regulation Code (Annotated), [2005], p. 578.
power, if there is absolutely no clear showing of grave abuse of Recommended by the World Bank and the Asian Development Bank, and
discretion in the enactment of the law. increasingly recognized worldwide, international accounting standards (IAS) have
That the unutilized
76
input VAT would be rendered useless is been merely adopted by Philippine regulatory bodies and accredited professional
merely speculative. Although it is recorded as a deferred asset in organizations. The SEC, for instance, complies with the agreement among co-
the books of a company, it remains to be a mere privilege. It may be members of the International Organization of Securities Commissions to adopt IAS
written off or expensed outright; it may also be denied as a tax in order to ensure high-quality and transparent financial reporting, with full
credit. disclosure as a means to promote credibility and efficiency in the capital markets. In
There is no vested right77
in a deferred input tax account; it is a implementing the General Agreement on Trade in Services, the Professional
mere statutory privilege. The State may modify or withdraw such 78 Regulatory Board of Accountancy (PRBOA) of the Professional Regulatory
privilege, which is merely an asset granted by operation of law. Commission supports the adoption of IAS. The Philippine Institute of Certified
Moreover, there is no vested right in gener- Public Accountants, a member of the International Accounting Standards Committee
(IASC), also has the commitment to support the work of the IASC and uses best
_______________ endeavors to foster compliance with IAS. http://www.picpa.com.ph/adb/index.htm
(Last visited August 23, 2005, 3:15pm PST).
74 This refers to RA 8424, as amended.
75 In fact, §112(B) of the Tax Code, prior to and after its amendment by §10 of RA 196
9337, does not at all prohibit the application of unused input taxes against other
internal revenue taxes. The manner of application is determined though by the BIR
through §4.112-1(b) of Revenue Regulations No. 14-2005, otherwise known as the
“Consolidated VAT Regulations of 2005,” dated June 22, 2005. Abakada Guro Party List vs. Ermita
76 That the unutilized input VAT can be considered an ordinary and necessary
80
expense for which a corresponding deduction will be allowed against gross income
local and international regulatory accounting bodies. To state
under §34(A)(1) of the Tax Code—instead of a deferred asset—is another matter to
otherwise and recognize such asset account as a vested right is to
be adjudicated upon in proper cases.
limit the taxing power of the State. Unlimited, plenary,
77 See United Paracale Mining Co. v. De la Rosa, 221 SCRA 108, 115, April 7,
comprehensive and supreme, this power cannot be unduly restricted
1993.
by mere creations of the State.
78 The law referred to is not only the Tax Code, but also RA 9298, otherwise
That the unutilized input VAT would also have an unequal effect
known as the “Philippine Accountancy Act of 2004.”
on businesses—some with low, others with high, input-output ratio
195 —is not a legal ground for invalidating the law. Profit margins are a
variable of sound business judgment, not of legal doctrine. The law
applies equally to all businesses; it is up to each of them to
VOL. 469, SEPTEMBER 1, 2005 195 determine the best formula for selling their goods or services in the
Abakada Guro Party List vs. Ermita face of stiffer competition. There is, thus, no violation of the equal
protection clause. If the implementation of the 70 percent cap would
79 cause an ad infinitum deferment of input taxes or an unequal effect
ally accepted accounting principles. These refer to accounting
upon different types of businesses with varying profit margins and
concepts, measurement techniques, and standards of presentation capital requirements, then the remedy would be an amendment of
in a company’s financial statements, and are not rooted in laws of
the law—not an unwarranted and outright declaration of
nature, as are the laws of physical science, for these are merely unconstitutionality.
developed and continually modified by
The matter of business establishments shouldering 30 percent of
output tax and remitting the amount, as computed, to the
_______________ government is in effect imposing a tax that is equivalent to a
81
maximum of 3 percent of gross sales or revenues. This
79 These are based on pronouncements of recognized bodies involved in setting
accounting principles. Greatest weight shall be given to their pronouncements in the
order listed below: _______________
1. Securities and Exchange Commission (SEC);

80 Meigs & Meigs, Accounting: The Basis for Business Decisions (1981), pp. 28 & 198 SUPREME COURT REPORTS ANNOTATED
515.
Under §9(b) & (g) of RA 9298, the PRBOA shall supervise the practice of
accountancy in the Philippines and adopt measures—such as the promulgation of
accounting and auditing standards, rules and regulations, and best practices—that Besides, prior to the amendments introduced by the BCC, already
may be deemed proper for the enhancement and maintenance of high professional, extant in the Tax Code was a 3 percent percentage tax on the gross
ethical, accounting, and auditing standards that include international accounting quarterly sales or receipts of persons who were not VAT-registered,
84
and auditing standards and generally accepted best practices. and whose sales or receipts were exempt from VAT. This is
81 The VAT is collected on each sale of goods or properties or upon the actual or another type of tax imposed by the Tax Code, in addition to the tax
constructive receipt of consideration for services, starting from the production stage, on their respective incomes. No question as to its validity was
followed by the intermediate raised before; none is being brought now. 85More important, there is a
presumption in favor of constitutionality, “rooted in the doctrine of
197 separation of powers which enjoins upon the three coordinate
departments86of the Government a becoming courtesy for each
other’s acts.”
VOL. 469, SEPTEMBER 1, 2005 197
As to the argument that Section 8 of RA 9337 contravenes
Abakada Guro Party List vs. Ermita Section 1 of Article III and Section 20 of Article II of the 1987
Constitution, I respectfully disagree.
imposition is arguably another tax on gross—not net—income and One, petitioners have not been denied due process or, as I have
thus a deviation from the concept of VAT as a tax on consumption; illustrated earlier, equal protection. In the exercise of its inherent
it also assumes that sales or revenues are on cash basis or, if on power to tax, the State validly interferes with the right to property
credit, given credit terms shorter than a quarter of a year. However, of persons, natural or artificial. Those similarly situated are
such additional imposition and assumption are also arguably within affected in the same way and treated87
alike, “both as to privileges
the power of Congress to make. The State may in fact choose to conferred and liabilities enforced.”
impose an additional 3 percent tax on gross income, in lieu of the 70
percent cap, and thus subject the income of businesses to two types _______________
of taxes—one on gross, the other
82
on net. These impositions may
constitute 83double taxation, which is not constitutionally of Appeals, 403 SCRA 634, 664, June 10, 2003, per Carpio, J. Cruz, Constitutional
proscribed. Law (1998), p. 89.
84 §116 of the Tax Code as amended.
85 “[C]ourts accord the presumption of constitutionality to legislative enactments,
_______________
not only because the legislature is presumed to abide by the Constitution[,] but also
stages in the distribution process, and culminating with the sale to the final because the judiciary[,] in the determination of actual cases and controversies[,]
consumer. This is the essence of a VAT; it is a tax on the value added, that is, on the must reflect the wisdom and justice of the people as expressed through their
excess of sales over purchases. See Deoferio Jr. & Mamalateo, The Value Added Tax representatives in the executive and legislative departments of the government.”
in the Philippines (2000), pp. 33-34. With the 70 percent cap on output tax that is Angara v. Electoral Commission, 63 Phil. 139, 158-159, July 15, 1936, per Laurel, J.;
allowable as an input tax credit, the remaining 30 percent becomes an outright (cited in Francisco, Jr. v. House of Representatives, supra, pp. 121-122.)
expense that is, however, immediately payable and remitted by the business
86 Cawaling, Jr. v. Commission on Elections, 420 Phil. 524, 530; 368 SCRA 453,
establishment to the government. This amount can never be recovered or passed on 456, October 26, 2001, per Sandoval-Gutierrez, J.
to the consumer, but it can be an allowable deduction from gross income under
87 Ichong v. Hernandez, 101 Phil. 1155, 1164, May 31, 1957, per Labrador, J.
§34(A)(1) of the Tax Code. In effect, it is a tax computed by multiplying 30 percent to
199
the 10 percent VAT that is imposed on gross sales, receipts or revenues. It is not a
tax on tax and, mathematically, it is derived as follows:
VOL. 469, SEPTEMBER 1, 2005 199
30% x 10% = 3% of gross sales, receipts or revenues.
82 “Double taxation means taxing the same property [or subject matter] twice
when it should be taxed only once; that is, ‘taxing the same person twice by the same
RA 9337 was enacted precisely to achieve the objective of raising
88
jurisdiction for the same thing.’” Commissioner of Internal Revenue v. Solidbank
revenues to defray the necessary expenses of government. The
Corp., 416 SCRA 436, November 25, 2003, per Panganiban, J.; (citing Afisco
means that this law employs are reasonably related to the
Insurance Corp. v. Court of Appeals, 361 Phil. 671, 687; 302 SCRA 1, 16, January 25,
accomplishment of such objective, and not unduly oppressive. The
1999, per Panganiban, J.). See Commissioner of Internal Revenue v. Bank of
reduction of tax credits is a question of economic policy, not of legal
Commerce, G.R. No. 149636, 459 SCRA 638, June 8, 2005.
perlustration. Its determination is vested in Congress, not in this
83 “The rule x x x is well-settled that there is no constitutional prohibition against
Court. Since the purpose of the law is to raise revenues, it cannot be
double taxation.” China Banking Corp. v. Court
denied that the means employed is reasonably related to the
198 achievement of that purpose. Moreover,89the proper congressional
procedure for its enactment was followed; neither public notice nor
public hearings were denied.
Two, private enterprises are not discouraged. Tax burdens are violation of constitutional provisions, the Court cannot interfere
never delightful, but with the imposition of the 70 percent cap, with the 70 percent cap, the 5 percent final withholding tax, and the
there will be an assurance of a steady cash flow to the government, 60-month amortization, there being other extra-judicial remedies
which can be translated to the production of improved goods, available to petitioners, thus:
rendition of better services, and construction of better facilities for
the people, including all private enterprises. Perhaps, Congress “Atty. Baniqued:
deems it best to make our economy depend more on businesses that But if your profit margin is low as i[n] the case of the
are easier to monitor, so there will be a more efficient collection of petroleum dealers, x x x then we would have a serious problem,
taxes. Whatever is expected of the outcome of the law, or its Your Honor.
wisdom, should be the sole responsibility of the representatives
chosen by the electorate. 201
The profit margin rates of various industries generally do not
change. However, the profit margin figures do, because these are
obviously monetary variables that affect business, along with the VOL. 469, SEPTEMBER 1, 2005 201
level of competition, the quality of goods and services offered, and Abakada Guro Party List vs. Ermita
the cost of their production. And there will inevitably be a conscious
desire on the part of those who engage in business and those who “Justice Panganiban:
consume their output to
Isn’t the solution to increase the price then?
_______________ “Atty. Baniqued:
If you increase the price which you can very well do, Your
88 De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 1.
Honor, then that [will] be deflationary and it [will] have a
89 Except, as earlier discussed, for Sections 1, 2 and 3 of the law.
cascading effect on all other basic commodities[, especially]
200
because what is involved here is pet roleum, Your Honor.
200 SUPREME COURT REPORTS ANNOTATED That may be true[,] but it’s not unconstitutional?
Abakada Guro Party List vs. Ermita “Atty. Baniqued:
That may be true, Your Honor, but the very limitation of the
adapt or adjust accordingly to any congressional modification of the [seventy percent] input [VAT], when applied to the case of the
VAT system. petroleum dealers[,] is oppressive[.] [I]t’s unjust and it’s
In addition, it is contended that the VAT should be proportional unreasonable, Your Honor.
in nature. I submit that this proportionality pertains to the rate “Justice Panganiban:
imposable, not the credit allowable. Private enterprises are But it can be passed as a part of sales, sales costs rather.
subjected to a proportional VAT rate, but VAT credits need not be.
The VAT is, after all, a human concept that is neither immutable “Atty. Baniqued:
nor invariable. In fact, it has changed after it was adopted as a But the petroleum dealers here themselves…… interrupted
system of indirect taxation by other countries. Again unlike the
laws of physical science, the VAT system can always be modified to
suit modern fiscal demands. The State, through the Legislative In your [b]alance [s]heet, it could be reflected as Cost of Sales
Department, may even choose to do away with it and revert to our and therefore the price will go up?
previous system of turnover taxes, sales taxes and compensating “Atty. Baniqued:
taxes, in which credits may be disallowed altogether. Even if it were to be reflected as part of the Cost of Sales, Your
Not expensed, but amortized over its useful life, is capital Honor, the [input VAT] that you cannot claim, the benefit to
equipment, which is purchased or treated as capital leases by you is only to the extent of the corporate tax rate which is 32
private enterprises. Aimed at achieving the twin objectives of now 35 [percent].
profitability and solvency, such purchase or lease is a matter of
prudence in business decision-making.
Hence, business judgments, sales volume, and their effect on Yes.
competition are for businesses to determine and for Congress to “Atty. Baniqued:
regulate—not for this Court to interfere with, absent a clear
showing that constitutional provisions have been violated. Tax It’s not 100 [percent] credi[ta]bility[,] unlike if it were applied
against your [output VAT], you get to claim 100 [percent] of it,
collection and administrative feasibility are for the executive
Your Honor.
branch to focus on, again not for this Court to dwell upon.
The Transcript of the Oral Arguments on July 14, 2005 clearly “Justice Panganiban:
point out in a long line of relevant questioning that, absent a That might be true, but we are talking about whether that
particular provision would be unconstitutional. You say it’s taxpayers. If they pass if on, they themselves would ultimately
oppressive, but you have a remedy, you just pass it on to bear the burden[, especially] in increase[d] cost of electricity,
the customer. I am not sayin[g] it’s good[.] [N]either am I land transport, food, everything, Your Honor.
saying it’s wise[.] [A]ll I’m talking about is, whether it’s
constitutional or not.
Yes, but the issue here in this Court, is whether that act of
“Atty. Baniqued:
Congress is unconstitutional.
Yes, in fact we acknowledge, Your Honor, that that is a
remedy available to the petroleum dealers, but considering 203
the impact of that limitation[,] and were just talking of the 70
[percent cap] on [input VAT]
VOL. 469, SEPTEMBER 1, 2005 203
202 Abakada Guro Party List vs. Ermita
202 SUPREME COURT REPORTS ANNOTATED “Atty. Baniqued:

Abakada Guro Party List vs. Ermita Yes, we believe it is unconstitutional, Your Honor.
in the level of the petroleum dealers. Were not even talking yet You have a right to complain that it is oppressive, it is
of the limitation on the [input VAT] available to the excessive, it burdens the people too much, but is it
manufacturers, so, what if they pass that on as well? unconstitutional?
“Justice Panganiban: “Atty. Baniqued:
Yes. Besides, passing it on, Your Honor, may not be as simple as it
“Atty. Baniqued: may seem. As a matter of fact, at the strike of midnight on
June 30, when petroleum prices were being changed upward,
Then, it would complicate… interrupted
the [s]ecretary of [the] Department of Energy was going
“Justice Panganiban: around[.] [H]e was seen on TV going around just to check that
What I am saying is, there is a remedy, which is business in prices don’t go up. And as a matter of fact, he had
character. The mere fact that the government is imposing that pronouncements that, the increase in petroleum price should
[seventy percent] cap doesnot make the law unconstitutional, only be limited to the effect of 10 [percent] E-VAT.
isn’t it? “Justice Panganiban:
“Atty. Baniqued: It’s becaus[e] the implementing rules were not clear and were
It does, Your Honor, if it can be shown. And as we have shown, not extensive enough to cover how much really should be the
it is oppressive and unreasonable, it is excessive, Your Honor… increase for various oil products, refined oil products. It’s up for
interrupted the dealers to guess, and the dealers were guessing to their
advantage by saying plus 10 [percent] anyway, right?
“Atty. Baniqued:
If you have no way of recouping it. If you have no way of
recouping that amount, then it will be oppressive, but you have In fact, the petroleum dealers, Your Honors, are not only faced
a business way of recouping it[.] I am saying that, not advising with constitutional issues before this Court. They are also faced
that it’s good. All I am saying is, is it constitutional or not[?] with a possibility of the Department of Energy not allowing
We’re not here to determine the wisdom of the law, that’s up them to pass it on[,] because this would be an unreasonable
for Congress. As pointed out earlier, if the law is not wise, the price increase. And so, they are being hit from both sides…
law makers will be changed by the people[.] [T]hat is their interrupted
solution t[o] the lack of wisdom of a law. If the law is “Justice Panganiban:
unconstitutional[,] then the Supreme Court will declare it
That’s why I say, that there is need to refine the implementing
unconstitutional and void it, but[,] in this case[,] there seems to
rules so that everyone will know, the customers will know how
be a business remedy in the same manner that Congress may
much to pay for gasoline, not only gasoline, gasoline, and so on,
just impose that tax straight without saying it’s [VAT]. If
diesel and all kinds of products, so there’ll be no confusion and
Congress will just say all petroleum will pay 3 [percent] of their
there’ll be no undue taking advantage. There will be a smooth
Gross Sales, but you don’t bear that, you pass that on, isn’t it?
implementation[,] if the law were to be upheld by the Court. In
“Atty. Baniqued: your case, as I said, it may be unwise to pass that on to the
We acknowledge your concern, Your Honor, but we should not customers, but definitely, the dealers will not bear that [—] to
forget that when the petroleum dealers pass these financial suffer the loss that you mentioned in your consolidated balance
burden or this tax differential to the consumers, they sheets. Certainly, the dealers will not bear that [cost], isn’t it?
themselves are consumers in their own right. As a matter of “Atty. Baniqued:
fact, they filed this case both as petroleum dealer[s] and as
It will be a very hard decision to make, Your Honor. Yes, but we talked already about the 70 [percent].
“Atty. Baniqued:
204
Yes, Your Honor.
When you made your presentation on the balance sheet, it is as
Abakada Guro Party List vs. Ermita if every capital expenditure you made is subject to the 5
[percent,] rather the [five year] depreciation schedule[.] [T]hat’s
“Justice Panganiban: not so. So, the presentation you made is a little inaccurate and
misleading.
Why, you will not pass it on?
“Atty. Baniqued:
“Atty. Baniqued:
At the start of our presentation, Your Honor[,] we stated
I cannot speak for the dealers…. interrupted.
clearly that this applies only to capital goods costing more than
“Justice Panganiban: one [million].
As a consumer, I will thank you if you don’t pass it on[;] but
you or your clients as businessm[e]n, I know, will pass it on. 205
“Atty. Baniqued:
As I have said, Your Honor, there are many constraints on VOL. 469, SEPTEMBER 1, 2005 205
their ability to do that[,] and that is why the first step that we Abakada Guro Party List vs. Ermita
are seeking is to seek redress from this Honorable Court[,]
because we feel that the imposit on is excessive and
oppressive….. interrupted
Yes, but you combined it later on with the 70 [percent] cap to
show that the dealers are so disadvantaged. But you didn’t tell
You can find redress here, only if you can show that the law is us that that will apply only when capital equipment or goods is
unconstitutional. one million or more. And in your case, what kind of capital
“Atty. Baniqued: goods will be worth one million or more in your existing gas
stations?
We realized that, Your Honor.
“Atty. Baniqued:
Well, you would have petroleum dealers, Your Honor, who
Alright. Let’s talk about the 5 [percent] [d]epreciation rate, would have[,] aside from sale of petroleum[,] they would have
but that applies only to the capital equipment worth over a their service centers[,] like[…] to service cars and they would
million? have those equipments, they are, Your Honor.
“Atty. Baniqued: “Justice Panganiban:
Yes, Your Honor. But that’s a different profit center, that’s not from the sale of…
And that doesn’t apply at all times, isn’t it? No, they would form part of their [VATable] sale, Your Honor.
“Atty. Baniqued: Justice Panganiban:
Well…… It’s a different profit center[;] it’s not in the sale of petroleum
“Justice Panganiban: products. In fact the mode now is to put up super stores in huge
gas stations. I do not begrudge the gas station[.] [A]ll I am
That doesn’t at all times? saying is it should be presented to us in perspective. Neither
“Atty. Baniqued: am I siding with the government. All I am saying is, when I
saw your complicated balance sheet and mathematics, I saw
For capital goods costing less than 1 million, Your Honor,
that you were to put in all the time the depreciation that
then….
should be spread over [five] years. But we have agreed that
“Justice Panganiban: that applies only to capital equipment [—]not to any kind of
That will not apply? goods [—] but to capital equipment costing over 1 million pesos.
“Atty. Baniqued: “Atty. Baniqued:
That will not apply, but you will have the 70 [percent] cap on Yes, Your Honor, we apologize if it has caused a little
input [VAT], Your Honor. confusion….
“Justice Panganiban: “Justice Panganiban:

Again the solution could b[e] to pass that on, because
that’s an added cost, isn’t it? Yes, Your Honor.

“Atty. Baniqued: “Justice Panganiban:
Well, yes, you can pass it on…. You will charge that[.] [T]herefore[,] the sales to the Supreme
Court by that gas station will effectively be higher?
“Atty. Baniqued:
I am not teaching you, I am just saying that you have a
remedy… I am not saying either that the remedy is wise or Yes, Your Honor.
should be done, because[,] as a consumer[,] I wouldn’t want
that to be done to me.
So, the Supreme Court will pay more, you will not [be] going to
“Atty. Baniqued:
[absorb] that 5 [percent], will you?
We realiz[e] that, Your Honor, but the fact remain[s] that
“Atty. Baniqued:
whether it is in the hands of the petroleum dealers or in the
hands of the consumers[,] if this If it is passed on, Your Honor, that’s of course we agree….
Interrupted.
206 “Justice Panganiban:
Not if, you can pass it on….
206 SUPREME COURT REPORTS ANNOTATED “Atty. Baniqued:
Abakada Guro Party List vs. Ermita Yes, we can…. interrupted
imposition is unreasonable and oppressive, it will remain so,
even after it is passed on, Your Honor. There is no prohibition to passing it on[.] [P]robably the gas
station will simply pass it on to the Supreme Court and say[,]
“Justice Panganiban: well[,] there is this 5 [percent]
Alright. Let’s go to the third. The 5 [percent] withholding tax,
[f]inal [w]ithholding [t]ax, but this applies to sales to 207
government?
“Atty. Baniqued: VOL. 469, SEPTEMBER 1, 2005 207
Yes, Your Honor. Abakada Guro Party List vs. Ermita
So, you can pass on this 5 [percent] to the [g]overnment. final VAT on you so[,] therefore, for every tank full you buy[,]
After all, that 5 [percent] will still go back to the government. we’ll just have to [charge] you 5 [percent] more. Well, the
Supreme Court will probably say, well, anyway, that 5
“Atty. Baniqued:
[percent] that we will pay the gas dealer, will be paid back to
Then it will come back to haunt us, Your Honor….. the government, isn’t it[?] So, how [will] you be affected?
Why? I hope the passing on of the burden, Your Honor, doesn’t come
back to party litigants by way of increase in docket fees, Your
“Atty. Baniqued:
Honor.
By way of, for example sales to NAPOCOR or NTC….
interrupted
But that’s quite another m[a]tter, though…(laughs) [W]hat I
am saying, Mr. [C]ounsel is, you still have to show to us that
Sales of petroleum products…. your remedy is to declare the law unconstitutional[,] and it’s
“Atty. Baniqued: not business in character.
………… in the case of NTC, Your Honor, it would come back to “Atty. Baniqued:
us by way of increase[d] cost, Your Honor. Yes, Your Honor, it is our submission that this limitation in the
“Justice Panganiban: input [VAT] credit as well as the amortization…….
Okay, let’s see. You sell, let’s say[,] your petroleum products to “Justice Panganiban:
the Supreme Court, as a gas station that sells gasoline to us All you talk about is equal protection clause, about due process,
here. Under this law, the 5 [percent] withholding tax will have depreciation of property without observance of due process[,]
to be charged, right? could really be a remedy than a business way.
“Atty. Baniqued: “Atty. Baniqued:

Business in the level of the petroleum dealers, Your Honor, or Department of Energy, lest [we may] be accused of …..
in the level of Congress, Your Honor.
In other words, that’s your remedy [--] to take it up with the
Yes, you can pass them on to customers[,] in other words. It’s Department of Energy
the customers who should [complain].
“Atty. Baniqued:
“Atty. Baniqued:
…..unreasonable price increases, Your Honor.
Yes, Your Honor… interrupted
Not for us to declare those provisions unconstitutional.
And perhaps will not elect their representatives anymore[.]
“Atty. Baniqued:
“Atty. Baniqued:
We, again, wish to stress that the petroleum dealers went to
Yes, Your Honor….. this Court[,] both as businessmen and as consumers. And as
consumers, [we’re] also going to bear the burden of whatever
they themselves pass on.
For agreeing to it, because the wisdom of a law is not for the
Supreme Court to pass upon.
You know[,] as a consumer, I wish you can really show that the
“Atty. Baniqued:
laws are unconstitutional, so I don’t have to pay it. But as a
It just so happens, Your Honor, that what is [involved] here is a magistrate of this Court, I will have to pass upon judgment on
commodity that when it goes up, it affects everybody…. the basis of [--] whether the law is unconstitutional or not. And
“Justice Panganiban: I hope you can in your memorandum show that.
Yes, inflationary and inflammatory…. “Atty. Baniqued:
“Atty. Baniqued: We recognized that, Your Honor.” (boldface supplied, pp. 386-
410).
…just like what Justice Puno says it shakes the entire
economic foundation, Your Honor.
Amendments on Other Taxes and Administrative Matters.
Finally, the BCC’s amendments regarding other
208
209

VOL. 469, SEPTEMBER 1, 2005 209
“Justice Panganiban: 90
Yes, it’s inflationary[,] brings up the prices of everything… taxes are both germane in a legal sense and reasonably necessary
in an economic sense. This fact is evident, considering that the
“Atty. Baniqued: proposed changes in the VAT law will have inevitable implications
And it is our submission that[,] if the petroleum dealers cannot and repercussions on such taxes, as well as on the procedural
absorb it and they pass it on to the customers, a lot of requirements and the disposition of incremental
91
revenues, in the
consumers would neither be in a position to absorb it too and Tax Code. Either mitigating meas-ures have to be put in place or
that[’s] why we patronize, Your Honor. increased rates imposed, in
_______________
There might be wisdom in what you’re saying, but is that
unconstitutional? 90 §§13-20 of SB 1950 seek to amend Tax Code provisions on percentage taxes on
“Atty. Baniqued: domestic carriers and keepers of garages in §117, and on international carriers in
§118; franchise taxes in §119; amusement taxes in §125; excise taxes on
Yes, because as I said, Your Honor, there are even constraints
in the petroleum dealers to pass it on, and we[‘]re not even sure manufactured oils and other fuels in §148; registration requirements in §236;
whether….interrupted issuance of receipts or sales or commercial invoices in §237; and disposition of
incremental revenues in §288.
“Justice Panganiban: 91 “[T]he removal of the excise tax on diesel x x x and other socially sensitive
Are these constraints [--] legal constraints? products such as kerosene and fuel oil substantially lessened the impact of VAT. The
“Atty. Baniqued: reduction in import duty x x x also eased the impact of VAT.” Manila Bulletin,
“Impact of VAT on prices of oil products should be less than 10%, says DoE,” by
Well, it would be a different story, Your Honor[.] [T]hat’s
something we probably have to take up with the
James A. Loyola, Business Bulletin B-3, Friday, July 1, 2005, attached as Annex A to 92 §28(1) of Article VI of the 1987 Constitution.
the Memorandum filed by the Association of Pilipinas Shell Dealers, Inc. 93 §26(2) of Article VI of the 1987 Constitution.
The Transcript of the Oral Arguments in G.R. Nos. 168461, 168463, 168056, and
211
168207 on July 14, 2005 also reveals the effect of mitigating measures upon
petitioners in G.R. No. 168461:
VOL. 469, SEPTEMBER 1, 2005 211
As a matter of fact[,] a part of the mitigating measures would be the elimination Abakada Guro Party List vs. Ermita
of the [e]xcise [t]ax and the import duties. That is [why] it is not correct to say
that the [VAT] as to petroleum dealers increase to 10 [percent].
“Atty. Baniqued:
The no pass-on provisions in the congressional 94
bills are the only
item raised by petitioners concerning deletion. As I have already
Yes, Your Honor.
mentioned earlier, these provisions were in conflict. Thus, the BCC
exercised its prerogative to remove them. In fact, congressional
And[,] therefore, there is no justification for increasing the retail price by 10 rules give the BCC the power to reconcile disagreeing provisions,
[percent] to cover the E-[VAT.] [I]f you consider the excise tax and the import
duties, the [n]et [t]ax would probably be in the neighborhood of 7 [percent]? We and in the process of reconciliation, to delete them. No other non-
are not going into exact figures[.] I am just trying to deliver a point that conflicting provision was deleted.
different industries, different At this point, and after the extensive discussion above, it can
readily be seen no non-conflicting provisions of the E-VAT bills were
210 rejected indiscriminately by the BCC.
Approving and Inserting

Completely New Provisions
Fifth, the BCC had the option of inserting completely new
order to achieve the purpose of the law, cushion the impact of provisions not found in any of the provisions of the bills of either
increased taxation, and 92still maintain the equitability desired of house of Congress, or make and endorse an entirely new bill as a
any other revenue law. Directly related to the proposed VAT substitute. Taking this option may be a blatant violation of the
changes, these amendments are expected also to have a salutary Constitution, for not only will the surreptitious insertion or
effect on the national economy. unwarranted creation contravene the “origination” principle; it may
93
The no-amendment rule in the Constitution was not violated by likewise desecrate
95
the three-reading requirement and the no-
the BCC, because no completely new provision was inserted in the amendment rule.
approved bill. The amendments may be unpopular or even work Fortunately, however, the BCC did not approve or insert
hardship upon everyone (this writer included). If so, the remedy completely new provisions. Thus, no violation of the Constitution
cannot be prescribed by this Court, but by Congress. was committed in this regard.
Rejecting Non-Conflicting Summary

Provisions
The enrolled bill doctrine is said to be conclusive not only as to the
Fourth, the BCC may choose neither to adopt nor to consolidate the provisions of a law, but also to its due enactment. It is not absolute,
versions presented to it by both houses of Congress, but instead to however, and must yield to mandatory provisions of the 1987
reject non-conflicting provisions in those versions. In other words, Constitution. Specifically, this Court has the
despite the lack of conflict in them, such provisions are still
eliminated entirely from the consolidated bill. There may be a
constitutional problem here. _______________
94 These bills refer to HB 3705 and SB 1950.

_______________ 95 §26(2), supra.
products, different services are hit differently. So it’s not correct to say that all 212
prices must go up by 10 [percent].
“Atty. Baniqued:
You’re right, Your Honor. 212 SUPREME COURT REPORTS ANNOTATED
“Justice Panganiban: Abakada Guro Party List vs. Ermita
Now. For instance, [d]omestic [a]irlinecompanies, Mr. Counsel, are at present
imposed a [s]ales [t]ax of 3 [percent]. When this E-[VAT] law took effect[,] the
[s]ales [t]ax was also removed as a mitigating measure. So, therefore, there is no duty of striking down provisions of a law that in their enactment
justif ication to increase the fares by 10 [percent;] at best 7 [percent], correct? violate conditions,
96
restrictions or limitations imposed by the
“Atty. Baniqued: Constitution. The Bicameral Conference Committee (BCC) is a
I guess so, Your Honor, yes.” (pp. 367-368). mere creation of Congress. Hence, the BCC may resolve differences

only in conflicting provisions of congressional bills that are referred abuse of discretion to the BCC, or Congress for that matter, for
to it; and it may do so only on the condition that such resolution passing the law.
does not violate the origination, the three-reading, and the no- “[T]he Court—as a rule—is deferential to the actions taken by
amendment rules of the Constitution. the other branches of government that have primary 97
responsibility
In crafting RA 9337, the BCC opted to reconcile the conflicting for the economic development of our country.” Thus, in upholding
provisions of the Senate and House bills, particularly those on the the Philippine ratification of the treaty establishing the World
70 percent cap on input tax; the 5 percent final withholding tax; Trade Organization (WTO), Tañada v. Angara held that “this Court
percentage taxes on domestic carriers, keepers of garages and never forgets that the Senate, whose act is under review, is one of
international carriers; franchise taxes; amusement taxes; excise two sovereign houses of Congress and is thus entitled to great
taxes on manufactured oils and other fuels; registration respect in its actions. It is itself a constitutional body, independent
requirements; issuance of receipts or sales or commercial invoices; and coordinate, and thus its actions are presumed regular and done
and disposition of incremental revenues. To my mind, these changes in good faith. Unless convincing proof and persuasive arguments
do not violate the origination or the germaneness principles. are
Neither is there undue delegation of legislative power in the
standby authority given by Congress to the President. The law is _______________
complete, and the standards are fixed. While I concur with the
ponencia’s view that the President was given merely the power to 97 Panganiban, Leveling the Playing Field (2004), PRINT-TOWN Group of
ascertain the facts to bring the law into operation—clearly an Companies, pp. 46-47.
administrative, not a legislative, function—I stress that the finance
214
secretary remains the Chief Executive’s alter ego, not an agent of
Congress.
The BCC exercised its prerogative to delete the no pass-on 214 SUPREME COURT REPORTS ANNOTATED
provisions, because these were in conflict. I believe, however,
_______________
presented to overthrow such 98
presumption, this Court will resolve
96 “Each house may not by its rules ignore constitutional restraints or violate every doubt in its favor.” As pointed our in Cawaling Jr. v.
fundamental rights, and there should be a reasonable relation between the mode or Comelec, the grounds for nullity of the law 99
“must be beyond
method of proceeding established by the rule and the result which is sought to be reasonable doubt, for to doubt is to sustain.” Indeed, “there must
attained.” US v. Ballin, 144 US 1, 5, 12 S.Ct. 507, 509, February 29, 1892, per be clear and unequivocal showing100
that what the Constitutions
Brewer, J. prohibits, the statute permits.”
WHEREFORE, I vote to GRANT the Petitions in part and to
213 declare Sections 1, 2, and 3 of Republic Act No. 9337
unconstitutional, insofar as these sections (a) amend the rates of
VOL. 469, SEPTEMBER 1, 2005 213 income tax on domestic, resident foreign, and nonresident foreign
corporations; (b) amend the tax credit against taxes due from
Abakada Guro Party List vs. Ermita nonresident foreign corporations on intercorporate dividends; and
(c) reduce the allowable deduction for interest expense. The other
that it blatantly violated the origination and the germaneness provisions are constitutional, and as to these I vote to DISMISS the
principles when it inserted provisions not found in the House Petitions.
versions of the E-VAT Law: (1) increasing the tax rates on domestic,
resident foreign and nonresident foreign corporations; (2) increasing
the tax credit against taxes due from nonresident foreign CONCURRING AND DISSENTING OPINION
corporations on intercorporate dividends; and (3) reducing the
allowable deduction for interest expense. Hence, I find these YNARES-SANTIAGO, J.:
insertions unconstitutional.
Some have criticized the E-VAT Law as oppressive to our already The ponencia states that under the provisions of the Rules of the
suffering people. On the other hand, respondents have justified it by House of Representatives and the Senate Rules, the Bicameral
comparing it to bitter medicine that patients must endure to be Conference Committee is mandated to settle differences between
healed eventually of their maladies. The advantages and the disagreeing provisions in the House bill and Senate bill.
disadvantages of the E-VAT Law, as well as its long-term effects on However, the ponencia construed the term “settle” as synonymous
the economy, are beyond the reach of judicial review. The economic to “reconcile” and “harmonize,” and as such, the Bicameral
repercussions of the statute are policy in nature and are beyond the Conference Committee may either (a) adopt the specific provisions
power of the courts to pass upon. of either the House bill or Senate
I have combed through the specific points raised in the Petitions.
Other than the three items on income taxes that I respectfully _______________
submit are unconstitutional, I cannot otherwise attribute grave

98 338 Phil. 546, 604-605; 272 SCRA 18, 80, May 2, 1997, per Panganiban, J. The Rules of the House of Representatives and the Rules of the
99 420 Phil. 525, 531; 368 SCRA 453, 457, October 26, 2001, per Sandoval- Senate provide that in the event there is disagreement between the
Gutierrez, J.; (citing The Philippine Judges Association v. Prado, 227 SCRA 703, 706, provisions of the House and Senate bills, the differences shall be
November 11, 1993, per Cruz, J.). settled by a bicameral conference committee.
100 Veterans Federation Party v. Commission on Elections, 396 Phil. 419, 452-453; By this, I fully subscribe to the theory advanced in the
342 SCRA 244, 283, October 6, 2000, per Panganiban, J.; (citing Garcia v. Dissenting Opinion of Chief Justice 3
Hilario G. Davide, Jr. in
Commission on Elections, 227 SCRA 100, 107-108, October 5, 1993). Tolentino v. Secretary of Finance that the authority of the
bicameral conference committee was limited to the reconciliation of
215
disagreeing provisions or the resolution of differences or
inconsistencies. Thus, it could only either (a) restore, wholly or
VOL. 469, SEPTEMBER 1, 2005 215 partly, the specific provisions of the House bill amended by the
Senate bill, (b) sustain, wholly or partly, the Senate’s amendments,
or (c) by way of a compromise, to agree that neither provisions in the
House bill amended by the Senate nor the latter’s amendments
bill, (b) decide that neither provisions in the House bill or the thereto be carried into the final form of the former.
provisions in the Senate bill would be carried into the final form of Otherwise stated, the Bicameral Conference Committee is
the bill, and/or (c) try to arrive at a compromise between the authorized only to adopt either the version of the House bill or the
disagreeing provisions. Senate bill, or adopt neither. It cannot, as the ponencia proposed,
I beg to differ on the third proposition. “try to arrive at a compromise,” such as introducing provisions not
Indeed, Section 16(3), Article VI of the 1987 Constitution included in either the House or Senate bill, as it would allow a mere
explicitly allows each House to determine the rules of its ad hoc committee to substitute the will of the entire Congress and
proceedings. However, the rules must not contravene constitutional without undergoing the requisite three-reading, which are both
provisions. The rule-making power of Congress should take its constitutionally proscribed. To allow the committee unbridled
bearings from the Constitution. If in the exercise of this rule- discretion to overturn the collective will of the whole Congress
making power, Congress failed to set parameters in the functions of defies logic considering that the bills are passed presumably after
the committee and allowed the latter unbridled authority to study, deliberation and debate in both houses. A lesser body like the
perform acts which Congress itself is prohibited, like the passage of Bicameral Conference Committee should not be allowed to
a law without undergoing the requisite three-reading and the so- substitute its judgment for that of the entire Congress, whose will is
called no-amendment rule, then the same amount to grave abuse of expressed collectively through the passed bills.
discretion which this Court is empowered to correct under its
expanded certiorari jurisdiction. Notwithstanding the doctrine of
_______________
separation of powers, therefore, it is the duty of the Court to declare
as void a legislative enactment, either from want of constitutional 3 G.R. Nos. 115455, 115525, 115543, 115544, 115754, 115781, 115852, 115873,
power to enact or because
1
the constitutional forms or conditions have 115931, 25 August 1994, 235 SCRA 630, 750.
not been observed. When the Court declares as unconstitutional a
law or a specific provision thereof because procedural requirements 217
for its passage were not complied, the Court is by no means
asserting its ascendancy over the Legislature, but simply affirming VOL. 469, SEPTEMBER 1, 2005 217
the supremacy
2
of the Constitution as repository of the sovereign
will. The judicial branch must ensure that constitutional norms for Abakada Guro Party List vs. Ermita
the exercise of powers vested upon the two other branches are
properly observed. This is the very essence of judicial authority When the Bicameral Conference Committee goes beyond its limited
conferred upon the Court under Section 1, Article VII of the 1987 function by substituting its own judgment for that of either of the
Constitution. two houses, it violates the internal rules of Congress and
contravenes material restrictions imposed by the Constitution,
_______________ particularly on the passage of law. While concededly, the internal
rules of both Houses do not explicitly limit the Bicameral
1 Cooley on Constitutional Limitations, 8th Ed., Vol. I, p. 332. Conference Committee to a consideration only of conflicting
2 Angara v. Electoral Commission, 63 Phil. 139, 158 (1936). provisions, it is understood that the provisions of the Constitution
should be read into these rules as imposing limits on what the
216
committee can or cannot do. As such, it cannot perform its
delegated function in violation of the three-reading requirement
216 SUPREME COURT REPORTS ANNOTATED and the no-amendment rule.
Section 26(2) of Article VI of the 1987 Constitution provides that:
(2) No bill shall be passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its respective abilities; that is, in proportion to the revenue which they
immediate enactment to meet a public calamity or emergency. Upon the respectively enjoy under
last reading of a bill, no amendment hereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays _______________
entered in the Journal.
4 Supra, p. 811.
Thus, before a bill becomes a law, it must pass three readings.
Hence, the ponencia’s submission that despite its limited authority, 219
the Bicameral Conference Committee could “compromise the
disagreeing provisions” by substituting it with its own version— VOL. 469, SEPTEMBER 1, 2005 219
clearly violate the three-reading requirement, as the committee’s
version would no longer undergo the same since it would be Abakada Guro Party List vs. Ermita
immediately put into vote by the respective houses. In effect, it is
1
not a bill that was passed by the entire Congress but by the the protection of the state.” At no other time this dictum becomes
members of the ad hoc committee only, which of course is more urgent and obligatory as in the present time, when the
constitutionally infirm. Philippines is in its most precarious fiscal position.
I disagree that the no-amendment rule referred only to “the At this juncture, may I state that I join Mr. Senior Justice
procedure to be followed by each house of Congress with regard to Reynato S. Puno in his Opinion, specifically on the following points:
bills initiated in each of said respective houses” be-
1. It is “high time to re-examine the test of germaneness
218 proffered in Tolentino”;
2. The Bicameral Conference Committee “cannot exercise its
218 SUPREME COURT REPORTS ANNOTATED unbridled discretion,” “it cannot create a new law,” and its
deletion of the “no pass on provision” common in both
Senate Bill No. 1950 and House Bill No. 3705 is
“unconstitutional.”
cause it would relegate the no-amendment rule to a mere rule of
procedure. To my mind, the no-amendment rule should be In addition to the above points raised by Mr. Senior Justice Puno,
construed as prohibiting the Bicameral Conference Committee from may I expound on the issues specified hereunder:
introducing amendments and modifications to non-disagreeing There is no reason to rush and stamp the imprimatur of validity
provisions of the House and Senate bills. In sum, the committee to a tax law, R.A. 9337, that contains patently unconstitutional
could only either adopt the version of the House bill or the Senate provisions. I refer to Sections 4 to 6 which violate the principle of
bill, or adopt neither. As Justice Reynato S. Puno said 4
in his non-delegation of legislative power. These Sections authorize the
Dissenting Opinion in Tolentino v. Secretary of Finance, there is President, upon recommendation of the Secretary of Finance, to
absolutely no legal warrant for the bold submission that a raise the VAT rate from 10% to 12% effective January 1, 2006, if the
Bicameral Conference Committee possesses the power to add/delete conditions specified therein are met, thus:
provisions in bills already approved on third reading by both
Houses or an ex post veto power. . . . That the President, upon the recommendation of the Secretary of
In view thereof, it is my submission that the amendments Finance, shall, effective January 1, 2006, raise the rate of value-added tax
introduced by the Bicameral Conference Committee which are not to twelve percent (12%) after any of the following conditions has been
found either in the House or Senate versions of the VAT reform satisfied:
bills, but are inserted merely by the Bicameral Conference
Committee and thereafter included in Republic Act No. 9337, (i) Value-added tax collection as a percentage of Gross
should be declared unconstitutional. The insertions and deletions Domestic Product (GDP) of the previous year exceeds two
made do not merely settle conflicting provisions but materially and four-fifth percent (2 4/5%); or
altered the bill, thus giving rise to the instant petitions. (ii) National government deficit as a percentage of GDP of the
I, therefore, join the concurring and dissenting opinion of Mr. previous year exceeds one and one-half percent (1 1/2%).
Justice Reynato S. Puno.
_______________
CONCURRING AND DISSENTING OPINION 1 Book V of The Wealth of Nations.
220
SANDOVAL-GUTIERREZ, J.:
Adam Smith, the great 18th-century political economist, enunciated 220 SUPREME COURT REPORTS ANNOTATED
the dictum that “the subjects of every state ought to contribute to the
support of government, as nearly as possible, in proportion to their

This proviso on the authority of the President is uniformly Consequently, Section 24, Article VI of our Constitution
appended to Sections 4, 5 and 6 of R.A. No. 9337, provisions enshrined the principle of “no taxation without representation” by
amending Sections 106, 107 and 108 of the NIRC, respectively. providing that “all… revenue bills… shall originate exclusively in
Section 4 imposes a 10% VAT on sales of goods and properties, the House of Representatives, but the Senate may propose or concur
Section 5 imposes a 10% VAT on importation of goods, and Section 6 with amendments.” This provision generally confines the power of
imposes a 10% VAT on sale of services and use or lease of taxation to the Legislature.
properties. 2 3 4
R.A. No. 9337, in granting to the President the stand-by
Petitioners in G.R. Nos. 168056, 168207 and 168463 assail the authority to increase the VAT rate from 10% to 12%, the
constitutionality of the above provisions on the ground that such Legislature abdicated its power by delegating it to the President.
stand-by authority granted to the President constitutes: (1) undue This is constitutionally impermissible. The Legislature may not
delegation of legislative power; (2) violation of due process; and (3) escape its duties and responsibilities by delegating its power to any
violation of the principle of “ex-clusive origination.” They cited as other body or authority. Any attempt to abdicate the power is
their basis Article VI, Section 28 (2); Article III, Section 1; and unconstitutional and void, on the principle that
Article VI, Section 24 of the Constitution.
_______________
I Undue Delegation of Legislative Power 6 Pepsi Cola Bottling Company of the Philippines vs. Municipality of Tanauan,
5 Leyte, G.R. No. L-31156, February 27, 1976, 69 SCRA 460. See also National Power
Taxation is an inherent attribute of sovereignty. It is a power that
Corporation vs. Albay, G.R. No. 87479, June 4, 1990, 186 SCRA 198.
is purely legislative and which the central legislative body cannot 7 Bernas, S.J., The 1987 Constitution of the Republic of the Philippines, A
delegate either to the executive or judicial
Commentary, 1996 Edition, at p. 687.
_______________ 222
2 ABAKADA GURO Party List (Formerly AASJAS), officers Samson S. Alcantara

and Ed Vincent S. Albano. 222 SUPREME COURT REPORTS ANNOTATED
3 Aquilino Q. Pimentel, Jr., Luisa P. Ejercito-Estrada, Jinggoy E. Estrada, Panfilo Abakada Guro Party List vs. Ermita
M. Lacson, Alfredo S. Lim, Jamby A.S. Madrigal and Sergio R. Osmenña III.
4 Francis Joseph G. Escudero, Vincent Crisologo, Emmanuel Joel J. Villanueva, 8
potestas delegata non delegare potest. As Judge Cooley enunciated:
Rodolfo G. Plaza, Darlene Antonino-Custodio, Oscar G. Malapitan, Benjamin C.
Agarao, Jr., Juan Edgardo M. Angara, Justin Marc SB. Chipeco, Florencio G. Noel, “One of the settled maxims in constitutional law is, that the power
Mujiv S. Hataman, Renato B. Magtubo, Joseph A. Santiago, Teofisto DL. Guingona conferred upon the legislature to make laws cannot be delegated by that
III, Ruy Elias C. Lopez, Rodolfo Q. Agbayani and Teodoro A. Casiño. department to any other body or authority. Where the sovereign power
5 Luzon Stevedoring Co. vs. Court of Tax Appeals, L-302332, July 29, 1998, 163 of the state has located the authority, there it must remain; and by
SCRA 647 cited in Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p. the constitutional agency alone the laws must be made until the
7. Constitution itself is changed. The power to whose judgment, wisdom,
and patriotism this high prerogative has been entrusted cannot relieve
221
itself of the responsibility by choosing other agencies upon which the power
shall be devolved, nor can it substitute the judgment, wisdom, and
VOL. 469, SEPTEMBER 1, 2005 221 patriotism of any other body for those to which alone the people have seen
9
fit to confide this sovereign trust.”
Of course, the rule which forbids the delegation of the power of
department of government
6
without infringing upon the theory of taxation is not absolute and inflexible. It admits of exceptions.
separation of powers. The rationale of this doctrine may be traced Retired Justice Jose C. Vitug enumerated such exceptions, to wit:
from the democratic principle of “no taxation without (1) delegations to local governments (to be exercised by the local
representation.” The power of taxation being so pervasive, it is in legislative bodies thereof) or political subdivisions; (2) delegations
the best interest of the people that such power be lodged only in the allowed by the Constitution; and (3) delegations relating merely to
Legislature. Composed of the people’s representatives, it is “closer administrative implementation that may call for some degree of
to the pulse of the people and… are therefore in a better position to discretionary
10
powers under a set of sufficient standards expressed
determine both the extent of the legal burden 7
the people are by law.
capable of bearing and the benefits they need.” Also, this set-up Patently, the act of the Legislature in delegating its power to tax
provides security against the abuse of power. As Chief Justice does not fall under any of the exceptions.
Marshall said: “In imposing a tax, the legislature acts upon its First, it does not involve a delegation of taxing power to the local
constituents. The power may be abused; but the interest, wisdom, government. It is a delegation to the President.
and justice of the representative body, and its relations with its Second, it is not allowed by the Constitution. Section 28 (2),
constituents, furnish a sufficient security.” Article VI of the Constitution enumerates the charges or duties, the

16 17
rates of which may be fixed by the President pursuant to a law dues and other duties and imposts, “by no stretch of imagination
passed by Congress, thus: can this enumeration be extended to include the VAT.
And third, it does not relate merely to the administrative
_______________ implementation of R.A. No. 9337.
In testing whether a statute constitutes an undue delegation of
8 People vs. Vera, 65 Phil. 56 (1937). legislative power or not, it is usual to inquire whether the statute
9 Cooley on Constitutional Limitations, 8th ed., Vol. I, p. 224. was complete in all its terms and provisions when it left the hands
10 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at pp. 8-9. of the Legislature so that nothing was left to 18
the judgment of any
other appointee or delegate of the legislature.
223
In the present case, the President is the delegate of the
Legislature, endowed with the power to raise the VAT rate from
VOL. 469, SEPTEMBER 1, 2005 223 10% to 12% if any of the following conditions, to reiterate, has been
satisfied: (i) value-added tax collection as a percentage of gross
domestic product (GDP) of the previous year exceeds two and four-
fifths percent (2 4/5%) or (ii) National Government deficit as a
The Congress may, by law, authorize the President to fix within percentage of GDP of the previous year exceeds one and one-half
specified limits, and subject to such limitations and restrictions as it may percent (1 1/2%).
impose, tariff rates, import and export quotas, tonnage and wharfage At first glance, the two conditions may appear to be definite
dues, and other duties or imposts within the framework of the national standards sufficient to guide the President. However, to my mind,
development program of the Government. they are ineffectual and malleable as they give the President ample
opportunity to exercise her authority in arbitrary and
Noteworthy is the absence of tax rates or VAT rates in the discretionary fashion.
enumeration. If the intention of the Framers of the Constitution is
to permit the delegation of the power to fix tax rates or VAT rates to
_______________
the President, such could have been easily achieved by the mere
inclusion of the term “tax rates” or “VAT rates” in the enumeration. 16 Wharfage dues are generally understood to be the fees paid for landing goods
It is a dictum in statutory construction that what is expressed 11
puts upon or loading them from a wharf. It is a charge for the use of the wharf and may be
an end to what is implied. Expressium facit cessare tacitum. This treated either as rent or compensation. (Marine Lighterage Corp. vs. Luckenbach
is a derivative of the more familiar maxim express mention is S.S. Co., 119 Misc. 612, 248 NYS 71).
implied exclusion or expressio unius est exclusio alterius. 17 A duty is generally understood to be a tax on the importation or exportation of
Considering 12that Section
13
28 (2), Article VI
14
expressly
15
speaks only of goods, merchandise and other commodities, while imposts are duties or impositions
“tariff rates, import and export quotas, tonnage and wharfage levied for various reasons. (Crew Levick Co. vs. Commonwealth of Pennsylvania, 245
US 292, 62 L. Ed. 295, 38 S. Ct. 126).
_______________ 18 People vs. Vera, supra.
11 Espiritu vs. Cipriano, G.R. No. 32743, February 15, 1974, 55 SCRA 533, 538, 225
citing Sutherlands Statutory Construction, Vol. 2, Section 4945, p. 412.
12 A tariff is a list or schedule of articles on which a duty is imposed upon their
importation, with the rates at which they are severally taxed, it is also the custom or
VOL. 469, SEPTEMBER 1, 2005 225
duty payable on such articles. (Black’s Law Dictionary [6th Edition], 1990, at p. Abakada Guro Party List vs. Ermita
1456).
13 An import quota is a quantitative restriction on the importation of an article
The two conditions set forth by law would have been sufficient had
into a country, and is a remedy available to the executive department upon its
it not been for the fact that the President, being at the helm of the
determination that an imported article threatens serious injury to a domestic
entire officialdom, has more than enough power of control to bring
industry. (Id., at p. 755).
about the existence of such conditions. Obviously, R.A. No. 9337
14 An export quota is an amount of specific goods which may be exported and are
allows the President to determine for herself whether the VAT rate
set by the government for purposes of national defense, economic stability and price
shall be increased or not at all. The fulfillment of the conditions is
support. (Id., at p. 579).
entirely placed in her hands. If she wishes to increase the VAT rate,
15 Tonnage dues are duties laid upon vessels according to their tonnage or cubical
all she has to do is to strictly enforce the VAT collection so as to
capacity. (Id., at p. 1488).
exceed the 2 4/5% ceiling. The same holds true with the national
224 government deficit. She will just limit government expenses so as
not to exceed the 1 1/2% ceiling. On the other hand, if she does not
wish to increase the VAT rate, she may discourage the Secretary of
224 SUPREME COURT REPORTS ANNOTATED Finance from making the recommendation.
Abakada Guro Party List vs. Ermita That the President’s exercise of an authority is practically within
her control is tantamount to giving no conditions at all. I believe
this amounts to a virtual surrender of legislative power to her. It
16 17
must be stressed that the validity of a law is not tested by what has Chief Executive.
19
been done but by what may be done under its provisions. Senator Recto.
That is right.
II Violation of Due Process Senator Lacson.
The constitutional safeguard of due process is briefly worded in —In order for her to be able to raise the VAT to 12 %.
Section 1, Article III of the Constitution which states that, “no Senator Recto.
person shall be20 deprived of life, liberty or property without due
process of law.” That is right. That is the intention, yes.
Substantive due process requires the intrinsic validity of the law x x x x x x
in interfering with the rights of the person to his property. The
inquiry in this regard is not whether or not the law is being 227
enforced in accordance with the prescribed man-
VOL. 469, SEPTEMBER 1, 2005 227

_______________
19 Walter E. Olsen & Co. vs. Aldanese and Trinidad (1922), 43 Phil., 259; 12 C.J.,
p. 786.
Senator Osmeña.
20 Cruz, Constitutional Law, 1987 Edition, at p. 101.
All right. Therefore, with the lifting of exemptions it
226 stands to reason that Value-added tax collections as a
percentage of GDP will be much higher than . . . Now, if
it is higher than 2.5%, in other words, because they
226 SUPREME COURT REPORTS ANNOTATED collected more, we will allow them to even tax more. Is
Abakada Guro Party List vs. Ermita that the meaning of this particular phrase?
Senator Recto.
ner but whether or not, to begin with, it is a proper exercise of Yes, Mr. President, that is why it is as low as 2.8%. It is
legislative power. like if a person has a son and his son asks him for an
To be so, the law must have a valid governmental objective, i.e., allowance, I do not think that he would immediately
the interest of the public as distinguished from those of a particular give his son an increase in allowance unless he tells his
class, requires the intervention of the State. This objective must be son, You better imp rove your grades and I will give you
pursued in a lawful manner, or in other words, the means employed an allowance. That is the analogy of this.
must be reasonably related to the accomplishment of the purpose xxxxxx
and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to a Senator Osmeña.
valid governmental objective, i.e. to raise revenues for the So the gentleman is telling the President, If you collect
government. However, with respect to the means employed to more than 138 billion, I will give you additional powers
accomplish such objective, I am convinced that R.A. No. 9337, to tax the people.
particularly Sections 4, 5 and 6 thereof, are arbitrary and unduly Senator Recto.
oppressive.
A reading of the Senate deliberation reveals that the first x x x We are saying, kung mataas ang grade mo,
dadagdagan ko ang allowance mo. Katulad ng sinabi
condition constitutes a reward to the President for her effective
natin dito. What we are saying here is you prove to me
collection of VAT. Thus, the President may increase the VAT rate
that you can collect it, then we will increase your rate,
from 10% to 12% if her VAT collection during the previous year you can raise your rate. It is an incentive.21
exceeds 2 4/5% of the Gross Domestic Product. I quote the
deliberation:
Why authorize the President to increase the VAT rate on the
Senator Lacson. premise alone that she deserves an “incentive” or “reward”? Indeed,
why should she be rewarded for performing a duty reposed upon her
Thank you, Mr. President. Now, I will go back to my original
question, my first question. Who are we threatening to punish
by law?
on the imposed condition No. 1—the public or the President? The rationale stated by Senator Recto is flawed. One of the
principles of sound taxation is fiscal adequacy. The proceeds of tax
Senator Recto. revenue should coincide with, and approximate the needs of,
That is not a punishment, that is supposed to be a government expenditures. Neither an excess nor a
reward system.
Senator Lacson. _______________
Yes, an incentive. So we are offering an incentive to the

21 TSN, May 10, 2005, Annex ‘E” of the Petition in G.R. No. 168056. violate the co-equality of the legislative power of the two houses of
Congress and in fact, make the House superior to the Senate.”
228
The case at bar gives us an opportunity to take a second hard look
228 SUPREME COURT REPORTS ANNOTATED at the efficacy of the foregoing jurisprudence.
Section 25, Article VI is a verbatim re-enactment of Section 18,
Abakada Guro Party List vs. Ermita Article VI of the 1935 Constitution. The latter provision was
modeled from Section 7 (1), Article I of the United States
deficiency of revenue vis-à-vis
22
the needs of government would be in Constitution, which states:
keeping with the principle.
“All bills for raising revenue shall originate in the House of
Equating the grant of authority to the President to increase the
Representatives, but the Senate may propose or concur with
VAT rate with the grant of additional allowance to a studious son is
amendments, as on other bills.”
highly inappropriate. Our Senators must have forgotten that for
every increase of taxes, the burden always redounds to the people.
The American people, in entrusting what James Madison termed
Unlike the additional allowance given to a studious son that comes “the power of the purse” to their elected representatives, drew
from the pocket of the granting parent alone, the increase in the
inspiration from the British practice and experience with the House
VAT rate would be shouldered by the masses. Indeed, mandating of Commons. As one commentator puts it:
them to pay the increased rate as an award to the President is
arbitrary and unduly oppressive. Taxation is not a power to be “They knew the inestimable value of the House of Commons, as a
exercised at one’s whim. component branch of the British parliament; and they believed that it had
at all times furnished the best security against the oppression of the crown
and the aristocracy. While the power of taxation, of revenue, and of
III Exclusive Origination from the
supplies remained in the hands of a popular branch, it was difficult
House of Representatives
for usurpation to exist for any length of time without check, and
Section 24, Article VI of the Constitution provides: prerogative must yield of that necessity which controlled at once
the sword and the purse.”
SEC. 24. All appropriations, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills shall But while the fundamental principle underlying the vesting of the
originate exclusively in the House of Representatives, but the Senate power to propose revenue bills solely in the House of
may propose or concur with amendments. Representatives is present in both the Philippines and US
23
Constitutions, stress must be laid on the differences between
In Tolentino vs. Secretary of Finance, this Court expounded on the
230
foregoing provision by holding that:
“x x x To begin with, it is not the law—but the revenue bill—which is
required by the Constitution to ‘originate exclusively in the House of
Representatives. It is important to emphasize this, because a bill Abakada Guro Party List vs. Ermita
originating the in the House may undergo such extensive changes in the
Senate that the result may be a rewriting of the whole x x x. At this point, the two quoted provisions. For one, the word “exclusively” appearing
what is important to note is that, as a result of the Senate action, a distinct in Section 24, Article VI of our Constitution is nowhere to be found
bill may be produced. To insist in Section 7 (1), Article I of the US Constitution. For another, the
phrase “as on other bills,” present in the same provision of the US
_______________ Constitution, is not written in our Constitution. 24
The adverb “exclusively” means “in an exclusive manner.” The
22 Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, at p. 3.
term “exclusive” is defined as “excluding or having power25 to
23 G.R. No. 115455, August 25, 1994, 235 SCRA 630.
exclude; limiting to or limited to; single, sole, undivided, whole.” In
229
one case, this Court define the term “exclusive” as “possessed to the
exclusion of others; appertaining to the subject26 alone, not including,
admitting, or pertaining to another or others.”
VOL. 469, SEPTEMBER 1, 2005 229 As for the term “originate,” its meaning are “to cause the
Abakada Guro Party List vs. Ermita beginning of; to give rise to; to initiate; to start on a course or 27
journey; to take or have origin; to be deprived; arise; begin or start.”
that a revenue statute—and not only the bill which initiated the legislative With the foregoing definitions in mind, it can be reasonably
process culminating in the enactment of the law—must substantially be the concluded that when Section 24, Article VI provides that revenue
same as the House Bill would be to deny the Senate’s power not only to bills shall originate exclusively from the House of Representatives,
‘concur with amendments: but also to ‘propose amendments.’ It would be to what the Constitution mandates is that any revenue statute must
begin or start solely and only in the House. Not the Senate. Not both
Chambers of Congress. But there is more to it than that. It also
means that “an act for taxation must pass the House
28
first.” It is no
consequence what amendments the Senate adds. 237 and 288 of the National Internal Revenue Code of 1997, As
Amended and For Other Purposes.”
_______________ Clearly, Senate Bill No. 1950 is not based on any bill passed by
the House of Representatives. It has a legislative identity and
24 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 793. existence separate and apart from House Bills No. 3555 and 3705.
25 Id. Instead of concurring or proposing amendments, Senate Bill No.
26 City Mayor vs. The Chief of Philippine Constabulary, G.R. No. 20346, October 1950 merely “takes into consideration” the two House Bills. To take
31, 1967, 21 SCRA 665, 673. into consideration means “to take into account.” Consideration, in
27 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 1592. this sense, means
32
“deliberation, attention, observation or
28 Davies, Legislative Law and Process, (2d. Ed. 1986), at p. 89. contemplation. Simply put, the Senate in passing Senate Bill No.
1950, a tax measure, merely took into account House Bills No. 3555
231
and 3705, but did not concur with or amend either or both bills. As
a matter of fact, it did not even take these two House Bills as a
VOL. 469, SEPTEMBER 1, 2005 231 frame of reference.
In Tolentino, the majority subscribed to the view that Senate
may amend the House revenue bill by substitution or by presenting
its own version of 33
the bill. In either case, the result is “two bills on
A perusal of the legislative history of R.A. No. 9337 shows that it the same subject.” This is the source of the “germaneness” rule
did not “exclusively originate” from the House of Representatives. 29 which states that the Senate bill must be germane to the bill
The House
30
of Representatives approved House Bill Nos. 3555 originally passed by the House of Representatives. In Tolentino,
and 3705. These Bills intended to amend Sections 106, 107, 108, this was not really an issue as both the House and Senate Bills in
109, 110, 111 and 114 of the31 NIRC. For its part, the Senate question had one subject—the VAT.
approved Senate Bill No. 1950, taking into consideration House The facts obtaining here is very much different from Tolentino. It
Bill Nos. 3555 and 3705. It intended to amend Sections 27, 28, 34, is very apparent that House Bills No. 3555 and 3705 merely
106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151, intended to amend Sections 106, 107, 108, 109, 110, 111 and 114 of
236, 237 and 288 of the NIRC. the NIRC of 1997, pertaining to the VAT provisions. On the other
Thereafter, on April 13, 2005, a Committee Conference was hand, Senate Bill No. 1950 intended to amend Sections 27, 28, 34,
created to thresh out the disagreeing provisions of the three 106, 108, 109, 110, 112, 113, 114, 116, 117, 119, 121, 125, 148, 151,
proposed bills. 236, 237 and 288 of the NIRC, pertaining to matters outside of
In less than a month, the Conference Committee “after having VAT, such as income
met and discussed in full free and conference,” came up with a
report and recommended the approval of the consolidated version of _______________
the bills. The Senate and the House of Representatives approved it.
On May 23, 2005, the enrolled copy of the consolidated version of 32 Merriam-Webster’s Third New International Dictionary (1993 Ed.), at p. 484.
the bills was transmitted to President Arroyo, who signed it into 33 Supra.
law. Thus, the enactment of R.A. No. 9337, entitled “An Act
Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 233
113, 114, 116, 117, 119, 121, 148, 151, 236,
VOL. 469, SEPTEMBER 1, 2005 233
_______________
29 Entitled “An Act Restructuring the Value-Added Tax, Amending for the Purpose
Sections 106, 107, 108, 110 and 114 of the National Internal Revenue Code of 1997, tax, percentage tax, franchise tax, taxes on banks and other
As amended, and For Other Purposes.” Approved on January 27, 2005. financial intermediaries, excise taxes, etc.
30 Entitled “An Act Amending Sections 106, 107, 108, 109, 110 and 111 of the Thus, I am of the position that the Senate could not, without
National Internal Revenue Code of 1997, As Amended, and For Other Purposes.” violating the germaneness rule and the principle of “exclusive
Approved on February 28, 2005. origination,” propose tax matters not included in the House Bills.
31 Entitled “An Act Amending Sections 27, 28, 34, 106, 108, 109, 110, 112, 113, WHEREFORE, I vote to CONCUR with the majority opinion
114, 116, 117, 119, 121, 125, 148, 151, 236, 237 and 288 of the National Internal except with respect to the points above-mentioned.
Revenue Code of 1997, As Amended, and For Other Purposes.” Approved on April 13,
2005.
CONCURRING AND DISSENTING OPINION
232
CALLEJO, SR., J.:

I join the concurring and dissenting opinion of Mr. Justice Reynato The result is a third version, which is considered an “amendment in the
S. Puno as I concur with the majority opinion but vote to declare as nature of a substitute,” the only requirement for which being that the third
unconstitutional the deletion of the “no-pass on provision” contained version be germane to the subject of the House and Senate bills.
in Senate Bill No. 1950 and House Bill No. 3705 (the constituent Indeed, this Court recently held that it is within the power of a
bills of Republic Act No. 9337). 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
The present petitions provide an opportune can propose an amendment consisting of one or two provisions, collectively
occasion for the Court to re-examine considered as an “amendment in the nature
Tolentino v. Secretary of Finance
235
In ruling that Congress, in enacting R.A. No. 9337, complied with
the formal requirements of the Constitution, the ponencia relies1
VOL. 469, SEPTEMBER 1, 2005 235
mainly on the Court’s rulings in Tolentino v. Secretary of Finance.
To recall, Tolentino involved Republic Act No. 7716, which similarly Abakada Guro Party List vs. Ermita
amended the NIRC by widening the tax base of the VAT system.
The procedural attacks against R.A. No. 9337 are substantially the of a substitute,” so long as such an amendment is germane to the subject of
same as those leveled against R.A. No. 7716, e.g., violation of the the bills before the committee. After all, its report was not final but needed
“Origination Clause” (Article VI, Section 24) and the “Three- the approval of both houses of Congress to become valid as an act of the
Reading Rule” and the “No-Amendment Rule” (Article VI, Section legislative department. The charge that in this case the Conference
2
26[2]) of the Constitution. Committee acted a third legislative chamber is thus without any basis.”
The majority opinion in Tolentino relied mainly on the practice of

_______________
the United States legislature in making the foregoing disquisition.
1 G.R. No. 115455, 25 August 1994, 235 SCRA 630.
It was held, in effect, that following the US Congress’ practice
where a conference committee is permitted to draft a bill that is
234 entirely different from the bills of either the House of
Representatives or Senate, the Bicameral Conference Committee is
similarly empowered to make amendments not found in either the
House or Senate bills.
Abakada Guro Party List vs. Ermita The ponencia upholds the acts of the Bicameral Conference
Committee with respect to R.A. No. 9337, following the said ruling
The present petitions provide an opportune occasion for the Court to in Tolentino.
re-examine its rulings in Tolentino particularly with respect to the To my mind, this unqualified adherence by the majority opinion
scope of the powers of the Bicameral Conference Committee vis-à- in Tolentino, and now by the ponencia, to the practice of the US
vis Article VI, Section 26(2) of the Constitution. Congress and its conference committee system ought to be re-
The crucial issue posed by the present petitions is whether the examined. There are significant textual differences between the US
Bicameral Conference Committee may validly introduce Federal Constitution’s and our Constitution’s prescribed
amendments that were not contained in the respective bills of the congressional procedure for enacting laws. Accordingly, the degree
Senate and the House of Representatives. As a corollary, whether it of freedom accorded by the US Federal Constitution to the US
may validly delete provisions uniformly contained in the respective Congress markedly differ from that accorded by our Constitution to
bills of the Senate and the House of Representatives. the Philippine Congress.
In Tolentino, the Court declared as valid amendments introduced Section 7, Article I of the US Federal Constitution reads:
by the Bicameral Conference Committee even if these were not
[1] All Bills for raising Revenue shall originate in the House of
contained in the Senate and House bills. The majority opinion
Representatives; but the Senate may propose or concur with Amendments
therein held:
as on other Bills.
“As to the possibility of an entirely new bill emerging out of a Conference [2] Every Bill which shall have passed the House of Representatives and
Committee, it has been explained: the Senate, shall, before it become a Law, be presented to the President of
the United States; If he approve he shall
Under congressional rules of procedures, conference committees are not expected to
make any material change in the measure at issue, either by deleting provisions to _______________
which both houses have already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house amends a proposal 2 Tolentino v. Secretary of Finance, supra, at pp. 667-668.
originating in either house by striking out everything following the enacting clause
236
and substituting provisions which make it an entirely new bill. The versions are
now altogether different, permitting a conference committee to draft essentially a
new bill … 236 SUPREME COURT REPORTS ANNOTATED

it, but if not he shall return it, with his Objections to the House in which it Two distinctions are readily apparent between the two procedures:
shall have originated, who shall enter the Objections at large on their
Journal, and proceed to reconsider it. If after such Reconsideration two 1. Unlike the US Federal Constitution, our Constitution
thirds of that House shall agree to pass the Bill, it shall be sent together prescribes the “three-reading” rule or that no bill shall
with the Objections, to the other House, by which it shall, likewise, be become a law unless it shall have been read on three
reconsidered, and if approved by two thirds of that House, it shall become a separate days in each house except when its urgency is
Law. But in all such Cases the Votes of both Houses shall be determined by certified by the President; and
yeas and nays, and the Names of the Persons voting for and against the Bill 2. Unlike the US Federal Constitution, our Constitution
shall be entered on the Journal of each House respectively. If any Bill shall prescribes the “no-amendment” rule or that no amendments
not be returned by the President within ten Days (Sundays excepted) after shall be allowed upon the last reading of the bill.
it shall have been presented to him, the Same shall be a Law, in like
Manner as if he had signed it, unless the Congress by their Adjournment American constitutional experts have lamented that certain
prevent its return in which Case it shall not be a Law. congressional procedures have not been entrenched in the US
[3] Every Order, Resolution, or Vote to Which the Concurrence of the Federal Constitution. According to a noted constitutional law
Senate and House of Representatives may be necessary (except on a professor, the absence of the “three-reading” requirement as well as
question of Adjournment) shall be presented to the President of the United similar legislative-procedure rules from the US Federal
3
States; and before the Same shall take Effect, shall be approved by him, or Constitution is a “cause for regret.”
being disapproved by him, shall be repassed by two thirds of the Senate
and House of Representatives, according to the Rules and Limitations _______________
prescribed in the Case of a Bill.
3 See, for example, Vermuele, A., The Constitutional Law of Congressional
On the other hand, Article VI of our Constitution prescribes for the Procedure, 71 U. Chi. L. Rev. 361 (Spring 2004).
following procedure for enacting a law:
238
Sec. 26. (1) Every bill passed by Congress shall embrace only one subject
which shall be expressed in the title thereof.
(2) No bill passed by either House shall become a law unless it has passed 238 SUPREME COURT REPORTS ANNOTATED
three readings on separate days, and printed copies thereof in its final form Abakada Guro Party List vs. Ermita
have been distributed to its Members three days before its passage, except
when the President certifies to the necessity of its immediate enactment to
In this connection, it is interesting to note that the conference
meet a public calamity or emergency. Upon the last reading of a bill, no
committee system in the US Congress has been described in this
amendment thereto shall be allowed, and the vote thereon shall be taken
wise:
immediately thereafter, and the yeas and nays entered in the Journal.
Sec. 27. (1) Every bill passed by Congress shall, before it becomes a law, Conference Committees
be presented to the President. If he approves the same, he shall sign it;
otherwise, he shall veto it and return the same with his objections to the Another main mechanism of joint House and Senate action is the
House where it originated, which conference committee. Inherited from the English Constitution, the
conference committee system is an evolutionary product whose principal
237 threads were woven on the loom of congressional practice into a unified
pattern by the middle of the nineteenth century. “By 1852,” writes Ada
VOL. 469, SEPTEMBER 1, 2005 237 McCown, historian of the origin and development of the conference
Abakada Guro Party List vs. Ermita committee, “the customs of presenting identical reports from the
committees of conference in both houses, of granting high privilege to these
conference reports, of voting upon the conference report as a whole and
shall enter the objections at large in its Journal and proceed to reconsider
permitting no amendment of it, of keeping secret the discussions carried on
it. If, after such reconsideration, two-thirds of all the Members of such
in the meetings of the conference committee, had become established in
House shall agree to pass the bill, it shall be sent, together with the
American parliamentary practice.”
objections, to the other House by which it shall likewise be reconsidered,
Conference committees are composed of Senators and Representatives,
and if approved by two-thirds of all the Members of that House, it shall
usually three each, appointed by the presiding officers of both houses, for
become a law. In all such cases, the votes of each House shall be
the purpose of adjusting differences between bills they have passed. This
determined by yeas and nays, and the names of the Members voting for or
device has been extensively used by every Congress since 1789. Of the 1157
against shall be entered in its Journal. The President shall communicate
laws enacted by the 78th Congress, for example, 107 went through
his veto of any bill to the House where it originated within thirty days after
conference and, of these, 36 were appropriation bills on which the House
the date of receipt thereof; otherwise, it shall become a law as if he had
had disagreed to Senate amendments. In practice, most important
signed it.
legislation goes through the conference closet and is there revised,
(2) The President shall have the power to veto any particular item or
sometimes beyond recognition, by the all-powerful conferees or managers,
items in an appropriation, revenue, or tariff bill, but the veto shall not
as they are styled. A large body of law and practice has been built up over
affect the item or items to which he does not object.
the years governing conference procedure and reports.
Suffice it to say here that serious evils have marked the development of Abakada Guro Party List vs. Ermita
the conference committee system. In the first place, it is highly prodigal of
members’ time. McConachie calculated that the average time consumed in ences under bicameral system is obviously indispensable. The remedy for
conference was 33 days per bill. Bills are sent to conference without reading the defects of the device is not to abolish it, but to keep it under
the amendments of the other chamber. Despite rules to the contrary, congressional control. This can be done by enforcing the rules which
conferees do not confine themselves to matters in dispute, but often initiate prohibit the inclusion in conference reports of matter not committed to
entirely new legislation and even strike out identical provisions previously them by either house and forbid the deletion of items approved by both
approved by both houses. This happened during the 78th Congress, for bodies; by permitting conference managers to report necessary new matter
instance, when separately and the houses to consider it apart from the conference report;
by fixing a deadline toward the close of a session after which no bills could
239
be sent to conference, so as to eliminate congestion at the end of the session
—a suggestion made by the elder Senator La Follete in 1919; by holding
VOL. 469, SEPTEMBER 1, 2005 239 conferences in sessions open to the public, letting conference reports lie
Abakada Guro Party List vs. Ermita over longer, and printing them in bill form (with conference changes in
italics) so as to allow members more time to examine them and discover
4
an important amendment to the surplus property bill, which had been “jokers.”
approved by both houses, was deleted in conference.
Conference committees, moreover, suffer like other committees from the The “three-reading” and “no-amendment” rules, absent in the US
seniority rule. The senior members of the committees concerned, who are Federal Constitution, but expressly mandated by Article VI, Section
customarily appointed as managers on the part of the House and Senate, 26(2) of our Constitution are mechanisms instituted to remedy the
are not always the best informed on the questions at issue, nor do they “evils” inherent in a bicameral system of legislature, including the
always reflect the majority sentiment of their houses. Furthermore, conference committee system.
conference reports must be accepted or rejected in toto without amendment Sadly, the ponencia’s refusal to apply Article VI, Section 26(2) of
and they are often so complex and obscure that they are voted upon without the Constitution on the Bicameral Conference Committee and the
knowledge of their contents. What happens in practice is that Congress amendments it introduced to R.A. No. 9337 has “effectively
surrenders its legislative function to irresponsible committees of conference. dismantled” the “three-reading rule” and “noamendment rule.” As
The standing rules against including new and extraneous matter in posited by Fr. Joaquin Bernas, a member of the Constitutional
conference reports have been gradually whittled away in recent years by the Commission:
decisions of presiding officers. Senate riders attached to appropriation bills In a bicameral system, bills are independently processed by both House of
enable conference committees to legislate and the House usually accepts Congress. It is not unusual that the final version approved by one House
them rather than withhold supply, thus putting it, as Senator Hoar once differs from what has been approved by the other. The “conference
declared, under a degrading duress. committee,” consisting of members nominated from both Houses, is an
It is also alleged that under this secret system lobbyist are able to kill extra-constitutional creation of Congress whose function is to propose to
legislation they dislike and that “jokers” designed to defeat the will of Congress ways of reconciling conflicting provisions found in the Senate
Congress can be inserted without detection. Senator George W. Norris once version and in the House version of a bill. It performs a necessary function
characterized the conference committee as a third house of Congress. “The in a bicameral system.
members of this ‘house,’ he said, “are not elected by the people. The people
have no voice as to who these members shall be . . . This conference
_______________
committee is many times, in very important matters of legislation, the most
important branch of our legislature. There is no record kept of the workings 4 Galloway, G., Congress at the Crossroads, pp. 98-100.
of the conference committee. Its work is performed, in the main, in secret.
No constituent has any definite knowledge as to how members of this 241
conference committee vote, and there is no record to prove the attitude of any
member of the conference committee . . . As a practical proposition we have VOL. 469, SEPTEMBER 1, 2005 241
legislation, then, not by the voice of the members of the Senate, not by the
members of the House of Representatives, but we have legislation by the
voice of five or six men. And for practical purposes, in most cases, it is
impossible to defeat the legislation proposed by this conference committee. However, since conference committees have merely delegated authority
Every experienced legislator knows that it is the hardest thing in the world from Congress, they should not perform functions that Congress itself may
to defeat a conference report.” not do. Moreover, their proposals need confirmation by both Houses of
Despite these admitted evils, impartial students of the conference Congress.
committee system defend it on net balance as an essential part of the In Tolentino v. Secretary of Finance, the Court had the opportunity to
legislative process. Some mechanism for reconciling differ- delve into the limits of what conference committees may do. The petitioners
contended that the consolidation of the House and Senate bills made by the
240 conference committee contained provisions which neither the Senate bill
nor the House bill had. In her dissenting opinion, Justice Romero laid out
in great detail the provisions that had been inserted by the conference
committee. These provisions, according to the petitioners had been Sec. 88. Conference Committee.—In the event that the House does not agree
introduced “surreptitiously” during a closed door meeting of the committee. with the Senate on the amendments to any bill or joint resolution, the
The Court’s answer to this was that in United States practice conference differences may be settled by the conference committees of both chambers.
committees could be held in executive sessions and amendments germane In resolving the differences with the Senate, the House panel shall, as
to the purpose of the bill could be introduced even if these were not in much as possible, adhere to and support the House Bill. If the differences
either original bill. But the Court did not bother to check whether perhaps with the Senate are so substantial that they materially impair the House
the American practice was based on a constitutional text different from Bill, the panel shall report such fact to the House for the latter’s
that of the Philippine Constitution. appropriate action.
There are as a matter of fact significant differences in the degree of
freedom American and Philippine legislators have. The only rule that binds _______________
the Federal Congress is that it may formulate its own rules of procedure.
For this reason, the Federal Congress is master of its own procedures. It is 5 Bernas SJ, J., The 1987 Constitution of the Republic of the Philippines, A Commentary, pp.
different with the Philippine Congress. Our Congress indeed is also 702-703 (1996 Ed.).
authorized to formulate its own rules of procedure—but within limits not

243
found in American law. For instance, there is the “three readings on
separate days” rule. Another important rule is that no amendments may be
introduced by either house during third reading. These limitations were VOL. 469, SEPTEMBER 1, 2005 243
introduced by the 1935 and 1973 Constitutions and confirmed by the 1987 Abakada Guro Party List vs. Ermita
Constitution as a defense against the inventiveness of the stealthy and
surreptitious. These, however, were disregarded by the Court in Tolentino Sec. 89. Conference Committee Reports.—. . . Each report shall contain a
in favor of contrary American practice. detailed, sufficiently explicit statement of the changes in or amendments to
This is not to say that conference committees should not be allowed. But the subject measure.
an effort should be made to lay out the scope of what conference committees ...
may do according to the requirements and the reasons of the Philippine The Chairman of the House panel may be interpellated on the
Constitution and not according to the practice of the American Congress. Conference Committee Report prior to the voting thereon. The House shall
For instance, if the two Houses are not allowed to introduce and debate vote on the Conference Committee report in the same manner and
amendments on third reading, procedure as it votes on a bill on third and final reading.
242 and Rule XII, Section 35 of the Rules of the Senate:
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
Abakada Guro Party List vs. Ermita differences shall be settled by a conference committee of both Houses which
shall meet within ten (10) days after their composition. The President shall
can they circumvent this rule by coursing new provisions through the designate the members of the Senate Panel in the conference committee
instrumentality of a conference committee created by Congress and with the approval of the Senate.
meeting in secret? The effect of the Court’s uncritical embrace of the Each Conference Committee Report shall contain a detailed and
practice of the American Congress and its conference committees is to sufficiently explicit statement of the changes in, or amendments to the
5
dismantle the no-amendment rule. subject measure, and shall be signed by a majority of the members of each
House panel, voting separately.
The task at hand for the Court, but which the ponencia eschews, is
to circumscribe the powers of the Bicameral Conference Committee Justice Davide further explained that under its limited authority,
in light of the “three-reading” and “noamendment” rules in Article the Bicameral Conference Committee could only (a) restore, wholly
VI, Section 26(2) of the Constitution. or partly, the specific provisions of the House Bill amended by the
Senate Bill; (b) sustain, wholly or partly, the Senate’s amendments,
The Bicameral Conference Committee, in or (c) by way of compromise, to agree that neither provisions in the
deleting the “no pass on provision” contained in House Bill amended by the Senate nor the latter’s amendments
Senate Bill No. 1950 and House Bill No. 3705, thereto be carried into the final form of the former. Justice Romero,
violated Article VI , Section 26(2) of the Constitution who also dissented in Tolentino, added that the conference
committee is not authorized to initiate or propose completely new
Pertinently, in his dissenting opinion in Tolentino, Justice Davide
matters although under certain legislative rules like the Jefferson’s
(now Chief Justice) opined that the duty of the Bicameral
Manual, a conference committee may introduce germane matters in
Conference Committee was limited to the reconciliation of
a particular bill. However, such matters should be circumscribed by
disagreeing provisions or the resolution of differences or
the committee’s sole authority and function to reconcile differences.
inconsistencies. This proposition still applies as can be gleaned from
the following text of Sections 88 and 89, Rule XIV of the Rules of 244
the House of Representatives:


Senators Sergio R. Osmeña III and Juan Ponce Enrile approved it
with reservations. On the other hand, of the twenty-eight
11
(28)
Members
12
of the House of Representatives-Conferees,13 fourteen
In the case of R.A. No. 9337, the Bicameral Conference Committee (14) approved the same with reservations while three voted no.
made an “amendment by deletion” with respect to the “no pass on All the reservations
provision” contained in both House Bill (HB) No. 3705 and Senate
Bill (SB) No. 1950. HB 3705 proposed to amend Sections 106 and
_______________
108 of the NIRC by expressly stating therein that sellers of
petroleum products and power generation companies selling 8 Id. citing Bentham, J., Political Tactics.
electricity are prohibited from passing on the VAT to the 9 Senators Ralph G. Recto, Joker P. Arroyo, Manuel B. Villar, Richard J. Gordon,
consumers. SB 1950 proposed to amend Section 108 by likewise Rodolfo G. Biazon, Edgardo G. Angara, M.A. Madrigal, Sergio R. Osmena III, Juan
prohibiting power generation companies from passing on the VAT Ponce Enrile.
to the consumers. However, these “no pass on provisions” were 10 Senators Recto, Villar, Gordon, Biazon.
altogether deleted by the Bicameral Conference Committee. At the 11 Representatives Jesli A. Lapus, Danilo E. Suarez, Arnulfo P. Fuentebella, Eric
least, since there was no disagreement between HB 3705 and SB D. Singson, Junie E. Cua, Teodoro L. Locsin, Jr., Salacnib Baterina, Edcel C.
1950 with respect to the “no pass on provision” on the sale of Lagman, Luis R. Villafuerte, Herminio G. Teves, Eduardo G. Gullas, Joey Sarte
electricity, the Bicameral Conference Committee acted beyond the Salceda, Prospero C. Nograles, Exequiel B. Javier, Rolando G. Andaya, Jr.,
scope of its authority in deleting the pertinent proviso. Guillermo P. Cua, Arthur D. Defensor, Raul V. Del Mar, Ronaldo B. Zamora, Rolex
At this point, it is well to recall the rationale for the P. Suplico, Jacinto V. Paras, Vincent P. Crisologo, Alan Peter S. Cayetano, Joseph
“noamendment rule” and the “three-reading rule” in Article VI, Santiago, Oscar G. Malapitan, Catalino Figueroa, Antonino P. Roman and Imee R.
Section 26(2) of the Constitution. The proscription on amendments Marcos.
upon the last reading is intended to subject all bills and their 12 Representatives Suarez, Fuentebella, Cua, Locsin, Jr., Teves, Gullas, Javier,
amendments to intensive deliberation by the legislators and the Cua, Defensor, Crisologo, Cayetano, Santiago, Malapitan and Marcos.
ample ventilation of issues to afford the public
6
an opportunity to 13 Representatives Del Mar, Suplico and Paras.
express their opinions or objections thereon. Analogously, it is said
that the “three-reading rule” operates “as a self-binding mechanism 246
that allows the legislature to guard against the consequences of its
own future passions, myopia, or herd behavior. By requiring that 246 SUPREME COURT REPORTS ANNOTATED
bills be read and debated on successive days, legislature may
anticipate and forestall future occasions on which it will be seized Abakada Guro Party List vs. Ermita
7
by deliberative pathologies.” As Jeremy Bentham, a noted political
analyst, put it: “[t]he more susceptible a people are of excitement expressed by the conferees relate to the deletion of the “no pass on
and being led astray, so much the more ought they provision.” Only eleven (11) unqualifiedly approved it. In other
words, even among themselves, the conferees were not unanimous
_______________ on their Report. Nonetheless, Congress approved it without even
thoroughly discussing the reserva ti ons or qualifications expressed
6 Dissenting Opinion of Justice Romero in Tolentino, supra. by the conferees therein.
7 Vermuele, supra. This “take it or leave it” stance vis-à-vis conference committee
reports opens the possibility of amendments, which are substantial
245
and not even germane to the original bills of either house, being
introduced by the conference committees and voted upon by the
VOL. 469, SEPTEMBER 1, 2005 245 legislators without knowledge of their contents. This practice
cannot be countenanced as it patently runs afoul of the essence of
Article VI, Section 26(2) of the Constitution. Worse, it is
tantamount to Congress surrendering its legislative functions to the
to place themselves under the protection of forms8
which impose the conference committees.
necessity of reflection, and prevent surprises.”
Reports of the Bicameral Conference Committee, especially in Ratification by Congress did not cure the
cases where substantial amendments, or in this case deletions, have unconstitutional act of the Bicameral Conference
been made to the respective bills of either house of Congress, ought Committee of deleting the “no pass on provision”
to undergo the “three-reading” requirement in order to give effect to
the letter and spirit of Article VI, Section 26(2) of the Constitution. That both the Senate and the House of Representatives approved
The Bicameral Conference Committee Report that eventually the Bicameral Conference Committee Report which deleted the “no
became R.A. No. 9337, in fact, bolsters the argument for the strict pass on provision” did not cure the unconstitutional act of the said
compliance by Congress of the legislative procedure prescribed by committee. As succinctly put by Chief Justice Davide in his dissent
the Constitution. As9 can be gleaned from 10
the said Report, of the 9 in Tolentino, “[t]his doctrine of ratification may apply to minor
Senators-Conferees, only 5 Senators unqualifiedly approved it. procedural flaws or tolerable breaches of the parameters of the
Senator Joker P. Arroyo expressed his qualified dissent while bicameral conference committee’s limited powers but never to
violations of 14 the Constitution. Congress is not above the 248 SUPREME COURT REPORTS ANNOTATED
Constitution.” Abakada Guro Party List vs. Ermita
Enrolled Bill Doctrine is not applicable where, as in requisite number of members have agreed to a particular measure.
16
this case, there is grave violation of the Constitution

Thus, in Fariñas, the Court’s refusal to go behind the enrolled bill
As expected, the ponencia invokes the enrolled bill doctrine to was based on the fact that the alleged irregularities that attended
buttress its refusal to pass upon the validity of the assailed the passage of R.A. No. 9006 merely involved the internal rules of
both houses of Congress. The procedural irregularities allegedly
_______________ committed by the conference committee therein17
did not amount to a
violation of a provision of the Constitution.
14 Dissenting Opinion in Tolentino, supra.
In contrast, the act of the Bicameral Conference Committee of
247 deleting the “no pass on provision” of SB 1950 and HB 3705 infringe
Article VI, Section 26(2) of the Constitution. The violation of this
constitutional provision warrants the exercise by the Court of its
VOL. 469, SEPTEMBER 1, 2005 247 constitutionally-ordained power to strike down any act of a branch
Abakada Guro Party List vs. Ermita or instrumentality of government or any of its officials done with
grave abuse 18
of discretion amounting to lack or excess of
jurisdiction.
acts of the Bicameral Conference Committee. Under the “enrolled
ACCORDINGLY, I join the concurring and dissenting opinion of
bill doctrine,” the signing of a bill by the Speaker of the House and
Mr. Justice Reynato S. Puno and vote to dismiss the petitions with
the Senate President and the certification of the Secretaries of both
respect to Sections 4, 5 and 6 of Republic Act No. 9337 for being
houses of Congress that it was passed are conclusive of its due
premature. Further, I vote to declare as unconstitutional Section 21
enactment. In addition to Tolentino, the ponencia cites Fariñas v.
15 thereof and the deletion of the “no
Executive Secretary where the Court declined to go behind the
enrolled bill vis-à-vis the allegations of the petitioners therein that
irregularities attended the passage of Republic Act No. 9006, _______________
otherwise known as the Fair Election Act. 16 Id., pp. 529-530. (Emphases mine.).
Reliance by the ponencia on Fariñas is quite misplaced. The 17 By way of explanation, the constitutional issues raised in Fariñas were (1)
Court’s adherence to the enrolled bill doctrine in the said case was whether Section 14 of R.A. No. 9006 was a rider or that it violated Article VI, Section
justified for the following reasons: 26(1) of the Constitution requiring that “[e]very bill passed by Congress shall
The Court finds no reason to deviate from the salutary in this case where the embrace only one subject which shall be expressed in the title thereof”; and (2)
irregularities alleged by the petitioners mostly involved the internal rules of whether Section 14 of R.A. No. 9006 violated the equal protection clause of the
Congress, whether House or Senate. Parliamentary rules are merely Constitution. On both issues the Court ruled in the negative. To reiterate, unlike in
procedural and with their observance the courts have no concern. Whatever the present cases, the acts of the conference committee with respect to R.A. No. 9006
doubts there may be as to the formal validity of Rep. Act No. 9006 must be in Fariñas allegedly violated the internal rules of either house of Congress, but it
resolved in its favor. The Court reiterates its ruling in Arroyo v. De Venecia, was not alleged therein that they amounted to a violation of any constitutional
viz.: provision on legislative procedure.
18 Article VIII, Section 1, CONSTITUTION.
But the cases, both here and abroad, in varying forms of expression, all deny to the
courts the power to inquire into the allegations that, in enacting a law, a House of 249
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 VOL. 469, SEPTEMBER 1, 2005 249
Osmeña v. Pendatun, it was held: “At any rate, courts have declared that ‘the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at
the pleasure of the body adopting them.’ And it has been said that ‘Parliamentary
rules are merely procedural, and with their observance, the courts have no concern. pass on provision” contained in the constituent bills of Republic Act
They may be waived or disregarded by the legislative body.’ Consequently, ‘mere No. 9337.
failure to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the
CONCURRING AND DISSENTING OPINION
_______________
AZCUNA, J.:
15 G.R. No. 147387, 10 December 2003, 417 SCRA 503.
Republic Act No. 9337, the E-VAT law, is assailed as an

248
unconstitutional abdication of Congress of its power to tax through
its delegation to the President of the decision to increase the rate of

the tax from 10% to 12%, effective

1
January 1, 2006, after any of two That the President, upon the recommendation of the Secretary of Finance, shall,
conditions has been satisfied. effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
The two conditions are: after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross “(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)
Domestic Product (GDP) of the previous year exceeds two of the previous year exceeds two and four-fifth percent (2 4/5%); or
and four-fifth percent (2 4/5%); or “(ii) National government deficit as a percentage of GDP of the previous year
(ii) National government deficit as a percentage of GDP of2 the exceeds one and one-half percent (1 ½%).”
previous year exceeds one and one-half percent (1 1/2%).
251
_______________
VOL. 469, SEPTEMBER 1, 2005 251
1 The Constitution states that “Congress may, by law, allow the President to fix
within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties as imposts within the framework of the national development program of the
This becomes all the more clear when we consider the figures
Government.” (Art. VI, Sec. 28 [2], emphasis supplied.)
provided during the oral arguments.
Petitioners claim that the power does not extend to fixing the rates of taxes, since
The Gross Domestic Product for 2005 is estimated at P5.3
taxes are not tariffs, import and export quotas, tonnage and wharfage dues, or other
Trillion pesos.
duties or imposts.
The tax effort of the present VAT is now at 1.5%.
2 Section 4, Republic Act No. 9337. The pertinent portion of the provision states:
The national budgetary deficit against the GDP is now at 3%.
So to reduce the deficit to 1.5% from 3%, one has to increase the
SEC. 4. Section 106 of the same Code, as amended, is hereby further amended to read as tax effort from VAT, now at 1.5%, to at least 3%, thereby exceeding
follows: the 2 4/5 percent ceiling in condition (i), making condition (i)
“SEC. 106. Value-added Tax on Sale of Goods or Properties.— happen. If, on the other hand, this is not done, then condition (ii)
“(A) Rate and Base of Tax.—There shall be levied, assessed and collected on every sale, happens—the budget deficit remains over 1.5%.
barter or exchange of goods or properties, a value-added tax equivalent to ten percent What is the result of this? The result is that in reality, the law
does not impose any condition, or the rate increase there-under, from
250
10% to 12%, effective January 1, 2006, is unconditional. For a
condition is an event that
3
may or may not happen, or one whose
250 SUPREME COURT REPORTS ANNOTATED occurrence is uncertain. Now while condition (i) is indeed uncertain
and condition (ii) is likewise uncertain, the combination of both
makes the occurrence of one of them certain.
Accordingly, there is here no abdication by Congress of its power
A scrutiny of these “conditions” shows that one of them is certain to to fix the rate of the tax since the rate increase provided under the
happen on January 1, 2006. law, from 10% to 12%, is definite and certain
The first condition is that the collection from the E-VAT exceeds
2 4/5% of the Gross Domestic Product (GDP) of the previous year, a
_______________
ratio that is known as the tax effort.
The second condition is that the national government deficit 3 Condition has been defined by Escriche as “every future and uncertain event
exceeds 1 1/2% of the GDP of the previous year. upon which an obligation or provision is made to depend.” It is a future and
Note that the law says that the rate shall be increased if any of uncertain event upon which the acquisition or resolution of rights is made to depend
the two conditions happens, i.e., if condition (i) or condition (ii) by those who execute the juridical act. Futurity and uncertainty must concur as
occurs. characteristics of the event.
Now, in realistic terms, considering the short time-frame given, ...
the only practicable way that the present deficit of the national An event which is not uncertain but must necessarily happen cannot be a
government can be reduced to 1 1/2% or lower, thus preventing condition; the obligation will be considered as one with a term. (IV TOLENTINO,
condition (ii) from happening, is to increase the tax effort, which COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE
mainly has to come from the E-VAT. But increasing the tax effort PHILIPPINES, 144).
through the E-VAT, to the extent needed to reduce the national
deficit to 1 1/2% or less, will trigger the happening of condition (i) 252
under the law. Thus, the happening of condition (i) or condition (ii)
is in reality certain and unavoidable, as of January 1, 2006. 252 SUPREME COURT REPORTS ANNOTATED
_______________
(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,
to occur, effective January 1, 2006. All that the President will do is Amended TAX Subject Matter
state which of the two conditions occurred and there-upon CODE Provision
implement the rate increase. Section 27 Rate of income tax on domestic corporations
At first glance, therefore, it would appear that the decision to
Section 28(A)(1) Rate of income tax on resident foreign
increase the rate is to be made by the President, or that the
corporations
increase is still uncertain, as it is subject to the happening of any of
two conditions. Section 28(B)(1) Rate of income tax on non-resident foreign
Nevertheless, the contrary is true and thus it would be best in corporations
these difficult and critical times to let our people know precisely Section 28(B)(5- Rate of income tax on intercorporate dividends
what burdens they are being asked to bear as the necessary means b) received by non-resident foreign corporations
to recover from a crisis that calls for a heroic sacrifice by all.
Section 34(B)(1) Deduction from gross income
It is for this reason that the Court required respondents to
submit a copy of the rules to implement the E-VAT, particularly as
to the impact of the tax on prices of affected commodities, specially Similarly, I agree with Justice Artemio V. Panganiban in his
oil and electricity. For the onset of the law last July 1, 2005 was separate opinion that the following are not germane to the E-VAT
confusing, resulting in across-the-board increases of 10% in the law:
prices of commodities. This is not supposed to be the effect of the “Sections 1, 2, and 3 of the Republic Act No. 9337 . . ., in so far as
law, as was made clear during the oral arguments, because the law these sections (a) amend the rates of income tax on domestic,
also contains provisions that mitigate the impact of the E-VAT resident foreign, and nonresident foreign corpora-
through reduction of other kinds of taxes and duties, and other 254
similar measures, specially as to goods that go into the supply chain
of the affected products. A proper implementation of the E-VAT,
therefore, should cause only the appropriate incremental increase 254 SUPREME COURT REPORTS ANNOTATED
in prices, reflecting the net incremental effect of the tax, which is Abakada Guro Party List vs. Ermita
not necessarily 10%, but possibly less, depending on the products
involved.
The introduction of the mitigating or cushioning measures tions; (b) amend the tax credit against taxes due from nonresident
through the Senate or through the Bicameral Conference foreign corporations on the intercorporate dividends; and (c) reduce
Committee, is also being questioned by petitioners as the allowable deduction from interest expense.”
unconstitutional for violating the rule against amendments after Respondents should, in any case, now be able to implement 4
the
third reading and the rule that tax measures must originate E-VAT law without confusion and thereby achieve its purpose.
exclusively in the House of Representatives (Art. VI, Secs. 24 and I vote to GRANT the petitions to the extent of declaring
26 [2], Constitution). For my part, I would rather give the necessary unconstitutional the provisions in Republic Act. No. 9337 that are
leeway to Congress, as long as the changes are not germane to the subject matter and DENY said petitions as to
the rest of the law, which are constitutional.
253
DISSENTING AND CONCURRING OPINION

VOL. 469, SEPTEMBER 1, 2005 253
Abakada Guro Party List vs. Ermita TINGA, J.:
1
germane to the bill being changed, the bill which originated from The E-VAT Law, as it stands, will exterminate our country’s small
the House of Representatives, and these are so, since these were to medium enterprises. This will be the net effect of affirming
precisely the mitigating measures that go handon-hand with the E- Section 8 of the law, which amends Sections 110 of the National
VAT, and are, therefore, essential—and hopefully sufficient—means Internal Revenue Code (NIRC) by imposing a seventy percent (70%)
to enable our people to bear the sacrifices they are being asked to cap on the creditable input tax a VAT-registered person may apply
make. Such an approach is in accordance with the Enrolled Bill every quarter and a mandatory sixty (60)-month amortization
Doctrine that is the prevailing rule in this jurisdiction. (Tolentino v. period on the input tax on goods purchased or imported in a
Secretary of Finance, 249 SCRA 628 [1994]). The exceptions I find calendar month if the acquisition cost of such goods exceeds One
are the provisions on corporate income taxes, which are not Million Pesos (P1,000,000.00).
germane to the E-VAT law, and are not found in the Senate and Taxes may be inherently punitive, but when the fine line between
House bills. damage and destruction is crossed, the courts must step forth and
I thus agree with Chief Justice Hilario G. Davide, Jr. in his cut the hangman’s noose. Justice Holmes once confidently asserted
separate opinion that the following are not germane to the E-VAT that “the power to tax is not the power to
legislation:
_______________

4 I voted for the issuance of the temporary restraining order to prevent the lative power. In appreciating the aspect of undue delegation as
disorderly implementation of the law that would have defeated its very purpose and regards taxation statutes, the fundamental 3
point remains that the
disrupted the entire VAT system, resulting in less revenues. The rationale, therefore, power of taxation is inherently legislative,
4
and may be imposed or
of the rule against enjoining the collection of taxes, that taxes are the lifeblood of revoked only by the legislature. In tandem with Section 1, Article
Government, leaned in favor of the temporary restraining order. VI of the Constitution which institutionalizes the law-making
1 Republic Act No. 9337. Referred to intext as “E-VAT Law.” power of Congress, Section 24 under the same Article crystallizes
this principle, as it provides that “[a]ll appropriation, revenue or
255
tariff bills … 5shall originate exclusively in the House of
Representatives.”
VOL. 469, SEPTEMBER 1, 2005 255 Consequently, neither the executive nor judicial branches of
government may originate tax measures. Even if the President
desires to levy new taxes, the imposition cannot be done by mere
executive fiat. In such an instance, the President would have to rely
destroy while this Court sits,” and we should very well live up to on Congress to enact tax laws.
this expectation not only of the revered Holmes, but of the Filipino Moreover, this plenary power of taxation cannot be delegated by
people who rely on this Court as the guardian of their rights. At Congress to any other branch of government or private persons, 6
stake is the right to exist and subsist despite taxes, which is unless its delegation is authorized by the Constitution itself. In
encompassed in the due process clause. this regard, the situation stands different from that in the recent
7
I respectfully submit these views while maintaining the deepest case Southern Cross v. PHILCEMCOR, wherein I noted in my
respect for the prerogative of the legislature to impose taxes, and of ponencia that the Tariff Commission and the DTI Secretary may be
the national government to chart economic policy. Such respect regarded as agents of Congress for the purpose of imposing
impels me
2
to vote to deny the petitions in G.R. Nos. 168056, 168207, safeguard measures. That pronouncement was made in light of
168463, and 168730, even as I acknowledge certain merit in the Section 28(2) Article VI, which allows Congress to delegate to the
challenges against the E-VAT law that are asserted in those President through law the power to impose tariffs and imposts,
petitions. In the final analysis, petitioners therein are unable to subject to limitations and restrictions as may be ordained by Con-
convincingly demonstrate the constitutional infirmity of the
provisions they seek to assail. The only exception is Section 21 of _______________
the law, which I consider unconstitutional, for reasons I shall later
elaborate. 3 J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at pp. 7-8.
However, I see the petition in G.R. No. 168461 as meritorious 4 See National Power Corporation v. Province of Albay, G.R. No. 87479, 4 June
and would vote to grant it. Accordingly, I dissent and hold as 1990, 186 SCRA 198, 203.
unconstitutional Section 8 of Republic Act No. 9337, insofar as it 5 See Section 24, Article VI, Constitution.
amends Section 110(A) and (B) of the National Internal Revenue 6 The recognized exceptions, both expressly provided by the Constitution, being
Code (NIRC) as well as Section 12 of the same law, with respect to the tariff clause under Section 28(2), Article VI, and the powers of taxation of local
its amendment of Section 114(C) of the NIRC. government units under Section 5, Article X.
The first part of my discussion pertains to the petitions in G.R. 7 G.R. No. 158540, 8 July 2005, 434 SCRA 65.
Nos. 168056, 168207, 168463, and 168730, while the second part is
devoted to what I deem the most crucial issue before the Court, the 257
petition in G.R. No. 168461.
VOL. 469, SEPTEMBER 1, 2005 257
I. Undue Delegation and the Increase of the VAT Rate Abakada Guro Party List vs. Ermita
My first point pertains to whether or not Sections 4, 5 and 6 of the

E-VAT Law constitutes an undue delegation of legis- gress. In the case of taxes, no such constitutional authorization
exists, and the discretion to ascertain the rates, subjects, and
conditions of taxation may not be delegated away by Congress.
_______________ However, as the majority correctly points out, the power to
2 Except insofar as it prays that Section 21 of the E-VAT Law be declared
ascertain the facts or conditions as the basis
8
of the taking into effect
unconstitutional. Infra.
of a law may be delegated by Congress, and that the details as to
the enforcement and administration of an exercise of taxing power
256 may be delegated to executive agencies, including the power 9
to
determine the existence of facts on which its operation depends.
Proceeding from these principles, Sections 4, 5, and 6 of the E-
VAT Law warrant examination. The provisions read:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended
to read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties.— the rate of value-added tax to twelve percent (12%), after any of the following
(A) Rate and Base of Tax.—There shall be levied, assessed and collected on every conditions has been satisfied.
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
percent (10%) of the gross selling price or gross value in money of the goods or
of the previous year exceeds two and four-fifth percent (2 4/5%) 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
259
value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied. VOL. 469, SEPTEMBER 1, 2005 259
(i) value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
(ii) national government deficit as a percentage of GDP of the previous
and four-fifth percent (2 4/5%) or
year exceed same and on-half percent (1 1/2%).
(ii) national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent 1 1/2%). The petitioners deem as noxious the proviso common to these
provisions that “the President, upon the recommendation of the
_______________ Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%),” after the satisfaction of
8 See People v. Vera, 65 Phil. 56, 117 (1937). the twin conditions that value-added tax collection as a percentage
9 Decision, infra. of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or that the national government
258
deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).
258 SUPREME COURT REPORTS ANNOTATED At first blush, it does seem that the assailed provisions are
constitutionally deficient. It is Congress, and not the President,
which is authorized to raise the rate of VAT from 10% to 12%, no
matter the circumstance. Yet a closer analysis of the proviso reveals
Sec. 5. Section 107 of the same Code, as amended, is hereby further that this is not exactly the operative effect of the law. The qualifier
amended to read as follows: “shall” denotes a mandatory, rather than discretionary function on
the part of the President to raise the rate of VAT to 12% upon the
SEC. 107. Value-Added Tax on Importation of Goods.—
existence of any of the two listed conditions.
(a) In General.—There shall be levied, assessed and collected on every
Since the President is not given any discretion in refusing to
importation of goods a value-added tax equivalent to ten percent (10%) based on the
raise the VAT rate to 12%, there is clearly no delegation of the
total value used by the Bureau of Customs in determining tariff and customs duties,
legislative power to tax by Congress to the executive branch. The
plus customs duties, excise taxes, if any, and other charges, such tax to be paid by
use of the word “shall” obviates any logical construction that would
the importer prior to the release of such goods from customs custody: Provided, That
allow the President leeway in not raising the tax rate. More so, it is
where the customs duties are determined on the basis of the quantity or volume of
accepted that the principle of constitutional construction that every
the goods, the value-added tax shall be based on the landed cost plus excise taxes, if
presumption should be indulged in favor of constitutionality and the
any: provided, further, that the President, upon the recommendation of the
court in considering the validity of the statute in question should
give it such reasonable construction as can be reached to bring it
value-added tax to twelve percent (12%) after any of the following 10
within the fundamental law. While all reasonable doubts should
conditions has been satisfied.
be
(i) national value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and four- _______________
fifth percent (2 4/5%) or
10 Carpio v. Executive Secretary, G.R. No. 96409 February 14, 1992, 206 SCRA
(ii) government deficit as a percentage of GDP of the previous year
290, 298; citing In re Guarina, 24 Phil. 37.
exceeds one and one-half percent (1 1/2%).
260
SEC. 108. Value-added Tax on Sale of Services and Use of Lease of 260 SUPREME COURT REPORTS ANNOTATED
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 11
from the sale or exchange of services; provided, that the President, upon the resolved in favor, of the constitutionality of a statute, it should
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise necessarily follow that the construction upheld should be one that is
not itself noxious to the Constitution.

Congress should be taken to task for imperfect draftsmanship at to determine and

14
declare the event upon which its expressed will is
least. Much trouble would have been avoided had the provisos to take effect. This recognition of agency must be qualified. I do
instead read: “that effective January 1, 2006, the rate of value- not doubt the ability of Congress to delegate to the Secretary of
added tax shall be raised to twelve percent (12%), after any of the Finance administrative functions
following conditions has been satisfied x x x.” This, after all is the
operative effect of the provision as it stands. In relation to the _______________
operation of the tax increase, the denominated role of the President
and the Secretary of Finance may be regarded as a superfluity, as 13 There are two eminent tests for valid delegation, the “completeness test” and
their imprimatur as a precondition to the increase of the VAT rate the “sufficient standard test.” The law must be complete in its essential terms and
must have no bearing. conditions when it leaves the legislature so that there will be nothing left for the
Nonetheless, I cannot ignore the fact that both the President and delegate to do when it reaches him except enforce it. U.S. v. Ang Tang Ho, 43 Phil. 1,
the Secretary of Finance have designated roles in the 6-7 (1922). On the other hand, a sufficient standard is intended to map out the
implementation of the tax increase. Considering that it is Congress, boundaries of the delegate’s authority by defining legislative policy and indicating
and not these officials, which properly have imposed the increase in the circumstances under which it is to be pursued and effected; intended to prevent a
the VAT rate, how should these roles be construed? total transference of legislative power from the legislature to the delegate.
The enactment of a law should be distinguished from its 14 Decision, infra, citing Alunan v. Mirasol, G.R. No. 108399, 31 July 1997, 276
implementation. Even if it is Congress which exercises the plenary SCRA 501, 513-514.
power of taxation, it is not the body that administers the
262
implementation of the tax. Under Section 2 of the National Internal
Revenue Code (NIRC), the assessment and collection of all national
internal revenue taxes, and the enforcement of all forfeitures, 262 SUPREME COURT REPORTS ANNOTATED
penalties and fines connected therewith had been previously
delegated to the Bureau of Internal Revenue,12
under the supervision
and control of the Department of Finance.
Moreover, as intimated earlier, Congress may delegate to other in the implementation of tax laws, as it does under Section 2 of the
components of the government the power to ascertain the facts or NIRC. Yet it would be impermissible for Congress to delegate to the
conditions as the basis of the taking into effect of Secretary of Finance the plenary function of enacting a tax law. As
stated earlier, the situation stands different from that in Southern
Cross wherein the Constitution itself authorizes the delegation by
_______________
Congress through a law to the President of the discretion to impose
11 People v. Vera, supra note 8. tariff measures,
15
subject to restrictions and limitations provided in
12 See Section 2, National Internal Revenue Code. the law. Herein, Congress cannot delegate to either the President
or the Secretary of Finance the discretion to raise the tax, as such
261 power belongs exclusively to the legislative branch of government.
Perhaps the term “agency” is not most suitable in describing the
VOL. 469, SEPTEMBER 1, 2005 261 delegation exercised by Congress in this case, for agency implies
that the agent takes on attributes of the principal by reason of
Abakada Guro Party List vs. Ermita representative capacity. In this case, whatever “agency” that can be
appreciated would be of severely limited capacity, encompassing as
a law. It follows that ascertainment of the existence of the two it only could the administration, not enactment, of the tax measure.
conditions precedent for the increase as stated in the law could13
very I do not doubt the impression left by the provisions that it is the
well be delegated to the President or the Secretary of Finance. President, and not Congress, which is authorized to raise the VAT
Nonetheless, the apprehensions arise that the process of rate. On paper at least, these imperfect provisions could be multiple
ascertainment of the listed conditions delegated to the Secretary of sources of mischief. On the political front, whatever blame or scorn
Finance and the President effectively vest discretionary authority to that may be attended with the increase of the VAT rate would fall
raise the VAT rate on the President, through the subterfuges that on the President, and not on Congress which actually increased the
may be employed to delay the determination, or even to manipulate tax rate. On the legal front, a President averse to increasing the
the factual premises. Assuming arguendo that these feared abuses VAT rate despite the existence of the two listed conditions may take
may arise, I think it possible to seek judicial enforcement of the refuge in the infelicities of the provision, and refuse to do so on the
increased VAT rate, even without the participation or consent of the ground that the law, as written, implies some form of
President or Secretary of Finance, upon indubitable showing that
any of the two listed conditions do exist. After all, the Court is _______________
ruling that the increase in the VAT rate is mandatory and beyond
the discretion of the President to impose or delay. 15 Notwithstanding, the Court in Southern Cross did rule that Section 5 of the
The majority states that in making the recommendation to the Safeguard Measures Act, which required a positive final determination by the Tariff
President on the existence of either of the two conditions, the Commission before the DTI or Agriculture Secretaries could impose general
Secretary of Finance is acting as the agent of the legislative branch,

safeguard measures, operated as a valid restriction and limitation on the exercise by United States, and was famously described by James Madison in
the executive branch of government of its tariff powers. The Federalist Papers as follows:
263 This power over the purse, may in fact be regarded as the most complete
and effectual weapon with which any constitution can arm the immediate
representatives of the people, for obtaining a redress of every grievance,
VOL. 469, SEPTEMBER 1, 2005 263 18
and for carrying into effect every just and salutary measure.
There is an eminent difference from the British system from which
discretion on the part of the President who was, after all, the principle emerged, and from our own polity. To this day, only
“authorized” to increase the tax rate. It is critical for the Court to members of the British House of Commons are directly elected by
disabuse this notion right now. the people, with the members of the House of Lords deriving their
seats from hereditary peerage. Even in the United States, members
The Continued Viability of of the Senate were not directly elected by the people, but chosen by
Tolentino v. Secretary of Finance state legislatures, until the adoption of the Seventeenth
Amendment in 1913. Hence, the rule assured the British and
One of the more crucial issues now before us, one that has seriously American people that tax legislation arises with the consent of the
divided the Court, pertains to the ability of the Bicameral sovereign people, through their directly elected representatives. In
Conference Committee to introduce amendments to the final bill our country though, both members of the House and Senate are
which were not contained in the House bill from which the E-VAT directly elected by the people, hence the vitality of the original
Law originated. Most of the points addressed by the petitioners conception of the rule has somewhat lost luster.
have been16
settled in our ruling in Tolentino v. Secretary of Still, the origination clause deserves obeisance in this
Finance, yet a revisit of that precedent is urged upon this Court. jurisdiction, simply because it is provided in the Constitution.
On this score, I offer my qualified concurrence with the ponencia.
Two key provisions of the Constitution come into play: Sections _______________
24 and 26(2), Article VI of the Constitution. They read:
17 M. Evans, ‘A SOURCE OF FREQUENT AND OBSTINATE ALTERCATIONS’:
Section 24: All appropriation, revenue or tariff bills, bills authorizing THE HISTORY AND APPLICATION OF THE ORIGINATION CLAUSE.
increase of the public debt, bills of local application, and private bills shall 18 The Federalist No. 58, at p. 394 (J. Madison) (J. Cooke ed. 1961), cited in J. M.
originate exclusively in the House of Representatives, but the Senate may Medina, The Origination Clause in the American Constitution: A Comparative
propose or concur with amendments. Survey, 23 Tulsa Law Journal 2, at p. 165.
Section 26(2): No bill passed by either House shall become a law unless
it has passed three readings on separate days, and printed copies thereof in 265
its final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
VOL. 469, SEPTEMBER 1, 2005 265
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 Abakada Guro Party List vs. Ermita
thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal. At the same time, its proper interpretation is settled precedent, as
enunciated in Tolentino:
Section 24 is also known as the origination clause, which derives
origin from British practice. From the assertion that the power to “To begin with, it is not the law—but the revenue bill—which is required by
tax the public at large must reside in the repre- the Constitution to “originate exclusively” in the House of Representatives.
It is important to emphasize this, because a bill originating in the House
_______________ may undergo such extensive changes in the Senate that the result may be a
rewriting of the whole. The possibility of a third version by the conference
16 G.R. No. 115455, 25 August 1994, 235 SCRA 630. committee will be discussed later. At this point, what is important to note
is that, as a result of the Senate action, a distinct bill may be produced. To
264
insist that a revenue statute—and not only the bill which initiated the
legislative process culminating in the enactment of the law—must
264 SUPREME COURT REPORTS ANNOTATED substantially be the same as the House bill would be to deny the Senate’s
power not only to “concur with amendments” but also to “propose
amendments.” It would be to violate the coequality of legislative power of
the two houses of Congress and in fact make the House superior to the
19
sentatives of the people, the principle evolved that money bills must Senate.”
originate in the 17House of Commons and may not be amended by the
House of Lords. The principle was adopted across the shores in the The vested power of the Senate to “propose or concur with
amendments” necessarily implies the ability to adduce

transformations from the original House bill into the final law. _______________
Since the House and Senate sit separately in sessions, the only
20 See Section 27(1), Article VI, CONSTITUTION.
opportunity for the Senate to introduce its amendments would be in
the Bicameral Conference Committee, which emerges only after 267
both the House and the Senate have approved their respective bills.
In the present petitions, Tolentino comes under fire on two
fronts. The first controversy arises from the adoption in Tolentino of VOL. 469, SEPTEMBER 1, 2005 267
American legislative practices relating to bicameral committees Abakada Guro Party List vs. Ermita
despite the difference in constitutional frameworks, particularly the
limitation under Section 26(2), Article VI which does not exist in
The second front concerns the scope and limitations of the
the American Constitution.
Bicameral Conference Committee to amend, delete, or otherwise
The majority points out that “the ‘no amendment rule’ refers only
modify the bills as approved by the House and the Senate.
to the procedure to be followed by each house of Congress with
Tolentino adduced the principle, adopted from American
regard to bills initiated in the house concerned,
practice, that the version as approved by the Bicameral Conference
Committee need only be germane 21
to the subject of the House and
_______________ Senate bills in order to be valid. The majority, in applying the test
19 Tolentino v. Secretary of Finance, supra note 16 at p. 661.
of germaneness, upholds the contested provisions of the E-VAT
Law. Even the members of the Court who prepared to strike down
266 provisions of the law applying germaneness nonetheless accept the
basic premise that such test is controlling.
I agree that any amendment made by the Bicameral Conference
Committee that is not germane to the subject matter of the House
Abakada Guro Party List vs. Ermita or Senate Bills is not valid. It is the only valid ground by which an
amendment introduced by the Bicameral Conference Committee
before said bills are transmitted to the other house for its may be judicially stricken.
concurrence or amendment.” I agree with this statement. Clearly, The germaneness standard which should guide Congress or the
the procedure under Section 26(2), Article VI only relates to the Bicameral Conference Committee should be appreciated in its
passage of a bill before the House and Senate, and not the process normal but total sense. In that regard, my views contrast with that
undertaken afterwards in the Bicameral Conference Committee. of Justice Panganiban, who asserts that provisions that are not
Indeed, Sections 26 and 27 of Article VI, which detail the “legally germane” should be stricken down. The legal notion of
procedure how a bill becomes a law, are silent as to what occurs germaneness is just but one component, along with other factors
between the passage by both houses of their respective bills, and such as economics and politics, which guides the Bicameral
the presentation to the President of “every bill passed by the Conference Committee, or the legislature for that matter, in the
20
Congress.” Evidently, “Congress” means both Houses, such that a enactment of laws. After all, factors such as economics or politics are
bill approved by the Senate but not by the House is not presented to expected to cast a pervasive influence on the legislative process in
the President for approval. There is obviously a need for joint the first place, and it is essential as well to allow such “non-legal”
concurrence by the House and Senate of a bill before it is elements to be considered in ascertaining whether Congress has
transmitted to the President, but the Constitution does not provide complied with the criteria of germaneness.
how such concurrence is acquired. This lacuna has to be filled,
otherwise no bill may be transmitted to the President. _______________
Even if the Bicameral Conference Committee is not a
21 Tolentino v. Secretary of Finance, supra note 16 at p. 668.
constitutionally organized body, it has existed as the necessary
conclave for both chambers of Congress to reconcile their respective 268
versions of a prospective law. The members of the Bicameral
Conference Committee may possess in them the capacity to
represent their particular chamber, yet the collective is neither the 268 SUPREME COURT REPORTS ANNOTATED
House nor the Senate. Hence, the procedure contained in Section Abakada Guro Party List vs. Ermita
26(2), Article VI cannot apply to the Bicameral Conference
Committee.
Congress is a political body, and its rationale for legislating may be
Tellingly, the version approved by the Bicameral Conference
guided by factors other than established legal standards. I deem it
Committee still undergoes deliberation and approval by both
unduly restrictive on the plenary powers of Congress to legislate, to
Houses. Only one vote is taken to approve the reconciled bill, just as
coerce the body to adhere to judge-made standards, such as a
only one vote is taken in order to approve the original bill.
standard of “legal germaneness.” The Constitution is the only legal
Certainly, it could not be contended that this final version
standard that Congress is required to abide by in its enactment of
surreptitiously evades approval of either the House or Senate.
laws.

Following these views, I cannot agree with the position generation measure. This may be so, but it does not mean that the
maintained by the Chief Justice, Justices Panganiban and Azcuna test of germaneness would be rendered inutile when it comes to
that the provisions of the law that do not pertain to VAT should be revenue laws.
stricken as unconstitutional. These would include, for example, the I do believe that the test of germaneness was violated by the E-
provisions raising corporate income taxes. The Bicameral VAT Law in one regard. Section 21 of the law, which was not
Conference Committee, in evaluating the proposed amendments, contained in either the House or Senate Bills, imposes restrictions
necessarily takes into account not just the provisions relating to the on the use by local government units of their incremental revenue
VAT, but the entire revenue generating mechanism in place. If, for from the VAT. These restrictions are alien to the principal purposes
example, amendments to non-VAT related provisions of the NIRC of revenue generation, or the purposes of restructuring the VAT
were intended to offset the expanded coverage for the VAT, then system. I could not see how the provision, which relates to
such amendments are germane to the purpose of the House and budgetary allocations, is
Senate Bills.
Moreover, it would be myopic to consider that the subject matter _______________
of the House Bill is solely the VAT system, rather than the
generation of revenue. The majority has sufficiently demonstrated 23 Id., at pp. 349-350.
that the legislative intent behind the bills that led to the E-VAT
270
Law was the generation of revenue to counter the country’s dire
fiscal situation.
The mere fact that the law is popularly known as the E-VAT 270 SUPREME COURT REPORTS ANNOTATED
Law, or that most of its provisions pertain to the VAT, or indirect
taxes, does not mean that any and all amendments which are
introduced by the Bicameral Conference Committee must pertain to
the VAT system. As the Court noted in Tatad v. Secretary of germane to the E-VAT Law. Since it was introduced only in the
22
Energy: Bicameral Conference Committee, the test of germaneness is
essential, and the provision does not pass muster. I join Justice
_______________
Puno and the Chief Justice in voting to declare Section 21 as
unconstitutional.
22 G.R. No. 124360, 5 November 1997, 281 SCRA 330. I also offer this brief comment regarding the deletion of the so-
called “no pass on” provisions, which several of my colleagues deem
269 unconstitutional. Both the House and Senate Bills contained these
provisions that would prohibit the seller/producer from passing on
VOL. 469, SEPTEMBER 1, 2005 269 the cost of the VAT payments to the consumers. However, an
examination of the said bills reveal that the “no pass on” provisions
Abakada Guro Party List vs. Ermita in the House Bill affects a different subject of taxation from that of
the Senate Bill. In the House Bill No. 3705, the taxpayers who are
[I]t is contended that section 5(b) of R.A. No. 8180 on tariff differential prohibited from passing on the VAT payments are the sellers of
violates the provision 17 of the Constitution requiring every law to have petroleum products and electricity/power generation companies. In
only one subject which should be expressed in its title. We do not concur Senate Bill No. 1950, no prohibition was adopted as to sellers of
with this contention. As a policy, this Court has adopted a liberal petroleum products, but enjoined therein are electricity/power
construction of the one title—one subject rule. We have generation companies but also transmission and distribution
consistently ruled that the title need not mirror, fully index or companies.
catalogue all contents and minute details of a law. A law having a I consider such deletions as valid, for the same reason that I
single general subject indicated in the title may contain any deem the amendments valid. The deletion of the two disparate “no
number of provisions, no matter how diverse they may be, so long pass on” provisions which were approved by the House in one
as they are not inconsistent with or foreign to the general subject, instance, and only by the Senate in the other, remains in the sphere
and may be considered in furtherance of such subject by providing of compromise that ultimately guides the approval of the final
for the method and means of carrying out the general subject. We version. Again, I point out that even while the two provisions may
hold that section 5(b) providing for tariff differential is germane to the have been originally approved by the House and Senate
subject of R.A. No. 8180 which is the deregulation of the downstream oil respectively, their subsequent deletion by the Bicameral Conference
industry. The section is supposed to sway prospective investors to put up
23
Committee is still subject to approval by both chambers of Congress
refineries in our country and make them rely less on imported petroleum. when the final version is submitted for deliberation and voting.
Moreover, the fact that the nature of the “no pass on” provisions
I submit that if the amendments are attuned to the goal of revenue adopted by the House essentially differs from that of the Senate
generation, the stated purpose of the original House Bills, then the necessarily required the corrective relief from the Bicameral
test of germaneness is satisfied. It might seem that the goal of Conference Committee. The Committee could have either insisted
revenue generation, which is stated in virtually all tax or tariff on the House version, the Senate version, or
bills, is so encompassing in scope so as to justify the inclusion by the
Bicameral Conference Committee of just about any revenue 271
It is the duty of the courts to nullify laws that contravene the due
VOL. 469, SEPTEMBER 1, 2005 271 process clause of the Bill of Rights. This task is at the heart not only
of judicial review, but of the democratic system, for the
Abakada Guro Party List vs. Ermita fundamental guarantees in the Bill of Rights become merely
hortatory if their judicial enforcement is unavailing. Even if the
both versions, and it is not difficult to divine that any of these steps void law in question is a tax statute, or one that encompasses
would have obtained easy approval. Hence, the deletion altogether national economic policy, the courts should not shirk from striking
of the “no pass on” provisions existed as a tangible solution to the it down notwithstanding any notion of deference to the executive or
possible impasse, and the Committee should be accorded leeway to legislative branch on questions of policy. Neither Congress nor the
implement such a compromise, especially considering that the President has the right to enact or enforce unconstitutional laws.
deletion would have remained germane to the law, and would not be The Bill of Rights is by no means the only constitutional
constitutionally prohibited since the prohibition on amendments yardstick by which the validity of a tax law can be measured.
under Section 26(2), Article VI does not apply to the Committee. Nonetheless, it stands as the most unyielding of constitutional
An outright declaration that the deletion of the two elementally standards, given its position of primacy in the
24
fundamental law way
different “no-pass on” provisions is unconstitutional, is of dubious above the articles on governmental power. If the question lodged,
efficacy in this case. Had such pronouncement gained endorsement for example, hinges on the proper exercise of legislative powers in
of a majority of the Court, it could not result in the ipso facto the enactment of the tax law, leeway can be appreciated in favor of
restoration of the provision, the omission of which was ultimately affirming the legislature’s inherent power to levy taxes. On the
approved in both the House and Senate. Moreover, since the House other hand, no quarter can be ceded, no concession yielded, on the
version of the “no pass on” is quite different from that of the Senate, people’s
there would be a question as to whether the House version, the
Senate version, or both versions would be reinstated. And of course, _______________
if it were the Court which would be called upon to choose, such
would be way beyond the bounds of judicial power. 24 People v. Tudtud, G.R. No. 144037, 26 September 2003, 412 SCRA 142, 168.
Indeed, to intimate that the Court may require Congress to
273
reinstate a provision that failed to meet legislative approval would
result in a blatant violation of the principle of separation of powers,
with the Court effectively dictating to Congress the content of its VOL. 469, SEPTEMBER 1, 2005 273
legislation. The Court cannot simply decree to Congress what laws
or provisions to enact, but is limited to reviewing those enactments
which are actually ratified by the legislature.
fundamental rights as enshrined in the Bill of Rights, even if the
II. sacrifice is ostensibly made “in the national interest.” It is my
understanding that “the national interests,” however comported,
My earlier views, as are the submissions I am about to offer, are always subsumes in the first place recognition and enforcement of
rooted in nothing more than constitutional interpretation. Perhaps the Bill of Rights, which manifests where we stand as a democratic
my preceding discussion may lead to an impression that I whole- society.
heartedly welcome the passage of the E-VAT Law. Yet whatever The constitutional safeguard of due process is embodied in the
relief I may have over the enactment of a fiat “No person shall 25be deprived of life, liberty or property without
due process of law.” The purpose of the guaranty is to prevent
272
governmental encroachment against the life, liberty and property of
individuals; to secure the individual from the arbitrary exercise of
272 SUPREME COURT REPORTS ANNOTATED the powers of the government, unrestrained by the established
principles of private rights and distributive justice; to protect
property from confiscation by legislative enactments, from seizure,
forfeiture, and destruction without a trial and conviction by the
law designed to relieve our country’s financial woes are sadly ordinary mode of judicial procedure; and to secure to all persons 26
obviated with the realization that a key amendment introduced in equal and impartial justice and the benefit of the general law.
27
the law is not only unconstitutional, but of fatal consequences. The In Magnano Co. v. Hamilton, the U.S. Supreme Court
clarion call of judicial review is most critical when it stands as the recognized that the due process clause may be utilized to strike
sole barrier against the deprivation of life, liberty and property down a taxation statute, “if the act be so arbitrary as to compel the
without due process of law. It becomes even more impelling now as conclusion that it does not involve an exertion of the taxing power,
we are faced with provisions of the E-VAT Law which, though in but constitutes, in substance and effect, the direct exertion of a
bland disguise, would operate as the most destructive of tax different and forbidden power, as, for example, the confiscation of
28 29
measures enacted in generations. property.” Locally, Sison v. Ancheta has long provided sanctuary
for persons assailing the constitutionality of taxing statutes. The
Tax Statutes and the Due Process Clause
oft-quoted pronouncement of Justice Fernando follows:

_______________ Abakada Guro Party List vs. Ermita

25 See Section 1, Article III, CONSTITUTION. Private corporations and
5. It is undoubted that the due process clause may be invoked
partnerships are persons within the scope of the guaranty insofar as their property is
where a taxing statute is so arbitrary that it finds no support in the
concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919).
Constitution. An obvious example is where it can be shown to
26 16 C.J.S., at pp. 1150-1151.
amount to the confiscation of property. That would be a clear
27 292 U.S. 40 (1934).
abuse of power. It then becomes the duty of this Court to say that
28 Id., at p. 44.
such an arbitrary act amounted to the exercise of an authority not
29 G.R. No. L-59431, 25 July 1984, 130 SCRA 654.
conferred. That properly calls for the application of the Holmes
274 dictum. It has also been held that where the assailed tax measure
is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and
274 SUPREME COURT REPORTS ANNOTATED unreasonable, it is subject to attack on due process grounds.
30

Sison pronounces more concretely how a tax statute may
contravene the due process clause. Arbitrariness, confiscation,
2. The power to tax moreover, to borrow from Justice Malcolm, “is an
overstepping the state’s jurisdiction, and lack of a public purpose
attribute of sovereignty. It is the strongest of all the powers of
are all grounds for nullity encompassed under the due process
government.” It is, of course, to be admitted that for all its plenitude,
invocation.
the power to tax is not unconfined. There are restrictions. The
Yet even these more particular standards as enunciated in Sison
Constitution sets forth such limits. Adversely affecting as it does
are quite exacting, and difficult to reach. Even the constitutional
property rights, both the due process and equal protection clauses
challenge posed in Sison failed to pass muster. The majority cites
may properly be invoked, as petitioner does, to invalidate in
Sison in asserting that due process and equal protection are broad
appropriate cases a revenue measure. If it were otherwise, there would
standards which need proof of such persuasive character to lead to
be truth to the 1803 dictum of Chief Justice Marshall that “the power to tax
such a conclusion.
involves the power to destroy.” In a separate opinion in Graves v. New York,
It is difficult though to put into quantifiable terms how onerous a
Justice Frankfurter, after referring to it as an “unfortunate remark,”
taxation statute must be before it contravenes the due process
characterized it as “a flourish of rhetoric [attributable to] the intellectual 31
clause. After all, the inherent nature of taxation is to
fashion of the times [allowing] a free use of absolutes.” This is merely to
emphasize that it is not and there cannot be such a constitutional mandate.
Justice Frankfurter could rightfully conclude: “The web of unreality spun _______________
from Marshall’s famous dictum was brushed away by one stroke of Mr. 30 Id., at pp. 660-662.
Justice Holme’s pen: ‘The power to tax is not the power to destroy while 31 Justice Isagani Cruz offers the following examples of taxes that contravene the
this Court sits.’ ” So it is in the Philippines.
due process clause: “A tax, for example, that would claim 80 percent of a person’s net
3. This Court then is left with no choice. The Constitution as the
income would clearly be oppressive and could unquestionably struck down as a
fundamental law overrides any legislative or executive act that
deprivation of his property without due process of law. A property tax retroacting to
runs counter to it. In any case therefore where it can be
as long as fifty years back would by tyrannical and unrealistic, as the property might
demonstrated that the challenged statutory provision—as
not yet have been then in the possession of the taxpayer nor, presumably, would he
petitioner here alleges—fails to abide by its command, then this
have acquired it had he known
Court must so declared and adjudge it null. The inquiry thus is
centered on the question of whether the imposition of a higher tax rate on 276
taxable net income derived from business or profession than on
compensation is constitutionally infirm.
4. The difficulty confronting petitioner is thus apparent. He alleges 276 SUPREME COURT REPORTS ANNOTATED
arbitrariness. A mere allegation, as here, does not suffice. There must be a Abakada Guro Party List vs. Ermita
factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has cause pain and injury to the taxpayer, albeit for the greater good of
not made out a case. This is merely to adhere to the authoritative doctrine society. Perhaps whatever collective notion there may be of what
that where the due process and equal protection clauses are invoked, constitutes an arbitrary, confiscatory, and unreasonable tax might
considering that they are not fixed rules but rather broad standards, there draw more from the fairy tale/legend traditions of absolute
is a need for proof of such persuasive character as would lead to such a monarchs and the oppressed peasants they tax. Indeed, it is easier
conclusion. Absent such a showing, the presumption of validity must to jump to the conclusion that a tax is oppressive and unfair if it is
prevail. imposed by a tyrant or an authoritarian state.
275
But could an arbitrary, confiscatory or unreasonable tax actually
be enacted by a democratic state such as ours? Of course it could,
but these would exist in more palatable guises. In a democratic
VOL. 469, SEPTEMBER 1, 2005 275 society wherein statutes are enacted by a representative legislature

only after debate and deliberation, tax statutes will most likely, on that its implementation will cause the illegal deprivation of life,
their face, seem fair and even-handed. After all, if Congress passes liberty or property without due process of law. This is especially so
a tax law that on facial examination is obviously harsh and unfair, if, as in this case, the injury is of mathematical certainty, and the
it faces the wrath of the voting public, to say nothing of the media. extent of the loss quantifiable through easy reference to the most
In testing the validity of a tax statute as against the due process basic of business practices.
clause, I think that the Court should go beyond a facial examination
278
of the statute, and seek to understand how exactly it would operate.
The express terms of a statute, especially tax laws, are usually
inadequate in spelling out the practical effects of its SUPREME COURT REPORTS ANNOTATED 278
implementation. The devil is usually in the details.
Admittedly, the degree of difficulty involved of judicial review of
tax laws has increased with the growing complexities of business,
economic and accounting practices. These are sciences which These arguments are conjectural for the same reason that the bare
laymen are not normally equipped by their general education to statement “firing a gunshot into the head will cause a fatal wound”
fully grasp, hence the possible insecurity on their part when would be conjectural. Some people are lucky enough to survive
confronted with such questions on these fields. gunshot wounds to the head, while many others are not. Yet just
However, we should not cede ground to those transgressions of because the fear of mortality would be merely speculative, it does
the people’s fundamental rights simply because the not mean that there should be less compulsion to avoid a situation
of getting shot in the head.
_______________
Indeed, the Court has long responded to strike down prospective
actions, even if the injury has not yet even occurred. One of the most
of the tax to be imposed on it.” I. CRUZ, CONSTITUTIONAL LAW, p. 85. significant legal principles of the last century, the “clear and present
danger” doctrine in free speech cases, in fact emanates from the
277 prospectivity, and not the actuality of danger. The Court has not
been hesitant to nullify acts which might cause injury, owing to the
VOL. 469, SEPTEMBER 1, 2005 277 presence of a clear and present danger of a substantive evil which
the State has the right to prevent. It has even extended the “clear
Abakada Guro Party List vs. Ermita and present danger rule” beyond the confines of freedom of
expression to the realm of freedom of religion,
32
as noted by Justice
mechanism employed to violate constitutional guarantees is steeped Puno in his ponencia in Estrada v. Escritor.
in disciplines not normally associated with the legal profession. Justice Teodoro Padilla goes further in his concurring opinion in
Venality cannot be allowed to triumph simply due to its Basco v. PAGCOR, and asserts that the clear and present danger
sophistication. This petition imputes in the E-VAT Law test squarely applies to the due process clause:
unconstitutional oppression of the fatal variety, but in order to
comprehend exactly how and why that is so, one has to delve into _______________
the complex milieu of the VAT system. The party alleging the law’s
unconstitutionality of course has the burden to demonstrate the 32 “After defining religion, the Court, citing Tañada and Fernando, made this
violations in understandable terms, but if such proof is presented, statement, viz.:
the Court’s duty is to engage accordingly.
The constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraint of such
The Viability of the Clear and Present
right can only be justified like other restraints of freedom of expression on the grounds that
Danger Doctrine as Counterweight
there is a clear and present danger of any substantive evil which the State has the right to
To the Shibboleths of Speculation
prevent. (Tanada and Fernando on the Constitution of the Philippines, vol. 1, 4th ed., p. 297)
and Wisdom
(emphasis supplied)
I do not see as an impediment to the annulment of a tax law the
This was the Court’s maiden unequivocal affirmation of the “clear and present
fact that it has yet to be implemented, or the fear that doing so
danger” rule in the religious freedom area, and in Philippine jurisprudence, for that
constitutes an undue attack on the wisdom, rather than the legality
matter.” Estrada v. Escritor, A.M. No. P-02-1651, 4 August 2003, 408 SCRA 1.
of a statute. However, my position in this petition has been
challenged on those grounds, and I see it fit to refute these 279
preemptive allegations before delving into the operative aspect of
the E-VAT Law.
If there is cause to characterize my arguments as speculative, it is VOL. 469, SEPTEMBER 1, 2005 279
only because the E-VAT Law has yet to be implemented. No person Abakada Guro Party List vs. Ermita
as of yet can claim to have sustained actual injury by reason of the
implementation of the assailed provisions in G.R. No. 168461. Yet “The courts, as the decision states, cannot inquire into the wisdom,
this should not mean that the Court is impotent from declaring a morality or expediency of policies adopted by the political
provision of law as violative of the due process clause if it is clear
departments of government in areas which fall within their varying profit margins and capital requirements,
34
then the remedy
authority, except only when such policies pose a clear and present would be an amendment of the law. Of course, the remedy of
danger to the life, liberty or property of the individual.” legislative amendment applies to even the most unconstitutional of
I see no reason why the clear and present danger test cannot laws. But if our society can take cold comfort in the ability of the
apply in this case, or any case wherein a taxing statute poses a clear legislature to amend its enactments as the defense against
and present danger to the life, liberty or property of the individual. unconstitutional laws, what remains then as the function of judicial
The application of this standard frees the Court from inutility in the review? This legislative capacity to amend unconstitutional laws
face of patently unconstitutional tax laws that have been enacted but runs concurrently with the judicial capacity to strike down
are yet to be fully operational. unconstitutional laws. In fact, the long-standing tradition has been
If for example, Congress deems it wise to impose the most reliance on the judicial branch, and not the legislative branch, for
draconian of tax measures—such as trebling the income taxes of all salvation from unconstitutional laws.
persons over 40, raising the gross sales tax rate to 50%, or
penalizing delinquent taxpayers with 50 lashes of the whip—there _______________
certainly would be a massive public outcry, and an expectation that
the Court would immediately nullify the offensive measures even 33 Separate Opinion, infra.
before they are actually imposed. Applying the clear and present 34 Ibid.
danger test, the Court is empowered to strike down the noxious
281
measures even before they are implemented. Yet with this “bar on
speculativeness” as argued by the majority, the Court could easily
refuse to pay heed to the prayers for injunctive relief, and instead VOL. 469, SEPTEMBER 1, 2005 281
demand that the taxing subjects must first suffer before the Court
can act.
In the same vein, the claim that my arguments strike at the
wisdom, rather than the constitutionality of the law are misplaced. I do recognize that the Separate Opinion of Justice Panganiban
Concededly, the assailed provisions of the E-VAT law are basically ultimately proceeds from the premise that the assailed provisions of
unwise. But any provision of law that directly contradicts the the E-VAT Law may be merely unwise, but not unconstitutional.
Constitution, especially the Bill of Rights, are similarly unwise, as Hence, its preference to rely on Congress to amend the offending
they run inconsistent with the fundamental law of the land, the provisions rather than judicial nullification. But I maintain that the
enunciated state policies and the elemental guarantees assured by assailed provisions of the E-VAT Law violate the due process clause
the State to its people. Not every unwise law is unconstitutional, but of the Constitution and must be stricken down.
every unconstitutional law is unwise, for an unconstitutional law
The Nature of VAT
280
To understand why Sections 8 and 12 of the E-VAT law contravenes
the due process clause, it is essential to understand the nature of
280 SUPREME COURT REPORTS ANNOTATED the value-added tax itself. Filipino consumers may comprehend
Abakada Guro Party List vs. Ermita VAT at its elemental form, having been accustomed for several
years now in paying an extra 10% of the listed selling price for a
contravenes a primordial principle or guarantee on which our polity wide class of consumer goods. From the perspective of the end
is founded. consumer, such as the patron who purchases a meal from a fastfood
If it can be shown that the E-VAT Law violates these provisions restaurant, VAT is simply a tax on transactions involving the sale
of the Constitution, especially the due process clause, then the of goods. The tax is shouldered by the buyer, and is based on a
Court should accordingly act and nullify. Such is the essence of percentage of the purchase price. Since an excise or percentage tax
judicial review, which stands as the sole barrier to the shares the same characteristics, there could be some confusion as
implementation of an unconstitutional law. between such taxes and the VAT.
The Separate Opinion of Justice Panganiban notes that “[t]he However, VAT is distinguishable from the standard excise or
Court cannot step beyond the confines of its constitutional power, if percentage taxes in that it is imposable not only on the final
there is absolutely no clear showing of grave abuse of discretion in transaction involving the end user, but on previous stages as well so
33
the enactment of the law.” This, I feel, is an unduly narrow view of long as there was a sale involved. Thus, VAT does not simply
judicial review, implying that such merely encompasses the pertain to the extra percentage paid by the buyer of a fast-food
procedural aspect by which a law is enacted. If the policy of the law, meal, but also that paid by restaurant itself to its suppliers of raw
and/or the means by which such policy is implemented run counter food products. This multi-stage system is more acclimated to the
to the Constitution, then the Court is empowered to strike down the vagaries of the modern industrial climate, which has long surpassed
law, even if the legislative and executive branches act within their the stage when there was only one level of transfer between the
discretion in legislating and signing the law. farmer who harvests the crop and the person who eats the crop.
It is also asserted that if the implementation of the 70% cap Indeed, from the extraction or production of the raw material to its
imposes an unequal effect on different types of businesses with final consumption by a user, several transactions or sales

282 transaction, but such a demand proves excessively unwieldy. The

number of VAT covered transactions a modern enterprise may
contract in a single day, plus the recognized principle that it is the
final end user who ultimately shoulders the tax; render the
Abakada Guro Party List vs. Ermita remittance of the tax on a per transaction basis impossible.
Thus, the VAT is delivered by the purchaser not directly to the
materialize. The VAT system assures that the government shall government but to the seller, who then collates the VAT received
reap income for every transaction that is had, and not just on the and remits it to the government every quarter. The process may
final sale or transfer. seem simple if cast in this manner, but there is a wrinkle, due to
The European Union, which has long required its member states the offsetting mechanism designed to ultimately make the end
to apply the VAT system, provided the following definition of the consumer bear the cost of the VAT.
tax which I deem clear and comprehensive:
The Concepts of Input and
The principle of the common system of value added tax involves the Output VAT
application to goods and services of a general tax on consumption exactly
proportional to the price of the goods and services, whatever the This mechanism is employed through the introduction of two
number of transactions that take place in the production and concepts, the input tax and the output tax. Section 110(A) of the
distribution process before the stage at which tax is charged. National Internal Revenue Code defines the input tax as the VAT
On each transaction, value added tax, calculated on the price of the due from or paid by a VAT-registered person on the importation of
goods or services at the rate applicable to such goods or services, shall be goods or local purchase of goods and services in the course of trade
chargeable after deduction of the amount of value added tax borne or business, from a VAT registered person.
35
directly by the various cost components. Let us put this in operational terms. A VAT registered person,
engaged in an enterprise, necessarily purchases goods such as raw
The above definition alludes to a key characteristic of the VAT materials and machinery in order to produce consumer goods. The
system, that the imposable tax remains proportional to the price of purchase of such raw materials and machineries is subject to VAT,
goods and services no matter the number of transactions that takes hence the enterprise pays an additional 10% of the purchase price
place. to the supplier as VAT. This extra amount paid by the enterprise
There is another key characteristic of the VAT—that no matter constitutes its input
how many the taxable transactions that precede the final purchase
284
or sale, it is the end-user, or the consumer, that ultimately
shoulders the tax. Despite its name, VAT is generally not intended
to be a tax on value added, but rather as a tax on consumption. 284 SUPREME COURT REPORTS ANNOTATED
Hence, there is a mechanism in the VAT system that enables firms
to offset the tax they have paid on their own purchases of goods and
services 36against the tax they charge on their sales of goods and
services. Section 105 of the NIRC assures that “the amount of tax VAT. The enterprise likewise pays input VAT when it purchases
may be services covered by the tax, or rentals of property.
Since VAT is a final tax that is supposed to be ultimately
shouldered by the end consumer, the VAT system allows for a
_______________
mechanism by which the business is able to recover the input VAT
35 Art. 2, European Commission First Council Directive 67/227 of 11 April 1967 on that it paid. This comes into play when the business, having
the Harmonization of Legislation of Member States Concerning Turnover Taxes, transformed the raw materials into consumer goods, sells these
1971 O.J. (L 71) 1301. goods to the public. As widely known, the consumer pays to the
36 Liam & Ebrill, THE MODERN VAT. business an additional amount of 10% of the purchase price as VAT.
As to the business, this VAT payments it collects from the consumer
283 represents output VAT, which is formally described under Section
110(A) of the NIRC as “the value-added tax due on the sale or lease
VOL. 469, SEPTEMBER 1, 2005 283 of taxable goods or properties or services by” by any VAT-registered
person.
Abakada Guro Party List vs. Ermita The output VAT collected by the business from the consumers
accumulates, until the end of every quarter, when the enterprise is
shifted or passed on to the buyer, transferee or lessee of the goods, obliged to remit the collected output VAT to the government. This is
properties or services.” The assailed provisions of the E-VAT law where the crediting mechanism comes into play. Since the business
strike at the heart of this accepted principle. is entitled to recover the prepaid input VAT, it does so in every
And there is one final basic element of the VAT system integral quarter by applying the amount of prepaid input VAT against the
to this disquisition: the mode by which the tax is remitted to the collected output VAT which is to be remitted. If the output VAT
government. In simple theory, the VAT payable can be remitted to collected exceeds the prepaid input VAT, then the amount of input
the government immediately upon the occurrence of the VAT is deducted from the output VAT, and it is entitled to remit
only the remainder as output VAT to the government. To illustrate,

if Business X collects P1,000,000.00 as output VAT and incurs sold does not necessarily increase the gross sales, as it could have
P500,000.00 as input VAT, the P500,000.00 is deducted from the the counter-effect of repelling the consumer and diminishing the
P1,000,000.00 output VAT, and X is required to remit only number of goods sold. At the same time, keeping the selling price
P500,000.00 of the output VAT it collected from customers. low may increase the volume of goods sold, but not necessarily the
On the other hand, if the input VAT prepaid exceeds the output amount of gross sales.
VAT collected, then the business need not remit any amount as Profit is a chancy matter, and in cases of small to medium
output VAT for the quarter. Moreover, the difference between the enterprises, usually small if any. It is quite common for retail and
input VAT and the output VAT may be credited as input VAT by distribution enterprises to incur profits of less than 1% of their
the business in the succeeding quar- gross revenues. Low profitability is not an automatic badge of poor
business skills, but a reality dictated by the laws of the
285
marketplace. The probability of profit is lower than that of capital
expenditures, and ultimately, many business establishments end up
VOL. 469, SEPTEMBER 1, 2005 285 with a higher input tax than output tax in a given quarter. This
would be especially true for small to medium enterprises who do not
reap sufficient profits from its business in the first place, and for
those firms that opt to also invest in capital expenses in addition to
ter. Thus, if in the First Quarter of a year, Business X prepays the overhead. Whatever miniscule profit margins that can be
P1,000,000.00 as input VAT, and collects only P500,000.00 as obtained usually spell the difference between life and death of the
output VAT, it need not remit any amount of output VAT to the business.
government. Moreover, in the Second Quarter, Business X can The possibility of profit is further diminished by the fact that
credit the remaining P500,000.00 as part of its input VAT for that businesses have to shoulder the input VAT in the purchase of their
quarter. Hence, if in the Second Quarter, X actually prepays capital expenses. Yet the erstwhile VAT system was not tainted by
P400,000.00 as input VAT, and collects P500,000.00 as output VAT, the label of oppressiveness and neither did it bear the confiscatory
it may add the P500,000.00 input VAT from the previous quarter to mode. This was because of the immediate relief afforded from the
the P400,000.00 prepaid in the current quarter, bringing the total input taxes paid by the crediting system. In theory, VAT is not
input VAT it could claim to P900,000.00. Since the input VAT of supposed to affect the profit margin. If such margin is affected, it is
P900,000.00 now exceeds the output VAT collected of P500,000, only because of the prepayment of the input taxes, and this should be
then X need not remit any output VAT as well to the government remedied by the immediate recovery through the crediting system of
for the Second Quarter. the settled input taxes.
However, reality is far bleaker than that befaced by Business X. The new E-VAT law changes all that, and puts in jeopardy the
The VAT collected and remitted is not the most relevant statistic survival of small to medium enterprises.
evaluated by the business. The figure of primary concern of the
enterprise would be the profit margin, which is simply the excess of 287
revenue less expenditures. Revenue is derived from the gross sales
of the business. Expenditures encompass all expenses incurred by VOL. 469, SEPTEMBER 1, 2005 287
the business including overhead expenses, wages and purchases of
capital goods. Crucially, expenditures would include the input VAT Abakada Guro Party List vs. Ermita
prepaid by the business on its capital expenditures.
Since a significant amount of the capital outlay incurred by a The Effects of the 70% Cap on Creditable Input VAT
business is subjected to the prepayment of input taxes, the
necessity of recovering these losses through the output VAT The first radical shift introduced by the E-VAT law to the creditable
collected becomes more impelling. These output taxes are obviously input system—the 70% cap on the creditable input tax that may be
proportional to the volume of gross sales—the higher the gross carried over into the next quarter—is provided in Section 8 of the
sales, the higher the output VAT collected. The output taxes law, which amends Section 110(A) of the NIRC, among others.
collected on sales answer for not only those input taxes paid on the Section 110(A) as amended would now read:
purchase of the raw materials, but also for the input taxes paid on
Sec. 110. Tax Credits.—
the multifarious overhead expenses covered by VAT. The burden
carried by the sales volume on the stability, if not survival of the (B) Excess Output or Input Tax.—If at the end of any taxable quarter the
business thus just became more crucial. The maintenance of the output tax exceeds the input tax, the excess shall be paid by the VAT-
proper equilibrium is not an easy matter. Increasing the selling registered person. If the input tax exceeds the output tax, the excess shall
price of the goods be carried over to the succeeding quarter or quarters. Provided, That the
286
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
286 SUPREME COURT REPORTS ANNOTATED input tax attributable to zero rated sales by a VAT-registered person may
at his option be refunded or credited against other internal revenue taxes, Particulars 1st 2ndQuarter 3rdQuarter 4thQuarter
subject to the provisions of Section 112. (emphasis supplied) Quarter
58,000 116,000 80,000 95,000
All hope for entrepreneurial stability is dashed with the imposition
of the 70% cap. Under the E-VAT Law, the business, regardless of
stability or financial capability, is obliged to remit to the This stands in contrast to same business VAT accountability under
government every quarter at least 30% of the output VAT collected the present system, using the same variables of output VAT and
from customers, or roughly 3% of the amount of gross sales. Thus, if input VAT. The need to distinguish a de-
a quarterly gross sales of Y Business totaled P1,000,000, and Y is 289
prudent enough to keep its capital expenses down to P980,000, it
would then appear on paper that Y incurred a profit of P20,000.
However, with the 70% cap, Y would be obliged to remit to the VOL. 469, SEPTEMBER 1, 2005 289
government P30,000, thus wiping out the profit margin for the Abakada Guro Party List vs. Ermita
quarter. Y would be entitled to credit the excess input VAT it
prepaid for the next quarter, but the continuous operation of the
70% cap obviates whatever benefits this may give, and cause the clarable input VAT is obviated with the elimination of the 70% cap.
accumulation of the unutilized creditable input VAT which should Particulars 1st 2nd Quarter 3rd Quarter 4th Quarter
be returned to the business. Quarter
288 Output 60,000 60,000 100,000 50,000
VAT
288 SUPREME COURT REPORTS ANNOTATED Input VAT 100,000 34,000 [input] 50,000 [input]
(Actual) + [input] +80,000 + 14,000
Carry Over +40,000 [excess (excess
[excess creditable] creditable)
The difference is even more dramatic if seen how the unutilized creditable]
creditable input VAT accumulates over a one year period. To 100,000 140,000 114,000 50,000
illustrate, Business Y prepays the following amounts of input VAT
over a one-year period: P100,000.00—First Quarter; P100,000.00— VAT 0 0 0 0
2nd Quarter; P34,000.00—3rd Quarter; and P50,000.00—4th Payable
Quarter. On the other hand, Y collects the following amounts of Creditable
output VAT from consumers: P60,000.00—First Quarter;
Input VAT 40,000 80,000 14,000 14,000
P60,000.00—2nd Quarter; P100,000.00—3rd Quarter; and
P50,000.00—4th Quarter. Applying the 70% cap, which would limit
the amount of the declarable input VAT to 70% in a quarter, the The difference is dramatic, as is the impact on the business’s profit
following results obtain, as presented in tabular form: margin and available cash on hand. Under normal conditions, small
to medium enterprises are already encumbered with the likelihood
Particulars 1st 2ndQuarter 3rdQuarter 4thQuarter of obtaining only a minimal profit margin. Without the 70% cap,
Quarter those businesses would nonetheless be able to expect an immediate
Output VAT 60,000 60,000 100,000 50,000
return on its input taxes earlier advanced, taxes which under the
VAT system it is not supposed to shoulder in the first place.
Input VAT 100,000 34,000 50,000 However, with the 70% cap in place, the unutilized input taxes
(Actual) + Carry [input] [input] [input] would continue to accumulate, and the enterprise precluded from
Over +58,000 +116,000 +80,000 immediate recovery thereof. The inability to utilize these input
[excess [excess [excess taxes, which could spell the difference between profit and loss,
creditable] creditable] creditable]
solvency and insolvency, will eventually impair, if not kill off the
100,000 158,000 150,000 130,000 enterprise.
Declarable Input (60,000 (60,000 (100,000 (50,000 The majority fails to consider 37
one of the most important concepts
VAT (70% of x70%) x70%) x70%) x70%) in finance, time value for money. Simply put, the
output VAT)
42,000 42,000 70,000 35,000
_______________
Lower of actual (60,000 - (60,000 - (100,000- (50,000-
and 70% cap – 42,000) 42,000) 70,000) 35,000) 37 “The most basic law in finance!” Understand the Time Value of Money.
allowable VAT http://www.free-financial-advice.net/time-value-of-money. html. Last visited, 30
Payable 18,000 18,000 30,000 15,000 August 2005.
Creditable Input (100,000– (158,000– (150,000- (130,000- 290

VAT 42,000) 42,000) 70,000) 35,000)

290 SUPREME COURT REPORTS ANNOTATED Even more galling is the fact that the 70% cap, oppressive as it
Abakada Guro Party List vs. Ermita already is to the business establishment, even limits the options of
the business to recover the unutilized input VAT credit. During the
deliberations, the argument was raised that the problem presented
value of one peso is worth more today than in 2006. Money that you by the 70% cap was a business problem, which can only be solved by
hold today
38
is worth more because you can invest it and earn business. Yet there is only one viable option for the enterprise to
interest. By reason of the 70% cap, the amount of input VAT credit resolve39 the problem, and that is to increase the selling price of
that remains unutilized would continue accumulate for months and goods. It would be incorrect to assume that increase the volume of
years. The longer the amount remains unutilized, the higher the the goods sold could solve the problem, since for items with the
degree of its depreciation in value, in accordance with the concept of same purchasing cost, the effect of the 70% cap remains constant
time value of money. Even assuming that the business eventually regardless of an increase in volume.
recovers the input VAT credit, the sum recovered would have But the additional burden is not limited to the increase of prices
decreased in practical value. by the retailer to the end consumer. Since VAT is a transaction tax,
It would be sad, but fair, if a business ceases because of its every level of distribution becomes subject not only to the VAT, but
inability to compete with other businesses. It would be utter also to the 70% cap. The problem increases due to a cascading effect
malevolence to condemn an enterprise to death solely through the as the number of distribution levels increases since it will result in
employment of a deceptive accounting wizardry. For the raison d’etre the collection of an effective 3% percentage tax at every distribution
of this 70% cap is to make it appear on paper that the government is level.
more solvent than it actually is. Conceding for the nonce, there is a
temporary advantage gained by the government by this 70% cap, as
_______________
the steady remittance by businesses of the 30% output VAT would
assure a cash flow. Such collection may only momentarily resolve 39 There is also the option for the business to go underground and avoid VAT
an endemic problem in our local tax system, the problem of registration, and consequently avoid remitting VAT payments to the government. It
collection itself. would be facetious though for a Justice of the Supreme Court to characterize this
If the 70% cap was designed in order to enhance revenue illegal option as “viable.”
collection, then I submit that the means employed stand beyond
reason. If sheer will proves insufficient in assuring that the State 292
all taxes due it, there should be allowable discretion for the
government to formulate creative means to enhance collection. But
to do so by depriving low profit enterprises of whatever meager
income earned and consequently assuring the death of these Abakada Guro Party List vs. Ermita
industries goes beyond any valid State purpose.
Only stable businesses with substantial cash flows, or In analyzing the effects of the 70% cap, and appreciating how it
extraordinarily successful enterprises will be able to remain in violates the due process clause, we should not focus solely on the
end consumers. Undoubtedly, consumers will face hardships due to
_______________ the increased prices, but their threshold of physical survival, as
individual people, is significantly less than that of enterprises.
38 Time Value of Money. Somehow, I do not think the new E-VAT would generally deprive
http://www.jetobjects.com/components/finance/TVM/concepts.html. Last visited, 30 consumers of the bare necessities such as food, water, shelter and
August 2005. clothing. There may be significant deprivation of comfort as a
result, but not of life.
291
The same does not hold true for businesses. The standard of
“deprivation of life” of juridical persons employs different variables
VOL. 469, SEPTEMBER 1, 2005 291 than that of natural persons. What food and water may be for
Abakada Guro Party List vs. Ermita persons, profit is for an enterprise—the bare necessity for survival.
For businesses, the implementation of the same law, with the 70%
cap and 60-month amortization period, would mean the deprivation
operation should the 70% cap be retained. The effect of the 70% cap of profit, which is the determinative necessity for the survival of a
is to effectively impose a tax amounting to 3% of gross revenue. The business.
amount may seem insignificant to those without working knowledge It is easy to admonish both the consumer and the enterprise to
of the ways of business, but anybody who is actually familiar with cut back on expenditures to survive the new E-VAT Law. However,
business would be well aware the profit margins of the retailing and this can be realistically expected only of the consumer. The
distribution sectors typically amount to less than 1% of the gross small/medium enterprise cannot just cut back easily on
revenues. A taxpayer has to earn a margin of at least 3% on gross expenditures in order to survive the implementation of the E-VAT
revenue in order to recoup the losses sustained due to the 70% cap. Law. For such businesses, expenditures do not normally
But as stated earlier, profits are chancy, and the entrepreneur does contemplate unnecessary expenses such as executive perks which
not have full control of the conditions that lead to profit. can be dispensed with without injury to the enterprises. These

expenditures pertain to expenses necessary for the survival of the 294

enterprise, such as wages, overhead and purchase of raw materials.
Those three basic items of expenditure cannot simply be reduced, as
to do so with impair the ability of the business to operate on a daily
basis. Abakada Guro Party List vs. Ermita
And reduction of expenditures is not the exclusive antidote to
these impositions under the E-VAT Law, as there must also be a Operating Expenses Non- 536,249
corresponding increase in the amount of gross sales. To do so vatable items Vatable Items
317,584 31,758.40
though, would require an increase in the selling price, dampening
consumer enthusiasm, and further impairing the ability of the Total Cost 853,833
enterprise to recover from the E-VAT Law. This Net Profit 59,984
293 Total Input Tax 3,215,230.10 2,292,397.38
VAT Payable 59,623.30 982,456.02
VOL. 469, SEPTEMBER 1, 2005 293
Unutilized Input VAT 922,832.72
*computed by multiplying output VAT by 70% [3,274,853.40 x
40
70% = 2,292.397.38]
is your basic Catch-22 situation—no matter which means the
enterprise employs to recover from the E-VAT Law, it will still go The presentation of the Pilipinas Shell Dealers more or less jibes
down in flames. with my own observations on the impact of the 70% cap. The dealer
Section 8 of the E-VAT law, while ostensibly even-handed in whose income is illustrated above has to outlay a cash amount of
application, fails to appreciate valid substantial distinctions P922,832.72 more than what would have been shelled out if the
between large scale enterprises and small and medium enterprises. 70% cap were not in place. Considering that the net profit of the
The latter group, owing to the limited capability for capital dealer is only P59,984.00, the consequences could very well be fatal,
investment, subsists on modest profit margins, whereas the former especially if these state of events persist in succeeding quarters.
expects, by reason of its substantial capital investments, a high The burden of proof was on the Pilipinas Shell Dealers’ to prove
margin. In essentially prohibiting the recovery of small profit their allegations, and accordingly, these figures have been duly
margins, the E-VAT law effectively sends the message that only high presented to the Court for appreciation and evaluation. Instead, the
margin businesses are welcome to do business in the Philippines. It majority has shunted aside these presentations as being merely
stifles any entrepreneurial ambitions of Filipinos unfortunate theoretical, despite the fact that they present a clear and present
enough to have been born poor yet seek a better life by sacrificing all danger to the very life of our nation’s enterprises. The majority’s
to start a small business. position would have been more credible had it faced the issue
Pilipinas Shell Dealers, on whom the burden to establish the squarely, and endeavored to demonstrate in like numerical fashion
violation of due process and equal protection lies, offers the why the 70% cap is not oppressive, confiscatory, or otherwise
following chart of the income statement of a typical petroleum violative of the due process clause.
dealer: Sadly, the majority refuses to confront the figures or engage in a
meaningful demonstration of how these assailed provisions truly
QUARTERLY PROFIT AND LOSS STATEMENT
operate. Instead, it counters with platitudes and bromides that do
DEALER “A” not intellectually satisfy. Considering
295
Price VAT (without 70% VAT (with 70%
cap) cap)
Sales/Output 32,748,534 3,274,853.40 3,274,853.40 VOL. 469, SEPTEMBER 1, 2005 295
Cost of Sales 31,834,717 3,183,471.70 Abakada Guro Party List vs. Ermita
Gross 913,817
Margin that the very vitality, if not life of our domestic economy is at stake,
I think it derelict to our duty to block out these urgent concerns
presented to41 the Court with blind faith tinged with irrational
_______________ Panglossian optimism.
The obligation of the majority to refute on the merits the
40 In Joseph Heller’s Catch-22, Yossarian, a World War II pilot reasoned that if he arguments of the Petroleum Dealers becomes even more grave
feigned insanity, he would be necessarily exempt from assignment to dangerous considering that the respondents have abjectly failed in to
bombing runs in enemy territory. However, his superiors reasoned that if he were convincingly dispute the claims. During oral arguments,
truly insane, he then would be heedless enough to be sent on those dangerous bomb respondents attempted to counter the arguments that the 70% cap
ing runs he had sought to avoid in the first place.

was oppressive and confiscatory by presenting the following Slide 1

illustration, which I fear is severely misleading: Quarter 1
Slide 1 Item No. Cost VAT
Item Cost VAT Sales 1,000,000.00 100,000.00
Sales 1,000,000.00 100,000.00 Purchases 800,000.00 80,000.00
Purchases 800,000.00 80,000.00 Due BIR with 70% cap
Due BIR without Due BIR with 70% cap Output VAT 100,000.00
cap
Allowable Input VAT 70,000.00
Output VAT 100,000.00 Output VAT 100,000.00
Net VAT Payable 30,000.00
Actual Input VAT 80,000.00 Allowable Input VAT 70,000.00
Excess Input Vat 10,000.00
Net VAT Payable 20,000.00 Net VAT Payable 30,000.00
Carry-over to next quarter
Excess Input VAT 10,000.00
Carry-over to next _______________
quarter
42 Id., at pp. 29-30.
Slide 2
297
Item Cost VAT
Sales 1,000,000.00 100,000.00 VOL. 469, SEPTEMBER 1, 2005 297
Purchases 600,000.00 60,000.00
Due BIR without cap Due BIR with 70% cap
Output VAT 100,000.00 Output VAT 100,000.00 Quarter 2
Actual Input VAT (60% of output Allowable Input VAT 60,000.00 Cost VAT
Sales 1,000,000.00 100,000.00
_______________ Purchases 800,000.00 80,000.00
41 Pangloss was a famed character ridiculed in Voltaire’s Candide, renowned for Due BIR with 7-% cap
his absolute blind faith in optimism, no matter how dire the circumstances. Output VAT 100,000.00
296 Less: Input VAT
Excess Input VAT fr. 1st Qtr. 10,000.00
296 SUPREME COURT REPORTS ANNOTATED Input VAT-Current Qtr. 80,000.00
Abakada Guro Party List vs. Ermita Total Available Input VAT 90,000.00
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00
VAT) 60,000.00
Net VAT Payable 40,000.00 Net VAT Payable 40,000.00
Total Available Input VAT 90,000.00
Excess Input VAT ___0_____
Carry-over to next quarter
Excess Input VAT to be carried over to next 20,000.00
Quarter
This presentation of the respondents is grossly deceptive, as it fails
to account for the excess creditable input VAT that remains Quarter 3
unutilized due to the 70% cap. This excess or creditable input VAT
is supposed to be carried over for the computation of the input VAT Cost VAT
of the next quarter. Instead, this excess or creditable input VAT Sales 1,000,000.00 100,000.00
magically disappears from the table of the respondents. In their
Purchases 800,000.00 80,000.00
memorandum, the Pilipinas Shell Dealers counter with their own
presentation using the same variables as respondents’, but taking Due BIR with 70% cap
into account the excess creditable input VAT and extending the Output VAT 100,000.00
situation over a one-year period. I cite with approval the following
42
Less: Input VAT
chart of the Pilipinas Shell Dealers:
Quarter 3 VOL. 469, SEPTEMBER 1, 2005 299

Cost VAT Abakada Guro Party List vs. Ermita
Excess Input VAT fr. 2nd Qtr. 20,000.00
input VAT should be entered in the government books as a
Input VAT-Current Qtr. 80,000.00
debt payable as it is supposed to be eventually repaid to the
Total Available Input VAT 100,000.00 taxpayer, and so on the contrary it increases the
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00 government’s debts. I do see that the 70% cap temporarily
allows the government to brag to the world of an increased
cash flow. But this situation would be akin to the provincial
man who borrows from everybody in the barrio in order to
298 show off money and maintain the pretense of prosperity to
visiting city relatives. The illusion of wealth is hardly a
298 SUPREME COURT REPORTS ANNOTATED legitimate state purpose, especially if projected at the
expense of the very business life of the country.
Abakada Guro Party List vs. Ermita The majority, in an effort to belittle these concerns, points out
that that the excess input tax remains creditable in succeeding
Total Available Input VAT 100,000.00 quarters. However, as seen in the above illustration, the actual
Allowable Input VAT 70,000.00 application of the excess input tax will always be limited by the
amount of output taxes collected in a quarter, as a result of the 70%
Excess Input VAT to be carried over to next 30,000.00
cap. Thus, it is entirely possible that a VAT-registered person,
quarter
through the accumulation of unutilized input taxes, would have in a
quarter an express creditable input tax of P50,000,000, but would
Quarter 4 be allowed to actually credit only P70,000 if the output tax collected
Cost VAT for that quarter were only P100,000.
The burden of the VAT may fall at first to the immediate buyers,
Sales 1,000,000.00 100,000.00
but it is supposed to be eventually shifted to the endconsumer. The
Purchases 800,000.00 80,000.00 70% cap effectively prevents this from happening, as it limits the
Due BIR with 70% cap ability of the business to recover the prepaid input taxes. This is
unconscionable, since in the first place, these intervening Players—
Output VAT 100,000.00
the manufacturers, producers, traders, retailers—are not even
Less: Input VAT supposed to sustain the losses incurred by reason of the prepayment
Excess Input VAT fr. 3rd Qtr. 30,000.00 of the input taxes. Worse, they would be obliged every quarter to
pay to the government from out of their own pockets the equivalent
Input VAT-Current Qtr. 80,000.00 of 30% of the output taxes, no matter their own particular financial
Total Available Input VAT 110,000.00 condition. Worst, this twin yoke on the taxpayer of having to
Allowable Input VAT (100,000 x 70%) 70,000.00 70,000.00 sustain a debit equivalent to 30% of output taxes,
Net VAT Payable 30,000.00 300

Total Available Input VAT 70,000.00 300 SUPREME COURT REPORTS ANNOTATED
Excess Input VAT to be carried over 40,000.00 Abakada Guro Party List vs. Ermita
to next quarter
and having to await forever in order to recover the prepaid taxes
The 70% cap is not merely an unwise imposition. It is a would impair the cash flow and prove fatal for a shocking number of
burden designed, either through sheer heedlessness or cruel businesses which, as they now stand, have to make do with a
calculation, to kill off the small and medium enterprises that minimum profit that stands to be wiped out with the introduction of
are the soul, if not the heart, of our economy. It is not merely the 70% cap.
an undue taking of property, but constitutes an unjustified Nonetheless, the majority notes that the excess creditable input
taking of life as well. tax may be the subject of a tax credit certificate, which then could
And what legitimate, germane purposes does this lethal be used in payment of internal revenue taxes, or a refund to the
70% cap serve? It certainly does not increase the extent43that such input taxes have not been applied against output
government’s revenue since the unutilized creditable taxes. What the majority fails to mention is that under
Section 10 of the E-VAT Law, which amends Section 112 of
299 the NIRC, such credit or refund may not be done while the
enterprise remains operational:

SEC. 10. Section 112 of the same Code, as amended, is hereby further the taxpayer is cancelled due to retirement or cessation of business or change in the
amended to read as follows: status of the taxpayer as a VAT registered taxpayer. As provided for in Section 112(B0,
in case of cancellation of VAT registration due to cessation of business or change in status of
SEC. 112. Refunds or Tax Credits of Input Tax.— taxpayer, the only recourse given to such taxpayer is to apply for the issuance of TCC on his
xxx excess input tax credits which may be used in payment of
“(B) Cancellation of VAT Registration.—A person whose registration has
been cancelled due to retirement from or cessation of business or due to 302
changes or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance of
a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes. Abakada Guro Party List vs. Ermita
xxx
business ceases to be may the State be compelled to repay
This stands in marked contrast to Section 112(B) of the NIRC as it the entire amount of the unutilized input tax. It is like a
read prior to this amendment. Under the previous rule, a VAT-
macabre form of sweepstakes wherein the winner is to be
registered person was entitled to apply for the tax credit certificate paid his fortune only when he is already dead. Aanhin pa
or refund paid on capital goods even while it remained in operation:
ang damo kung patay na ang kabayo.
Moreover, the inability to immediately credit or otherwise
_______________ recover the unutilized input VAT could cause such prepaid amount
to actually be recognized in the accounting books as a loss. Under
43 Decision, infra.
international accounting practices, the unutilized input VAT due to
301 the 70% cap would not even be recognized as a deferred asset. The
same would not hold true if the 70% cap45
were eliminated. Under the
International Accounting Standards, the unutilized input VAT
VOL. 469, SEPTEMBER 1, 2005 301 credit is recognized as an asset “to the extent that it is probable
Abakada Guro Party List vs. Ermita that future taxable profit will be available against which 46
the
unused tax losses and unused tax credits can be utili[z]ed” Thus, if
SEC. 112. Refunds or Tax Credits of Input Tax.— the immediate accreditation of the input VAT credit can be
obtained, as it would without the 70% cap, the asset could be
xxx recognized.
“(B) Capital Goods.—A VAT-registered person may apply for the However, the same Standards hold that “[t]o the extent that it is
issuance of a tax credit certificate or refund of input taxes paid on capital not probable that taxable profit will be available against which the
goods imported or locally purchased, to the extent that such input taxes unused tax losses or unused tax
47
credits can be utilised, the deferred
have not been applied against output taxes. The application may be made tax asset is not recognised.” As demonstrated, the continuous
only within two (2) years after the close of the taxable quarter when the operation of the 70% cap precludes the recovery of input VAT
importation or purchase was made. prepaid months or years prior. Moreover, the inability to claim a
refund or tax credit
This provision, which could have provided foreseeable and useful
relief to the VAT-registered person, was deleted under the new E- _______________
VAT Law. At present, the refund or tax credit certificate may only
be issued upon two instances: on zero-rated or effectively zero-rated his other internal revenue taxes, application for refund thereof is not an option.”
sales, and upon cancellation of44VAT registration due to retirement See Annexes “18-N” and “18-O,” Compliance dated 12 July 2005.
from or cessation of business. This is the cruelest cut of all. 45 See SRC Rule 68(1)(b)(c), IMPLEMENTING RULES AND REGULATIONS TO
Only after the THE SECURITIES AND REGULATIONS CODE.
46 Section 34, INTERNATIONAL ACCOUNTING STANDARDS 12.
_______________ 47 Section 36, Id.
44 This is confirmed by the BIR in its draft Revenue Memorandum Circular dated 303
12 July 2005, submitted by respondents in its Compliance dated 16 August 2005:
“[Q]: Is there a way by which such unapplied excess input tax credits can be claimed for refund VOL. 469, SEPTEMBER 1, 2005 303
or issuance of TCC? Abakada Guro Party List vs. Ermita
[A]: The only time application for refund/issuance of TCC is allowed for input
taxes incurred on the purchase of domestic goods/services is when the same are
certificate until after the business has already ceased virtually
directly attributable to zero-rated or effectively zero-rated sales (of goods/services). x
renders it improbable for the input VAT to be recovered. As such,
xx
under the International Accounting Standards, it is with all
For those engaged purely in domestic transactions, the only time that unapplied
likelihood that the prepaid input VAT, ostensibly creditable, would
input taxes may be applied for the issuance of TCC is when the VAT registration of
48
48
actually be reflected as a loss. What heretofore was recognized as privilege. The Constitution itself recognizes the right to profit by
an asset would now, with the imposition of the 70% cap, be now private enterprises. As I stated earlier, one of the enunciated State
considered as a loss, enhancing the view that the 70% cap is policies under the Constitution is the recognition of the
ultimately confiscatory in nature. indispensable role of the private sector, the encouragement of
This leads to my next point. The majority asserts that the input private enterprise,
53
and the provision of incentives to needed
tax is not a property
49
or property right within the purview of the due investments. Moreover, the Constitution also requires the State to
process clause. I respectfully but strongly disagree. recognize the right of enterprises to reasonable 54
returns on
Tellingly, the BIR itself has recognized that unutilized input investments, and to expansion and growth. This, I believe,
VAT is one of those assets, corporate attributes or property rights encompasses profit.
that, in the event of a merger, are transferred to
_______________
_______________
50 See Part III, Paragraph 3, Revenue Memorandum Ruling No. 1-2002.
48 In his Separate Opinion, Justice Panganiban asserts that the deferred input tax 51 Section 32, International Accounting Standards 12.
credit is not really confiscated by the government, as it remains an asset in the 52 Supra note 47.
accounting records of a business. See Separate Opinion, infra. By the same logic, a 53 Supra note 9.
law requiring all businesses to surrender to the government 100% of its gross sales 54 Section 3, Article XIII, CONSTITUTION.
subject to reimbursement only after a five year period, would pass muster, since the
305
amount is “not really confiscated by the government as it remains an asset in the
accounting records of a business.”
49 Justice Panganiban cites United Paracale Mining Co. v. De la Rosa (cited as 221 VOL. 469, SEPTEMBER 1, 2005 305
SCRA 108, 115, April 7, 1993) to bolster his stated position that “[t]here is no vested
right in a deferred input tax account; it is a mere statutory privilege.” Separate
Opinion, infra. United Paracale does not pertain to any deferred input taxes, but
instead to “mining claims which according to [petitioners] is private property would 60-Month Amortization Period
constitute impairment of vested rights since by shifting the forum of the petitioner’s
case from the courts to the Bureau of Mines…[the] substantive rights to full Another portion of Section 8 of the E-VAT Law is unconstitutional,
protection of its property rights shall be greatly impaired.” United Paracale Mining essentially for the same reasons as above. The relevant portion
Co. v. Hon. Dela Rosa, G.R. Nos. 63786-87, 7 April 1993, 221 SCRA 108, `115. reads:
Clearly, United Paracale is not even a tax case, involving as it does, questions of the
jurisdiction of the Bureau of Mines.
304
“SEC. 110. Tax Credits.—
(A) Creditable Input Tax.—
304 SUPREME COURT REPORTS ANNOTATED ....
Provided, That the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
50 depreciation is allowed under this Code, shall be spread evenly over the
the surviving corporation by operation of law. Assets would fall month of acquisition and the fifty-nine (59) succeeding months if the
under the purview of property under the due process clause, and if aggregate acquisition cost for such goods, excluding the VAT component
the taxing arm of the State recognizes that such property belongs to thereof, exceeds One million pesos (P1,000,000): Provided, however, That if the
the taxpayer and not to the State, then due respect should be given estimated useful life of the capital good is less than five (5) years, as used for
to such expert opinion. depreciation purposes, then the input VAT shall be spread over such a shorter
Even under the International Accounting Standards I adverted period: Provided, finally, That in the case of purchase of services, lease or use of
to above, the unutilized input VAT credit may be recognized as an properties, the input tax shall be creditable to the purchaser, lessee or licensee upon
asset “to the extent that it is probable that future taxable profit will payment of the compensation, rental, royalty or fee.
be available against which
51
the unused tax losses and unused tax
credits
52
can be utilised” If not probable, it would be recognized as a Again, this provision unreasonably severely limits the ability of an
loss. Since these international standards, duly recognized by the enterprise to recover its prepaid input VAT. On its face, it might
Securities and Exchange Commission as controlling in this appear injurious primarily to high margin enterprises, whose
jurisdiction, attribute tangible gain or loss to the VAT credit, it purchase of capital goods in a given quarter would routinely exceed
necessarily follows that there is proprietary value attached to such P1,000,000.00. The amortization over a five-year period of the input
gain or loss. VAT on these capital goods would definitely eat up into their profit
Moreover, the prepaid input tax represents unutilized profit, margin. But it is still possible for such big businesses to survive
which can only be utilized if it is refunded or credited to output despite this new restriction, and their financial pain alone may not
taxes. To assert that the input VAT is merely a privilege is to be sufficient to cause the invalidity of a taxing statute.
correspondingly claim that the business profit is similarly a mere

However, this amortization plan will prove especially fatal to Pilipinas Shell Dealers argue that Section 12 of the E-VAT law,
start-ups and other new businesses, which need to purchase which amends Section 114(C) of the NIRC, is also unconstitutional.
The provision is supremely unwise, oppressive and confiscatory in
306
nature, and ruinous to private enterprise and even State
development. The provision reads:
Abakada Guro Party List vs. Ermita amended to read as follows:
“SEC. 114. Return and Payment of Value-Added Tax.—

capital goods in order to start up their new businesses. It is a known
xxx
fact in the financial community that a majority of businesses start
“(C) Withholding of Value-added Tax.—The Government or any of its political
earning profit only after the second or third year, and many
subdivisions, instrumentalities or agencies, including government-owned or -
enterprises do not even get to survive that long. The first few years
controlled corporations (GOCCs) shall, before making payment on account of each
of a business are the most crucial to its survival, and any financial
purchase of goods and services which are subject to the value-added tax imposed in
benefits it can obtain in those years, no matter how miniscule, may
Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at
spell the difference between life and death. For such emerging
the rate of five percent (5%) of the gross payment thereof: Provided, That the
businesses, it is already difficult under the present system to
payment for lease or use of properties or property rights to nonresident owners shall
recover the prepaid input VAT from the output VAT collected from
be subject to ten percent (10%) withholding tax at the time of payment. For
customers because initial sales volumes are usually low. With this
purposes of this Section, the payor or person in control of the payment shall be
further limitation, diminishing as it does any opportunity to have a
considered as the withholding payment. x x x
sustainable cash flow, the ability of new businesses to survive the
first three years becomes even more endangered.
Even existing small to medium enterprises are imperiled by this _______________
60-month amortization restriction, especially considering the 55 Kapatiran ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al. v. Tan,
application of the 70% cap. The additional purchase of capital goods
G.R. No. L-81311, 30 June 1988, 163 SCRA 371.
bears as a means of adding value to the consumer good, as a means
to justify the increased selling price. However, the purchase of 308
capital goods in excess of P1,000,000.00 would impose another
burden on the small to medium enterprise by further restricting
their ability to immediately recover the entire prepaid input VAT 308 SUPREME COURT REPORTS ANNOTATED
(which would exceed at least P100,000.00), as they would be Abakada Guro Party List vs. Ermita
compelled to wait for at least five years before they can do so.
Another hurdle is imposed for such small to medium enterprise to The principle that the Government and its subsidiaries may deduct
obtain the profit margin critical to survival. For some lucky
and withhold a final value-added tax on its purchase of goods and
enterprises who may be able to survive the injury brought about by services is not new, as the NIRC had allowed such deduction and
the 70% cap, this 60 month amortization period might instead
withholding at the rate of 3% of the gross payment for the purchase
provide the mortal head wound. of goods, and 6% of the gross receipts for services. However, the
Moreover, the increased administrative burden on the taxpayer
NIRC had also provided that this tax withheld would also be
should not be discounted, considering this Court’s previous creditable against the VAT liability of the seller or contractor, a
recognition of the aims of the VAT system to “rationalize the system
mechanism that was deleted by the E-VAT law. The deletion of this
of taxes on goods and services, [and] simplify credit apparatus effectively compels the private enterprise
307 transacting with the government to shoulder the output VAT that
should have been paid by the government in excess of 5% of the gross
selling price, and at the same time unduly burdens the private
VOL. 469, SEPTEMBER 1, 2005 307 enterprise by precluding it from applying any creditable input VAT
Abakada Guro Party List vs. Ermita on the same transaction.
Notably, the removal of the credit mechanism runs contrary to
55 the essence of the VAT system, which characteristically allows the
tax administration.” With the amortization requirement, the
crediting of input taxes against output taxes. Without such crediting
taxpayer would be forced to segregate assets into several classes
mechanism, which allows the shifting of the VAT to only the final
and strictly monitor the useful life of assets so that proper
end user, the tax becomes a straightforward tax on business or
classification can be made. The administrative requirements of the
income. The effect on the enterprise doing business with the
taxpayer in order to monitor the input VAT from the purchase of
government would be that two taxes would be imposed on the income
capital assets thus has exponentially increased.
by the business derived on such transaction: the regular personal or
5% Withholding VAT on Sales corporate income tax on such income, and this final withholding tax
of 5%.

Granted that Congress is not bound to adopt with strict provides disincentives to needed investments such as those expected
conformity the VAT system, and that it has to power to impose new by the State from private businesses. Whatever advantages may be
taxes on business income, this amendment to Section 114(C) of the gained by the temporary increase in the government coffers would
NIRC still remains unconstitutional. It unfairly discriminates be overturned by the disadvantages of having a reduced pool of
against entities which contract with the government by imposing an private enterprises willing to do business with the government.
additional tax on the income derived from such transactions. The Moreover, since government contracts with private enterprises will
end result of such discrimination is double taxation on income that still remain a necessary fact of life, the amendment to Section
is both oppressive and confiscatory. 114(C) of the NIRC introduced by the E-VAT Law.
Double taxation means taxing for the same tax period the same
309
thing or activity twice, when it should be taxed but once, 56
for the
same purpose and with the same kind of character of tax. Double
VOL. 469, SEPTEMBER 1, 2005 309 taxation is not expressly forbidden in our constitution, but the
Court has recognized it as obnoxious “where the taxpayer is taxed
twice for the benefit of the same governmental
57
entity or by the same
jurisdiction for the same purpose.” Certainly, both the 5% final tax
It is a legitimate purpose of a tax law to devise a manner by which withheld and the general corporate income tax are both paid for the
the government could save money on its own transactions, but it is benefit of the national government, and for the same incidence of
another matter if a private enterprise is punished for doing business taxation, the sale/lease of goods and services to the government.
58
with the government. The erstwhile NIRC worked towards such The Court, in Re: Request of Atty. Bernardo Zialcita had cause
advantage, by allowing the government to reduce its cash outlay on to make the following observation I submit apropos to the case at
purchases of goods and services by withholding the payment of a bar, on double taxation in a case involving the attempt of the BIR to
percentage thereof. While the new E-VAT law retains this benefit to tax the commuted accumulated leave credits of a government
the government, at the same time it burdens the private enterprise lawyer upon his retirement:
with an additional tax by refusing to allow the crediting of this tax
withheld to the business’s input VAT. _______________
This imposition would be grossly unfair for private entities that
transact with the government, especially on a regular basis. It 56 J. Vitug and E. Acosta, supra note 3 at p. 41.
might be argued that the provision, even if concededly unwise, 57 Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality of Tanauan, G.R.
nonetheless fails to meet the standard of unconstitutionality, as it No. L-31156, 27 February 1976, 69 SCRA 460, 466-67; citing Court of Industrial
affects only those persons or establishments that choose to do Relations v. Lednicky, L-18169, July 31, 1964, 11 SCRA 609 and Ssn Miguel Brewery,
business with the government. However, it is an acknowledged fact Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.
that the government and its subsidiaries rely on contracts with 58 A.M. No. 90-6-015-SC, 18 October 1990, 190 SCRA 851.
private enterprises in order to be able to carry out innumerable
functions of the State. This provision effectively discourages private 311
enterprises to do business with the State, as it would impose on the
business a higher rate of tax if it were to transact with the State, as VOL. 469, SEPTEMBER 1, 2005 311
compared to transactions with other private entities.
Established industries with track records of quality performance Abakada Guro Party List vs. Ermita
could very well be dissuaded from doing further business with
government entities as the higher tax rate would make no economic Section 284 of the Revised Administrative Code grants to a government
sense. Only those enterprises which really need the money, such as employee 15 days vacation leave and 15 days sick leave for every year of
those with substandard track records that have affected their service. Hence, even if the government employee absents himself and
viability in the marketplace, would bother seeking out government exhausts his leave credits, he is still deemed to have worked and to have
contracts. The corresponding sacrifice in quality would eventually rendered services. His leave benefits are already imputed in, and
prove detrimental to the State. Our society can ill afford shoddy form part of, his salary which in turn is subject to withholding tax
infrastructures such as roads, bridges and buildings that would on income. He is taxed on the entirety of his salaries without any
unnecessarily pose danger to the public at large simply because the deductions for any leaves not utilized. It follows then that the
government wanted to skimp on expenses. money values corresponding to these leave benefits both the used
and unused have already been taxed during the year that they
310 were earned. To tax them again when the retiring employee
receives their money value as a form of government concern and
310 SUPREME COURT REPORTS ANNOTATED appreciation plainly constitutes an attempt to tax the employee a
59
second time. This is tantamount to double taxation.
Conclusions
The provision squarely contradicts Section 20, Article II of the
Constitution as it vacuously discourages private enterprise, and The VAT system, in itself, is intelligently designed, and stands as a
fair means to raise revenue. It has been adopted worldwide by
countries hoping to employ an efficient means of taxation. The dominated by foreigners or local oligarchs. The destruction of
concerns I have raised do not detract from my general approval of subsisting industries would be bad enough, the destruction of
the VAT system. opportunity and the entrepre-
I do lament though that our government’s wholehearted adoption
313
of the VAT system is endemic of what I deem a flaw in our national
tax policy in the last few decades. The power of taxation, inherent
in the State and ever so powerful, has been generally employed by VOL. 469, SEPTEMBER 1, 2005 313
our financial planners for a solitary purpose: the raising of revenue.
Revenue generation is a legitimate purpose of taxation, but
standing alone, it is a woefully unsophisticated design. Intelligent
tax policy should extend beyond the singular-minded goal of raising neurial spirit would be even more grievous and tragic, as it would
State funds—the old-time philosophy behind the taxing schemes of mark as well the end of hope. Taxes may be the lifeblood of the
war-mongering monarchs and totalitarian states—and should state, but never at the expense of the life of its subjects.
sincerely explore the concept of taxation as a means of provid- Accordingly, I VOTE to:
1) DENY the Petitions in G.R. Nos. 168056, 168207, and

_______________
168730 for lack of merit;
59 Id., at p. 856. 2) PARTIALLY GRANT the Petition in G.R. Nos. 168463 and
declare Section 21 of the E-VAT Law as unconstitutional;
312
3) GRANT the Petition in G.R. No. 168461 and declare as
unconstitutional Section 8 of Republic Act No. 9337, insofar
312 SUPREME COURT REPORTS ANNOTATED as it amends Section 110(A) and (B) of the National Internal
Revenue Code (NIRC) as well as Section 12 of the same law,
with respect to its amendment of Section 114(C) of the
NIRC.
ing genuine incentives to private enterprise to spur economic
growth; of promoting egalitarian social justice that would allow
everyone to their fair share of the nation’s wealth.
Instead, we are condemned by a national policy driven by the CONCURRING OPINION
monomania for State revenue. It may be beyond my oath as a
Justice to compel the government to adopt an economic policy in
CHICO-NAZARIO, J.:
consonance with my personal views, but I offer these observations
since they lie at the very heart of the noxiousness of the assailed Five petitions were filed before this Court questioning the
provisions of the E-VAT law. The 70% cap, the 60-month constitutionality of Republic Act No. 9337. Rep. Act No. 9337, which
amortization period and the 5% withholding tax on government amended certain provisions of the National Internal Revenue Code
transactions were selfishly designed to increase government 1
of 1997, by essentially increasing the tax rates and expanding the
revenue at the expense of the survival of local industries. coverage of the Value-Added Tax (VAT). Undoubtedly, during these
I am not insensitive to the concerns raised by the respondents as financially difficult times, more taxes would be additionally
to the dire consequences to the economy should the E-VAT law be burdensome to the citizenry. However, like a bitter pill, all Filipino
struck down. I am aware that the granting of the petition in G.R. citizens must bear the burden of these new taxes so as to raise the
No. 168461 will negatively affect the cash flow of the government. If much-needed revenue for the ailing Philippine economy. Taxation is
that were the only relevant concern at stake, I would have no the indispensable and inevitable price for a civilized society, and
problems denying the petition. Unfortunately, under the device
employed in the E-VAT law, the price to be paid for a more
_______________
sustainable liquidity of the government’s finances will be the death
of local business, and correspondingly, the demise of our society. It is 1 Presidential Decree No. 1158, as amended up to Rep. Act No. 8424.
a measure just as draconian as the standard issue taxes of medieval
tyrants. 314
I am not normally inclined towards the language of the
overwrought, yet if the sky were indeed truly falling, how else could
that fact be communicated. The E-VAT Law is of multiple fatal
consequences. How are we to survive as a nation without the Abakada Guro Party List vs. Ermita
bulwark of private industries? Perhaps the larger scale, established
2
businesses may ultimately remain standing, but they will be unable without taxes, the government would be paralyzed. Without the
to sustain the void left by the demise of small to medium tax reforms introduced by Rep. Act No. 9337, the then Secretary of
enterprises. Or worse, domestic industry would be left in the the Department of Finance, Cesar V. Purisima, assessed that “all
absolute control of monopolies, combines or cartels, whether economic scenarios point to the National Government’s inability to

sustain its precarious fiscal position, resulting3

in severe erosion of irregularities in their passage by the Legislature. Such an
investor confidence and economic stagnation.” uncertainty in the statutes would indubitably result in confusion
Finding Rep. Act No. 9337 as not unconstitutional, both in its and disorder. In all probability, it is the contemplation of such a
procedural enactment and in its substance, I hereby concur in full scenario that led an American judge to proclaim, thus –
in the foregoing majority opinion, penned by my esteemed
colleague, Justice Ma. Alicia Austria-Martinez. . . . Better, far better, that a provision should occasionally find its way into
According to petitioners, the enactment of Rep. Act No. 9337 by the statute through mistake, or even fraud, than, that every Act, state and
Congress was riddled with irregularities and violations of the national, should at any and all times be liable to put in issue and
Constitution. In particular, they alleged that: (1) The Bicameral impeached by the journals, loose papers of the Legislature, and parol
Conference Committee exceeded its authority to merely settle or evidence. Such a state of uncertainty in the statute laws of the land would
5
reconcile the differences among House Bills No. 3555 and 3705 and lead to mischiefs absolutely intolerable. . . .
Senate Bill No. 1950, by including in Rep. Act No. 9337 provisions
not found in any of the said bills, or deleting from Rep. Act No. 9337 _______________
or amending provisions therein even though they were not in
4 Fariñas v. Executive Secretary, G.R. No. 147387, 10 December 2003, 417 SCRA
conflict with the provisions of the other bills; (2) The amendments
503, 529.
introduced by the Bicameral Conference Committee violated Article
5 Justice Sawyer, in Sherman v. Story, 30 Cal. 253, 256, as quoted in Marshall
VI, Section 26(2), of the Constitution which forbids the amendment
Field & Co. v. Clark, 143 U.S. 294, 304.
of a bill after it had passed third reading; and (3) Rep. Act No. 9337
contravened Article VI, Section 24, of the Constitution which 316
prescribes that revenue bills should originate exclusively from the
House of Representatives.
Invoking the expanded power of judicial review granted to it by 316 SUPREME COURT REPORTS ANNOTATED
the Constitution of 1987, petitioners are calling upon Abakada Guro Party List vs. Ermita
_______________
Moreover, this Court must attribute good faith and accord utmost
2 Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, 17 February
respect to the acts of a co-equal branch of government. While it is
1988, 158 SCRA 9.
true that its jurisdiction has been expanded by the Constitution, the
3 Paragraph 3.3 of the Verification and Affidavit of Merit, executed by the then
exercise thereof should not violate the basic principle of separation
Secretary of the Department of Finance, Cesar V. Purisima, dated 04 July 2005,
of powers. The expanded jurisdiction does not contemplate judicial
attached as Annex “A” of the Very Urgent Motion to Lift Temporary Restraining
supremacy over the other branches of government. Thus, in
Order, filed by the Office of the Solicitor General on 04 July 2005.
resolving the procedural issues raised by the petitioners, this Court
should limit itself to a determination of compliance with, or
315 conversely, the violation of a specified procedure in the Constitution
for the passage of laws by Congress, and not of a mere internal rule
of proceedings of its Houses.
VOL. 469, SEPTEMBER 1, 2005 315
It bears emphasis that most of the irregularities in the
Abakada Guro Party List vs. Ermita enactment of Rep. Act No. 9337 concern the amendments
introduced by the Bicameral Conference Committee. The
this Court to look into the enactment of Rep. Act No. 9337 by Constitution is silent on such a committee, it neither prescribes the
Congress and, consequently, to review the applicability of the creation thereof nor does it prohibit it. The creation of the
enrolled bill doctrine in this jurisdiction. Under the said doctrine, Bicameral Conference Committee is authorized by the Rules of both
the enrolled bill, as signed by the Speaker of the House of Houses of Congress. That the Rules of both Houses of Congress
Representatives and the Senate President, and certified by the provide for the creation of a Bicameral Conference Committee is
Secretaries of both4 Houses of Congress, shall be conclusive proof of within the prerogative of each House under the Constitution to
its due enactment. determine its own rules of proceedings.
Petitioners’ arguments failed to convince me of the wisdom of The Bicameral Conference Committee is a creation of necessity
abandoning the enrolled bill doctrine. I believe that it is more and practicality considering that our Congress is composed of two
prudent for this Court to remain conservative and to continue its Houses, and it is highly improbable that their respective bills on the
adherence to the enrolled bill doctrine, for to abandon the said same subject matter shall always be in accord and consistent with
doctrine would be to open a Pandora’s Box, giving rise to a situation each other. Instead of all their members, only the appointed
more fraught with evil and mischief. Statutes enacted by Congress representatives of both Houses shall meet to reconcile or settle the
may not attain finality or conclusiveness unless declared so by this differences in their bills. The resulting bill from their meetings,
Court. This would undermine the authority of our statutes because embodied in the Bicameral Conference Report, shall be subject to
despite having been signed and certified by the designated officers approval and ratification by both Houses, voting separately.
of Congress, their validity would still be in doubt and their It does perplex me that members of both Houses would again ask
implementation would be greatly hampered by allegations of the Court to define and limit the powers of the Bicameral
Conference Committee when such committee is of
317 Bicameral Conference Committee, which produced Rep. Act No.

9337, exceeded its authority when it included therein amendments
of provisions of the National Internal Revenue Code of 1997 not
VOL. 469, SEPTEMBER 1, 2005 317
related to VAT.
Abakada Guro Party List vs. Ermita Although House Bills No. 3555 and 3705 were limited to the
amendments of the provisions on VAT of the National Internal
6
their own creation. In a number of cases, this Court already made a Revenue Code of 1997, Senate Bill No. 1950 had a much wider scope
determination of the extent of the powers of the Bicameral and included amendments of other provisions of the said Code, such
Conference Committee after taking into account the existing Rules as those on income, percentage, and excise taxes. It should be borne
of both Houses of Congress. In gist, the power of the Bicameral in mind that the very purpose of these three Bills and,
Conference Committee to reconcile or settle the differences in the subsequently, of Rep. Act No. 9337, was to raise additional revenues
two Houses’ respective bills is not limited to the conflicting for the government to address the dire economic situation of the
provisions of the bills; but may include matters not found in the country. The National Internal Revenue Code of 1997, as its title
original bills but germane to the purpose thereof. If both Houses suggests, is the single Code that governs all our national internal
viewed the pronouncement made by this Court in such cases as revenue taxes. While it does cover different taxes, all of them are
extreme or beyond what they intended, they had the power to imposed and collected by the national government to raise
amend their respective Rules to clarify or limit even further the revenues. If we have one Code for all our national internal revenue
scope of the authority which they grant to the Bicameral Conference taxes, then there is no reason why we cannot have a single statute
Committee. Petitioners’ grievance that, unfortunately, they cannot amending provisions thereof even if they involve different taxes
bring about such an amendment of the Rules on the Bicameral under separate titles. I hereby submit that the amendments
Conference Committee because they are members of the minority, introduced by the Bicameral Conference Committee to non-VAT
deserves scant consideration. That the majority of the members of provisions of the National Internal Revenue Code of 1997 are not
both Houses refuses to amend the Rules on the Bicameral unconstitutional for they are germane to the purpose of House Bills
Conference Committee is an indication that it is still satisfied No. 3555 and 3705 and Senate Bill No. 1950, which is to raise
therewith. At any rate, this is how democracy works—the will of the national revenues.
majority shall be controlling.
Worth reiterating
7
herein is the concluding paragraph in Arroyo _______________
v. De Venecia, which reads—
8 Supra, note 6.
It would be unwarranted invasion of the prerogative of a coequal
department for this Court either to set aside a legislative action as void 319
because the Court thinks the house has disregarded its own rules of
procedure, or to allow those defeated in the political arena to seek a VOL. 469, SEPTEMBER 1, 2005 319
rematch in the judicial forum when petitioners can find remedy in that
department. The Court has not been invested with a roving commission to Abakada Guro Party List vs. Ermita
inquire into complaints, real or imagined, of legislative skullduggery. It
would be acting in excess of its Furthermore, the procedural issues raised by the petitioners were
already addressed 9and resolved by this Court in Tolentino v.
_______________ Executive Secretary. Since petitioners failed to proffer novel factual
or legal argument in support of their positions that were not
6 Tolentino v. Secretary of Finance, G.R. No. 115544, 25 August 1994, 235 SCRA 630; previously considered by this Court in the same case, then I am not
Philippine Judges Association v. Prado, G.R. No. 105371, 11 November 1993, 227 SCRA 703. compelled to depart from the conclusions made therein.
7 G.R. No. 127255, 14 August 1997, 277 SCRA 268, 299. The majority opinion has already thoroughly discussed each of
the substantial issues raised by the petitioners. I would just wish to
318
discuss additional matters pertaining to the petition of the
petroleum dealers in G.R. No. 168461.
318 SUPREME COURT REPORTS ANNOTATED They claim that the provision of Rep. Act No. 9337 limiting their
Abakada Guro Party List vs. Ermita input VAT credit to only 70% of their output VAT deprives them of
their property without due process of law. They argue further that
power and would itself be guilty of grave abuse of its discretion were it to such 70% cap violates the equal protection and uniformity of
do so. . . . taxation clauses under Article III, Section 1, and Article VI, Section
28(1), respectively, of the Constitution, because it will unduly
Present jurisprudence allows the Bicameral Conference Committee prejudice taxpayers who have high input VAT and who, because of
to amend, add, and delete provisions of the Bill under consideration, the cap, cannot fully utilize their input VAT as credit.
even in the absence of conflict thereon between the Senate and I cannot sustain the petroleum dealers’ position for the following
House versions, but only so far as said provisions are germane to reasons –
8
the purpose of the Bill. Now, there is a question as to whether the

First, I adhere to the view that the input VAT is not a property to 321
which the taxpayer has vested rights. Input VAT consists of the
VAT a VAT-registered person had paid on his purchases or
VOL. 469, SEPTEMBER 1, 2005 321
importation of goods, properties, and services from a VAT-
registered supplier; more simply, it is VAT paid. It is not, as Abakada Guro Party List vs. Ermita
averred by petitioner petroleum dealers, a 10property that the
taxpayer acquired for valuable consideration. A VAT-registered Congress of its law-making power. To say that Congress may not
person incurs input VAT because he complied trifle with Section 110 of the National Internal Revenue Code of
1997 would be to violate11a basic precept of constitutional law—that
_______________ no law is irrepealable. There can be no vested right to the
continued
12
existence of a statute, which precludes its change or
9 Supra, note 3. repeal.
10 Petition for Prohibition (Under Rule 65 with Prayer for the Issuance of a It bears to emphasize that Rep. Act No. 9337 does not totally
Temporary Restraining Order and/or Writ of Preliminary Injunction) in G.R. No. remove the privilege of crediting the input VAT against the output
168461 entitled, Association of Pilipinas Shell Dealers, Inc., et al. v. Purisima, et al., VAT. It merely limits the amount of input VAT one may credit
p. 17, paragraph 52. against his output VAT per quarter to an amount equivalent to 70%
320
of the output VAT. What is more, any input VAT 13
in excess of the
70% cap may be carried-over to the next quarter. It is certainly a
departure from the VAT crediting system under Section 110 of the
320 SUPREME COURT REPORTS ANNOTATED National Internal Revenue Code of 1997, but it is an innovation
Abakada Guro Party List vs. Ermita that Congress may very well introduce, because—
VAT will continue to evolve from its pioneering original structure.

with the National Internal Revenue Code of 1997, which imposed Dynamically, it will be subjected to reforms that will make it conform to
the VAT and made the payment thereof mandatory; and not many factors, among which are: the changing requirements of government
because he paid for it or purchased it for a price. revenue; the social, economic and political vicissitudes of the times; and the
Generally, when one pays taxes to the government, he cannot conflicting interests in our society. In the course of its evolution, it will be
expect any direct and concrete benefit to himself for such payment. injected with some oddities and inevitably transformed into a structure
14
The benefit of payment of taxes shall redound to the society as a which its revisionists believe will be an improvement overtime.
whole. However, by virtue of Section 110(A) of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act No. _______________
9337, a VAT-registered person is allowed, subject to certain
substantiation requirements, to credit his input VAT against his 11 Asociacion de Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co.,
output VAT. Inc., G.R. No. L-19937, 19 February 1979, 88 SCRA 294; Duarte v. Dade, 32 Phil. 36
Output VAT is the VAT imposed by the VAT-registered person (1915).
on his own sales of goods, properties, and services or the VAT he 12 Traux v. Corrigan, 257 U.S. 312, 66 L. Ed. 254, as quoted in Asociacion de
passes on to his buyers. Hence, the VAT-registered person selling Agricultores de Talisay-Silay, Inc. v. Talisay-Silay Milling Co., Inc., Id., p. 452.
the goods, properties, and services does not pay for the output VAT; 13 Section 110(B) of the National Internal Revenue Code of 1997, as amended by
said output VAT is paid for by his consumers and he only collects Section 8 of Rep. Act No. 9337.
and remits the same to the government. 14 VICTORIO A. DEOFERIO, JR. AND VICTORINO C. MAMALATEO, THE
The crediting of the input VAT against the output VAT is a VALUE ADDED TAX IN THE PHILIPPINES 48 (2000).
statutory privilege, granted by Section 110 of the National Internal
Revenue Code of 1997. It gives the VAT-registered person the 322
opportunity to recover the input VAT he had paid, so that, in effect,
the input VAT does not constitute an additional cost for him. While 322 SUPREME COURT REPORTS ANNOTATED
it is true that input VAT credits are reported as assets in a VAT-
registered person’s financial statements and books of account, this Abakada Guro Party List vs. Ermita
accounting treatment is still based on the statutory provision
recognizing the input VAT as a credit. Without Section 110 of the Second, assuming for the sake of argument, that the input VAT
National Internal Revenue Code of 1997, then the accounting credit is indeed a property, the petroleum dealers’ right thereto has
treatment of any input VAT will also change and may no longer be not vested. A right is deemed vested and subject to constitutional
booked outright as an asset. Since the privilege of an input VAT protection when—
credit is granted by law, then an amendment of such law may limit
“. . . [T]he right to enjoyment, present or prospective, has become the
the exercise of or may totally withdraw the privilege.
property of some particular person or persons as a present interest. The
The amendment of Section 110 of the National Internal Revenue
right must be absolute, complete, and unconditional, independent of a
Code of 1997 by Rep. Act No. 9337, which imposed the 70% cap on
contingency, and a mere expectancy of future benefit, or a contingent
input VAT credits, is a legitimate exercise by
interest in property founded on anticipated continuance of existing laws,
does not constitute a vested right. So, inchoate rights which have not been
15
On the other, I find that the 70% cap on input VAT credits was
acted on are not vested.” (16 C. J. S. 214-215) not imposed by Congress arbitrarily. Members of the Bicameral
Conference Committee settled on the said percentage so as to
Under the National Internal Revenue Code of 1997, before it was ensure that the government can collect a minimum of 30% output
amended by Rep. Act No. 9337, the sale or importation of petroleum VAT per taxpayer. This is to put a VAT-taxpayer, at least, on equal
products
16
were exempt from VAT, and instead, were subject to excise footing with a VAT-exempt taxpayer under Section 109(V) of the
tax. Petroleum dealers did not impose any output VAT on their National Internal Revenue
sales to consumers. Since they had no output VAT against which
they could credit their input VAT, they shouldered the costs of the 324
input VAT that they paid on their purchases of goods, properties,
and services. Their sales not being subject to VAT, the petroleum 324 SUPREME COURT REPORTS ANNOTATED
dealers had no input VAT credits to speak of.
It is only under Rep. Act No. 9337 that the sales by the Abakada Guro Party List vs. Ermita
petroleum dealers have become subject to VAT and only in its 17
implementation may they use their input VAT as credit against Code, as amended by Rep. Act No. 9337. The latter taxpayer is
their output VAT. While eager to use their input VAT credit exempt from VAT on the basis that his sale or lease of goods or
accorded to it by Rep. Act No. 9337, the petroleum dealers reject the properties or services do not exceed P1,500,000; instead, he is
limitation imposed by the very same law on such use. subject to pay
18
a three percent (3%) tax on his gross receipts in lieu
It should be remembered that prior to Rep. Act No. 9337, the of the VAT. If a taxpayer with presumably a smaller business is
petroleum dealers’ input VAT credits were inexistent— required to pay three percent (3%) gross receipts tax, a type of tax
which does not even allow for any crediting, a VAT-taxpayer with a
_______________ bigger business should be obligated, likewise, to pay a minimum of
30% output VAT (which should be equivalent to 3% of the gross
15 Benguet Consolidated Mining Co. v. Pineda, 98 Phil. 711, 722 (1956). selling price per good or property or service sold). The cap assures
16 Section 109(e) of the National Internal Revenue Code of 1997. the government a collection of at least 30% output VAT,
contributing to an improved cash flow for the government.
323
Attention is further called to the fact that the output VAT is the
VAT imposed on the sales by a VAT-taxpayer; it is paid by the
VOL. 469, SEPTEMBER 1, 2005 323 purchasers of the goods, properties, and services, and merely
collected through the VAT-registered seller. The latter, therefore,
serves as a collecting agent for the government. The VAT-registered
seller is merely being required to remit to the government a
they were unrecognized and disallowed by law. The petroleum minimum of 30% of his output VAT collection.
dealers had no such property called input VAT credits. It is only Fourth, I give no weight to the figures and computations
rational, therefore, that they cannot acquire vested rights to the use presented before this Court by the petroleum dealers, particularly
of such input VAT credits when they were never entitled to such the supposed quarterly profit and loss statement of a “typical
credits in the first place, at least, not until Rep. Act No. 9337. dealer.” How these data represent the financial status of a typical
My view, at this point, when Rep. Act No. 9337 has not yet even dealer, I would not know when there was no effort to explain the
been implemented, is that petroleum dealers’ right to use their manner by which they were surveyed, collated, and averaged out.
input VAT as credit against their output VAT unlimitedly has not Without establishing their source therefor, the figures and
vested, being a mere expectancy of a future benefit and being computations presented by the petroleum dealers are merely self-
contingent on the continuance of Section 110 of the National serving and unsubstantiated, deserving scant consideration by this
Internal Revenue Code of 1997, prior to its amendment by Rep. Act Court. Even assuming that these figures truly represent the
No. 9337. financial standing of petro-
Third, although the petroleum dealers presented figures and
computations to support their contention that the cap shall lead to
_______________
the demise of their businesses, I remain unconvinced.
Rep. Act No. 9337, while imposing the 70% cap on input VAT 17 TSN, 18 April 2005, IV-2, p. 5.
credits, allows the taxpayer to carry-over to the succeeding quarters 18 Section 116 of the National Internal Revenue Code, as amended by Rep. Act No.
any excess input VAT. The petroleum dealers presented a situation 9337.
wherein their input VAT would always exceed 70% of their output
VAT, and thus, their excess input VAT will be perennially carried- 325
over and would remain unutilized. Even though they consistently
questioned the 70% cap on their input VAT credits, the petroleum VOL. 469, SEPTEMBER 1, 2005 325
dealers failed to establish what is the average ratio of their input
VAT vis-à-vis their output VAT per quarter. Without such fact, I Abakada Guro Party List vs. Ermita
consider their objection to the 70% cap arbitrary because there is no
basis therefor.
leum dealers, the introduction and application thereto of the VAT as laws do not violate any Constitutional provision, the Courts merely
factor, which forebode the collapse of said petroleum dealers’ interpret and apply them regardless of whether or not they are wise or
businesses, would be nothing more than an anticipated damage—an salutary.’ For they, according to Justice Labrador, ‘are not supposed to
injury that may or may not happen. To resolve their petition on this override legitimate policy and * * * never inquire into the wisdom of the
basis would be premature and contrary to the established tenet of law.’ It is thus settled, to paraphrase Chief Justice Concepcion in Gonzales
ripeness of a cause of action before this Court could validly exercise v. Commission on Elections, that only congressional power or competence,
its power of judicial review. not the wisdom of the action taken, may be the basis for declaring a statute
Fifth, in response to the contention of the petroleum dealers invalid. This is as it ought to be. The principle of separation of powers has
during oral arguments before this Court that they cannot pass on to in the main wisely allocated the respective authority of each department
the consumers the VAT burden and increase the prices of their and confined its jurisdiction to such sphere. There would then be intrusion
goods, it is worthy
19
to quote below this Court’s ruling in Churchill v. not allowable under the Constitution if on a matter left to the discretion of
21
Concepcion, to wit— a coordinate branch, the judiciary would substitute its own . . .”
“It will thus be seen that the contention that the rates charged for To reiterate, we cannot substitute our discretion for Congress, and
advertising cannot be raised is purely hypothetical, based entirely upon the even though there are provisions in Rep. Act No. 9337 which we
opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs may believe as unwise or iniquitous, but not unconstitutional, we
themselves admit that a number of other persons have voluntarily and cannot strike them off by invoking our power of judicial review. In
without protest paid the tax herein complained of. Under these such a situation, the recourse of the people is not judicial, but
circumstances, can it be held as a matter of fact that the tax is confiscatory rather political. If they severely doubt the wisdom of the present
or that, as a matter of law, the tax is unconstitutional? Is the exercise of the Congress for passing a statute such as Rep. Act No. 9337, then they
taxing power of the Legislature dependent upon and restricted by the have the power to
opinion of two interested witnesses? There can be but one answer to these
questions, especially in view of the fact that others are paying the tax and _______________
presumably making reasonable profit from their business.”
20 G.R. No. L-49112, 02 February 1979, 88 SCRA 195.
As a final observation, I perceive that what truly underlies the 21 Id., pp. 210-211.
opposition to Rep. Act No. 9337 is not the question of its
constitutionality, but rather the wisdom of its enactment. Would it 327
truly raise national revenue and benefit the entire country, or
would it only increase the burden of the Filipino people? Would it VOL. 469, SEPTEMBER 1, 2005 327
contribute to a revival of our economy or only contribute to the
difficulties and eventual closure of businesses? These are issues Abakada Guro Party List vs. Ermita
that we cannot resolve as the
hold the members of said Congress accountable by using their
_______________ voting power in the next elections.
In view of the foregoing, I vote for the denial of the present
19 34 Phil. 969, 973 (1916). petitions and the upholding of the constitutionality of Rep. Act No.
9337 in its entirety.
326
Petitions in G.R. Nos. 168056, 168207, 168461, 168463 and
168730 are dismissed.
Notes.—The VAT law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn had been
20
that granted to the press. (Tolentino vs. Secretary of Finance, 235
Supreme Court. As this Court explained in Agustin v. Edu, to wit SCRA 630 [1994])
— The computation of the output VAT of the seller should be based
on the selling price appearing on its own VAT invoice, not on the
“It does appear clearly that petitioner’s objection to this Letter of
selling price appearing on that of the customer. (Atlas Consolidated
Instruction is not premised on lack of power, the justification for a finding
Mining & Development Corporation vs. Commissioner of Internal
of unconstitutionality, but on the pessimistic, not to say negative, view he
Revenue, 318 SCRA 386 [1999])
entertains as to its wisdom. That approach, it put it at its mildest, is
Under the value-added tax system, a zero-rated sale by a VAT-
distinguished, if that is the appropriate word, by its unorthodoxy. It bears
registered person, which is a taxable transaction for VAT purposes,
repeating “that this Court, in the language of Justice Laurel, ‘does not pass
shall not result in any output tax, but the input tax on his purchase
upon questions of wisdom, justice or expediency of legislation.’ As expressed
of goods, properties or services related to such zero-rated sale shall
by Justice Tuason: ‘It is not the province of the courts to supervise
be available as tax credit or refund. (Commissioner of Internal
legislation and keep it within the bounds of propriety and common sense.
Revenue vs. Cebu Toyo Corporation, 451 SCRA 447 [2005])
That is primarily and exclusively a legislative concern.’ There can be no
possible objection then to the observation of Justice Montemayor: ‘As long ——o0o——
11/18/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 469
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doing business under the name and style of “NEW LAMUAN

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

* EN BANC. FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO,

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practice of giving said conference committee ample latitude for

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22 Same; Same; Exception to the Non-Delegation of Legislative Powers;

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to others to perform. Intelligent legislation on the complicated problems of

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Same; Bicameral Conference Committee; I respectfully submit that the

Congress; Bicameral Conference Committee; Judicial Review; If in the exercise of

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Congress; Taxation; Separation of Powers; Delegation of Powers; Taxation is a

payments are the sellers of petroleum products and electricity/power generation

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distribution sectors typically amount to less than 1% of the gross revenues. A

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Thereafter, a petition for prohibition was filed on June 29, 2005, by

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

Petitioners contend that these provisions are unconstitutional for

Whether R.A. No. 9337 violates the following provisions of the

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a. Article VI, Section 28(1), and 92 SUPREME COURT REPORTS ANNOTATED

tionalized by imposing a multi-stage 15

VOL. 469, SEPTEMBER 1, 2005 91 I.

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1. With regard to the disagreement on the rate of VAT to be

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288 Disposition of Incremental Revenue

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In every case of permissible delegation, there must be a showing _______________

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126 1. VAT/GDP Ratio > 2.8%

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134 The foregoing section imposes a 60-month period within which to

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Quisumbing, J., In the result. 148

DAVIDE, JR., C.J.:

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164 Sec. 108. Value-added Tax on Sale of Goods or Properties.—

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Precedence of Mandatory 175

unlike that in our country and, therefore,

Adopting the House 178 SUPREME COURT REPORTS ANNOTATED

Adopting the Senate _______________

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